Cure for financial illiteracy? Teach them when they're young

Advisers can help clients fight this plague at home

Feb 13, 2019 @ 11:00 am

By Ric Edelman

Got any clients who lack financial literacy?

It's a silly question, of course; every financial adviser does. Financial illiteracy is a plague that has infected the majority of Americans. Every survey on the subject has revealed that most consumers can't answer even the most basic questions about credit and debt, or saving and investing. Don't even attempt to ask about amortization and depreciation!

As financial advisers, we all know the ruinous impact of financial illiteracy. The average 401(k) balance is under $96,000, according to Fidelity, and almost 60% of working-age Americans have no retirement savings at all, according to the National Institute on Retirement Savings. That's not even the worst of it.

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The Federal Reserve says 40% of Americans don't even have the cash to pay an unexpected bill of $400, and the recent government shutdown revealed that 78% of employees are living paycheck-to-paycheck.

There can be no doubt: Americans are unprepared for retirement, and with 10,000 workers reaching age 65 every day, our nation is facing a retirement security crisis of unprecedented magnitude.

Yet, Americans can't improve their personal finances until they know how to do so. Thus, the real question is: How do we cure Americans of their financial illiteracy?

The answer is simple: Teach 'em when they're young.

As obvious as this idea is, few children are getting the education they need. Only 25 states require that high school students take a personal finance class, according to the National Endowment for Financial Education, and most employers provide little to no financial education in the workplace.

Parents are first up

Therefore, financial education has to start at home — and long before kids enter high school. Indeed, studies show that children make their first assisted purchases at age 3 (choosing the cereal box in grocery stores is the most common initial purchase), and allowances — that provide opportunities for discretionary spending — often start at age 6.

So parents need to be the ones to begin providing the financial education kids need in order to be money-savvy adults.

They know it, too. Parents today talk to their kids about everything — religion, politics, sex, drugs, you name it. But money is often still not discussed. It's not because parents are afraid of the subject. Rather, they don't know what to say.

That's what we discovered when we surveyed parents recently. Nearly nine in 10 parents of 4- to 8-year-old children feel it is extremely important that their kids grow up with good financial habits, and 91% of parents agree they should be the ones teaching their children these habits.

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But virtually half of parents said they don't know how to discuss money in ways they think their kids would understand. As a result, one in four parents never or almost never talk to their kids about household finances.

Role for advisers

As financial advisers, we are ideally suited to helping solve this national crisis. We are experts on the subject and highly skilled at explaining complex financial concepts in plain English. Our clients have children and grandchildren eager to learn.

So, it's time we started teaching.

We need to accept the challenge of helping future generations become better prepared. At Edelman Financial Engines, we've been providing financial education for decades, and a lot of it is aimed at children.

Our "Personal Finance is FUN!" seminar is aimed at 10- to 15-year-olds, and in November we launched our first children's book, "The Squirrel Manifesto," for 4- to 8 year-olds. The book debuted in November on top of Amazon's list of children's money books when it was published, demonstrating that parents are eager for this type of content.

I encourage you to focus on financial literacy — for both your clients and their kids and grandkids. You'll not only be helping them, you'll be helping our nation — and you'll generate substantial amounts of goodwill for your practice at the same time.

Ric Edelman is founder of Edelman Financial Engines.


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