It’s hard to believe that the holidays are already over! Now is the time to focus on the year ahead! While gift-giving season may be over, it’s never too late to give your loved ones (or yourself) the wonderful gift of financial literacy.
Millennials and Generation X will inherit vast amounts of assets over the next 25 years as baby boomers reach the end of their life cycle. Interestingly, those transferring the reported $68 trillion worry whether their recipients will know what to do with that wealth.
This concern exists among wealthy people as well as people who have simply accumulated more than they need in their lifetime and who will “bequeath” to their children. And the concern is no less if the heirs have a higher education or have taken a finance course at the university.
The hope is that whatever is passed on will land in financially savvy hands. Yet if you look at the state of financial literacy in America, there are no guarantees.
What’s the truth about financial literacy in America?
A recent study titled “2021 TIAA Institute-GFLEC Personal Finance Index” examines the state of financial literacy in the United States. Participants from the Silent Generation (in their 80s) to Gen Z (now in their 20s) answered 28 questions covering eight specific areas of activity that are common to us all. Here’s how Americans scored in these areas:
Functional knowledge in American adults:
Sources of information to consult: 48%
Understand the risk: 37%
Source: TIAA Institute-GFLEC Personal Finance Index (2021).
What makes these areas so important?
· Borrowing/Managing Debt reviews loan features and repayments.
· Saving affects maximizing the amount you accumulate.
· Consuming involves budgets and how you manage your spending.
· Earn agreements with your salary and net salary.
· The sources of information to consult determine whether you recognize the appropriate sources and advice.
· Investing involves understanding the different types of investment, their risk and their return.
· Insurance concerns the operation of all kinds of insurance.
· Understanding risk means understanding uncertain financial outcomes.
Financial literacy is not just a theory. Your performance in each area adds up to your level of overall personal finance knowledge. And, in turn, this knowledge translates into your chances of achieving financial well-being.
Difficulties resulting from a lack of financial knowledge can quickly snowball. Let’s say you’re having trouble closing your month. For this reason, you don’t have an emergency fund to cover unforeseen events or setbacks. You get into debt and the payments make it difficult to achieve other financial priorities. You lose sleep and worry, distracting you from earning more and getting out of the closed loop.
How, when and where can financial literacy be taught?
The value of financial literacy becomes evident once you leave home to enter the workforce and face unexpected events that require financial decisions. If you don’t feel financially prepared, how did you get there and how can it be fixed?
Children and adolescents learn at home. Children absorb and adopt what they see, not necessarily what they are told. This is how parents pass on their good and bad financial habits to their children. The best thing you can do is to build your own level of knowledge, if necessary, and model your financial choices transparently to them. Make money an available topic for discussion. Share not only your day-to-day decisions, but also your personal financial story, including your successes and failures. In short, to make the money understandable and real.
Unfortunately, in many families, money is a taboo subject. “We don’t discuss money. And this taboo exists as a barrier to financial education across the spectrum, from rich to poor. Another barrier is if the parents are not comfortable with their knowledge of the subject, whether they have not been taught or paid attention.
So what can parents do if they don’t have financial literacy but want something different for their kids? They can proactively search for support resources.
For example, for children aged 6-12, look at apps such as RoosterMoney [https://roostermoney.com/ ]Bankaroo [https://www.bankaroo.com/ ] and iAllocation [http://www.jumpgapsoftware.com/allowance/index.html]. And the Consumer Financial Protection Bureau has a series of stories called Money Monsters. [https://www.consumerfinance.gov/consumer-tools/educator-tools/youth-financial-education/teach/money-monsters/ ].
For teens, consider apps like FamZoo [https://famzoo.com/ ]MoneyThink Mobile [https://www.ideo.org/project/moneythink-mobile ] and others.
Plus, a search for “financial literacy for kids” or “financial literacy for teens” will turn up countless affordable alternatives.
Children and adolescents learn at school. So what about schools? Wouldn’t it make sense to integrate financial education into other subjects throughout school, so they learn about money in context? And shouldn’t high school kids graduate with knowledge of how money works before they leave home? Well, apparently that’s not considered high enough priority.
Countless government agencies spend time and money developing educational strategies and programs. And major nonprofits are touting their success in providing tools and resources for teachers and students.
Yet less than half of our states require high school students to take a personal finance course. Most programs lack adequate funding and many teachers feel unprepared to teach the subject. The system fails its students on an essential life skill: money management.
Adults can learn anywhere. If you have reached adulthood without having learned personal finance, countless resources are available to accelerate you on your way. And these are available for people of all ages and circumstances.
The key is to have the desire and the perseverance, because the variety of resources adapts to whatever you like to learn. Here are some starting points:
· Books, many of which are bestsellers by well-known authors.
Magazines (whether online or offline) such as Kiplinger [https://www.kiplinger.com/ ] and money [https://money.com/ ].
Bloggers such as WalletHacks [https://wallethacks.com/ ] and GetRichSlowly [https://www.getrichslowly.org/ ].
Websites such as TheBalance [https://www.thebalance.com/ ] and Investopedia [https://www.investopedia.com ].
· Podcasts such as “How to make money” [https://www.howtomoney.com/ ] and “Money Confidential” by Real Simple [https://www.realsimple.com/money/money-confidential-podcast ].
· Financial literacy courses, whether at an online school, local college, or adult education center.
Financial institutions and corporations have also entered the education space. Banks benefit from better informed customers, and customers are more loyal if their bank enriches their knowledge. And companies benefit from more focused, less distracted employees when financial education is part of their benefits.
So look to your bank and employer when looking for resources for financial literacy.
So many of the money problems Americans face could be avoided if financial literacy was taught effectively at home or in schools. It can create good financial habits early in life and support sound financial decisions throughout life. But, on the other hand, poor financial decisions can contribute to a lifetime of financial struggles.
Financial literacy is one of the greatest gifts you can give your children, whether you received the gift or not. But you can’t rely on schools to teach literacy, so if you don’t feel confident enough to teach it yourself, find a resource that can do it for you.
You have the power to give the next generation a great gift: the tools to make wise financial choices from early adulthood through retirement. So don’t let anything stand in your way.
Bill Harris is a Retirement Advisor, Certified Financial Planner, Ed Slott Master Elite Advisor, and the author of “Inheriting Your Spouse’s IRA.” He is President of WH Cornerstone Investments, a Kingston-based financial advisory firm. Learn more at https://whcornerstone.com/.