Ensuring Your Children Are Financially Intelligent

According to a survey commissioned by the American Psychological Association, money is the number one cause of stress for Americans. Data from a 2006 retirement confidence survey by the Employee Benefits Research Institute indicated that your savings could make up as much as 66% of your retirement income, yet the reality is that financial illiteracy is widespread in the US. I was reminded of this when a client pointed out a Morningstar article entitled Improving Our Financial IQs: Why Managing Money Should Be a Lifetime Skill. In it, Knowledge@Wharton, an online publication for the University of Pennsylvania’s Wharton School, interviewed Annamaria Lusardi and Michelle Greene. Annamaria Lusardi is an economics professor at Dartmouth and Michelle Greene is the deputy assistant secretary for education and financial access at the U.S. Treasury Department. Here are some of their disturbing comments:

(Ludsardi): According to a new financial capability survey,.. financial illiteracy is widespread.. a lot of Americans don’t know the basic concepts of economics and finance, etc. (Greene) There is widespread need for better financial education, and some of it is on very fundamental basic concepts–the idea of compound interest and that, if you borrow money, you will pay back more [than the amount of the loan]; if you save money, you will get back more. Just having an understanding of those concepts can really change behavior. So making sure that people grasp those key [ideas] and understand how their behavior influences their financial futures is what we would like to focus on. What can we do? (Greene) I think part of the answer also has to be starting young. We need to get this into our schools. Students are getting credit card offers before they are old enough to drive or vote. We must make sure that they have the knowledge that they need to protect their financial futures and make good decisions from a very young age. How Young? (Greene) I would say that you have to start younger than high school.

Daddy’s Girl Will NOT Be Financially Illiterate!

Also alarming to this proud father of a 6 month old daughter is that according to Lusardi, women and girls are more ignorant than men and boys in every survey [they] have looked at.

So how can we make sure that their children or grandchildren are not ignorant about money?

It starts at home. As parents and grand parents, we need to lead by example. We set the tone by making conscious decisions to delay gratification for future benefits and live within our means. Our kids and grand kids will see and should participate in making good financial decisions that will plant the seeds of financial growth in their young minds early on. The challenge is that according to Greene and Lusardi, many of these parents don’t know how to lead by example. As investors, we probably all know someone who has no idea of how to manage their finances. I would suggest to you, the same thing my dad did for me:  share with them something (about personal finances) that you’ve enjoyed.

In 2000, my dad and I listened to the audio book The Millionaire Next Door. This book peaked my curiosity about why some people have money, while others did not. From there I set a goal to be debt free (except my mortgage) and live below my means every year. So far, it’s worked.

As we head into Father’s Day weekend, share with someone a nugget of personal finance that you are excited about. If you are having trouble thinking of some, I’ve listed a few below:

About the author

Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.

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