Friday, September 23, 2016

How Financially Literate Are Your Clients’ Kids?

This recent piece in USA Today got me thinking, What Schools Teach Kids About Money Is Scary. I know many of you won’t admit to reading USA Today unless you’re stuck in a long airport delay. But a LOT of people DO read this paper and it tends to have a good finger on the pulse of the American public.

Guest author, Peter Dunn, suggests a hypothetical 13-week money skills course for teens and pre-teens. Perhaps it’s too basic for many of your clients—but not too basic for their kids and grandkids. And if your clients review Dunn’s tips, they might pick up a refresher or two for themselves.

Week 1 is very important because Dunn stresses the importance of one key point: “Your financial life is not about money; it’s about behavior.
Our client Gary Klaben frequently reminds followers of his blog that “Saving First, Spending Second” is the most valuable money habit you can have.

Dunn also stresses the importance of budgeting and goal-setting in the early weeks of the course—how to manage debt and how to watch out for all the little nickel-and-dime luxuries we pay for that can blow a big hole in our budgets. Around week 7, Dunn would introduce the power (or danger) of compound interest. I would personally introduce compound interest earlier in the course since compounding is your friend as a saver/investor but your bitter enemy as a debtor. Also, most middle- and high-schoolers can do the basic compounding math ( I have one of each).

Our own blog and website has more.

In Weeks 8-10, Dunn would devote a fair amount of time to student loans. That might be too much, other than helping them kids understand that you want to avoid student loans as much as possible. If for no other reason than you don’t want to take on debts on bad terms that can stalk you throughout your adult life. I don’t think students younger than high school juniors and seniors can grasp this concept until they may have to face the reality of NOT being able to attend their first, second or third choice of colleges for financial reasons—not because they didn’t have the grades or extracurriculars. We do give Dunn kudos for this point however:  
Saving for a purchase almost always makes more sense than borrowing, especially on lower-price items.”

Finally, the topic of insurance. Life insurance is a tough concept for kids, teens and young adults to wrap their heads around. They think they’re invincible, so why pay a lot of money for something they’ll never need? However, we do like Dunn’s suggestion of teaching kids about insuring their material possessions because at that age, loss of a mobile device, ear phones or even a car can appear to be a life shattering event.
For more good resources to share with kids and grandkids of clients, we recommend Gary Klaben’s Grown Up Money blog and The Financial Awareness Foundation website founded by our good friend Valentino Sabuco, CFP®, AEP®.


Even if kids, teens and young adults in your lives know how much their parents make or what their house is worth, you can’t expect them to know how little of that wealth can be utilized as spendable cash—my dad makes $100K, why can’t he buy a $100K used Ferrari? But, you can teach them about the value of delayed gratification by working and/or saving for the things they really want. When a price tag is expressed in terms of hours bussing tables or how many lawns need to be mowed, then we assure you, financial literacy will kick in—fast!

And remember, the 3rd week of October is
National Estate Planning Awareness Week, courtesy of Val Sabuco. And if for pre-teen kids in your life, consider giving them a Savvy Piggy Bank which has separate compartments for Saving, Spending, Donating and Investing.


TAGS: teaching kids financial literacy, Peter Dunn, Gary Klaben, Valentino Sabuco

No comments: