Knowledge is power, as the saying goes, and this is especially true when it comes to personal finance. At a time when many Americans are saddled with debt and struggling to pay their bills, financial literacy in the United States continues to decline.
A recent Bankrate survey found that only 44% of Americans had enough savings to cover an unexpected expense of $1,000, an eight-year high. Bankrate also reported that 49% of Americans save less for unexpected expenses due to inflation. Additionally, according to the 2021 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), 22% of American adults are unable to pay their bills in full on time in an average month.
A lack of financial education among young people often leads to difficulties in making sound financial decisions in adulthood. But there is hope. Children and teens who receive financial education in school grow up adopting healthy spending and saving habits that can lead to higher credit scores. For example, financial education was made mandatory in schools in Georgia, Idaho, and Texas beginning in 2000. According to a FINRA Investor Education Foundation study, cited by the National Financial Educators Council, students who participated in the third year of implementation of these programs saw their credit scores increase by 10.89% in Georgia, 16.19% in Idaho and 31.71% in Texas.
It’s never too early to start teaching children financial concepts and values related to money. Efforts by various state governments to embed financial literacy education in schools can certainly help alleviate the financial literacy gap. In the private sector, financial advisors are uniquely positioned to take the lead in building financial understanding for children and teens (and their parents).
Here are five tips for financial advisors to begin providing this vital education:
1. Offer to meet the clients’ children: Conversations about money are some of the hardest for families to have. Advisors can help clients and their children feel more comfortable discussing financial matters, and also encourage these children to develop healthy financial habits from an early age. During initial meetings with clients, advisors should learn about their children and find out their current understanding of money and finances.
As an additional service, counselors may also offer to meet with these children in person or virtually. This gives them the opportunity to discuss age-appropriate financial topics with them, including saving, budgeting, investing, and personal debt. For younger children, topics related to income and savings can be taught and modeled by creating a savings account for their allowance. For middle or high school students, counselors and parents should discuss saving and spending and introduce them to investing. They can do this by talking with students about saving and investing for college, or how they can use earnings from a job to save for a big purchase later.
Advisors can also help parents teach children and teens the basics of investing and take the lessons to the next level through the creation of a custodial account.
2. Create a financial plan and budget for clients’ children: Counselors may offer to prepare a free financial or goals plan, or budget, tailored to meet future big purchases or goals for a specific child. Such a plan could show high school students the steps they can take to save enough for a special purchase and balance that longer-term goal with their short-term purchases, or a spending budget they can stick to when they are alone at the university. For young children, counselors can prepare a budget that shows them how they can save for something they really want using their allowance money. Advisors can also take advantage of financial planning tools to help clients’ children understand the benefits of investing to achieve their goals.
Building a practice that helps multiple generations achieve their financial goals, where children feel like clients with their parents, also increases the likelihood that families will stick with an advisory practice when wealth is passed down from generation to generation. other.
3. Be aware of the financial literacy tools available: Many financial industry organizations, 401(k) plan providers and archivists, colleges and universities, and government agencies, among others, offer accessible educational resources dedicated to financial wellness. Advisors should familiarize themselves with the financial literacy and wellbeing materials available online, identify the most informative and interactive ones, and compile them into a document or on their homepage for clients and their children.
Advisors should indicate that they can offer financial education assistance as a service to clients at the start of each client relationship, on an ongoing basis. Additionally, advisors can work with clients to use tools such as a Greenlight or GoHenry debit card, which are designed to help children and teens develop healthy, responsible saving and spending habits.
4. Volunteer with the FPA pro bono program: Chapters and members of the Financial Planning Association (FPA) provide free personalized planning advice to individuals and families in need. By volunteering with the FPA Pro Bono program, counselors can work closely with members of their communities who can benefit from holistic financial counseling and guidance in developing better saving and spending habits.
5. Facilitate seminars for parents: Counselors can hold special seminars to teach parents the skills they need to instill financial competence and confidence in their children. This type of educational program can be held online for all customers or in person for the entire community. As valued members of their communities, financial advisors are well placed to work with local chambers of commerce, Rotary clubs, libraries and businesses to organize and/or sponsor financial education seminars. They can use the curriculum of financial industry associations or create their own.
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Additionally, many school districts across the country are offering financial literacy classes in digital classrooms or in person. Counselors can connect their local school officials with providers of these programs to enable students in their own communities to benefit.
With student and consumer debt on the rise and investment products and strategies growing in complexity, financial literacy is more important than ever to help future generations have peace of mind. Advisors have a tremendous opportunity to make financial wellness a reality for children and teens who will become consumers, investors and savers for retirement.
Rose Palazzo is group leader Investnet | Money Guide.
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