Hardly a day goes by when there isn’t some dire economic news out of Washington: worries about the debt ceiling worries and the budget deficit; the solvency of Medicare and Social Security, the lack of jobs growth and continuing struggles of the economy. Recently, there was another kind of announcement—the opening of the new Consumer Financial Protection Bureau, created by the Dodd-Frank financial overhaul law.
This brand new agency is supposed to help protect consumers from unscrupulous financial practices, like the exploding mortgages that contributed to the ongoing foreclosure crisis. While the goal of consumer protection agencies and laws may be laudable, the regulatory approach fails to address a fundamental problem: In a society that depends so much on smart and successful consumers, we spend virtually no time or resources teaching fiscal literacy for consumers of any age, from kids to seniors. Financial literacy, as Mark Twain might have said, is a little like the weather: Everybody talks about it, but nobody does anything about it.
High school seniors routinely score less than 50 percent on a personal finance exam given by the JumpStart Coalition for Personal Financial Literacy. Adults 50 and older don’t do much better. On one test of three basic questions about savings, interest rates and investing risk, just one-third of those surveyed got all three questions right—not a good sign for future retirees.
This is not acceptable—and we’ve decided to do something about it.
We know there are already financial literacy programs circulating around the country, from government agencies like the Federal Deposit Insurance Corporation to organizations such as the National Endowment for Financial Education and the National Council of Economic Education. But we need an approach that puts more “financial boots on the ground”—and involves multiple generations of each family.
So we’ve developed an interactive program called “Fiscal Literacy for Kids and their Families,” designed to provide children—together with their parents and grandparents—an overview of the basic, practical skills needed to assure a family’s healthy financial future. Here are some of the basic financial areas we believe are important to every family:
- Talking about money and values. How do we create financial strategies and goals, understanding the difference between “wants” and “needs” at different stages of life?
- Setting up budgets, paying bills and banking online. What are the essential skills we need to manage our money day-to-day, and make key adjustments as economic circumstances change?
- Understanding how credit cards work. How can we decipher the maze of fees, manage our debt effectively, maximize creditworthiness or rebuild poor credit?
- Learning about basic saving and investment strategies. How do financial markets determine the prices of stocks, bonds and interest rates? Understanding the importance of starting to save when you’re young even when you don’t think you can; how to think about long-term plans, like home ownership.
- Understanding the concept of risk. How decisions about saving and investing relate to risk diversification and insurance.
- Avoiding consumer scams and other financial pitfalls. What are the rights and responsibilities of consumers and institutions?
Programs that teach fiscal literacy to kids and their families can be tailored to meet the needs of various audiences, whether they’re high school or college students, members of religious organizations, community or civic groups. But the essential theme is the same. If we’re going to be effective in teaching these skills, we need to connect kids with their parents and grandparents, promoting communication, education and practical knowledge about a subject many families have a lot of difficulty talking about—money.
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Not only should parents and grandparents have an opportunity to learn from mistakes they’ve made—perhaps giving their kids more than they should have—but children and grandchildren need an environment to learn useful fiscal information that will improve their future lives. In particular, teenagers who are going off to college need to feel empowered financially to prevent them from being taken advantage of when besieged with offers by credit card companies or banks.
While the Consumer Credit Protection Act (passed two years ago by Congress) was designed to stop some of the flagrant abuses, there are still too many ways that a young, inexperienced person can be exploited. Students away from home for the first time must learn how to manage their credit and debit cards to avoid the hidden costs, fees, and penalties that produce billions of dollars annually for companies at the expense of inexperienced customers.
Students also need to understand topics such as balancing a checking account and managing a savings account. And finally, kids must learn the importance of living within their means—or learn the consequences of not being able to get out of debt, suffering the embarrassment of having to go to their parents for money to avoid additional hardships and a negative credit history.
At the other end of the generational spectrum, many parents spend more time planning a one-week vacation than they do planning their own retirement. Most older adults today can’t afford to retire, and they’ll be the first to tell you so. While almost everyone understands the potential effects of Attention Deficit Disorder (A.D.D.), most don’t understand the severity of what we call Planning Deficit Disorder (P.D.D.) and the adverse economic impact it can have on an individual and their families. Ultimately, parents should not be allowed to “sign off” on their kids until they’ve empowered them with financial skills to make their way successfully into adulthood.
Assuring fiscal literacy for families is one means of breaking a cycle of financial problems that many parents inadvertently pass down to their kids. Our goal is to create that environment where parents and grandparents can exchange information with younger generations over a period of evenings or weeks, using our guidance and their personal experiences, both, good and bad, to sustain that conversation. As our nation currently faces its own financial crises—coming to terms with the consequences of uncontrolled spending and borrowing—this is the perfect opportunity to have our young adults understand the importance of fiscal literacy as it affects their lives.
Henry Montag, partner of Financial Forums Inc., is an Independent Certified Financial Planner as well as a Certified Long Term Care specialist. He’s been in practice since 1976 with offices in New York. He has held insurance and securities licenses for over 32 years.
Ronald E. Roel, partner of Financial Forums Inc., is a veteran writer and editor who specializes in aging, financial/retirement planning and real estate issues. Visit the Financial Forums Website