Unlocking the Keys to Financial Literacy

Start young, continue learning, listen

The good news: April is National Financial Literacy Month in the United States.
The bad news: FinLit, as it’s known in shorthand form, has a long way to go.

According to the nonprofit DoughMainTM Financial Literacy Foundation’s website, 76 percent of U.S. students are unprepared for their financial futures; 60 percent of Americans spend without a budget; 95 percent of high school seniors are financially uneducated, and 75 percent of college graduates are financially illiterate.

The statistics are staggering – especially for an arguably basic necessity for functioning in life. At its core, being financially literate means being able to understand how money works.

As such, financial services advisors are universally supportive of National Financial Literacy Month. Still, many in the industry would contend that financial literacy should last beyond a month, a year, or several years. The consensus is that financial literacy can have lifetime benefits – because it teaches, and continues to develop sound and healthy financial habits.

Consider: Most children get a piggy bank as a gift soon after birth, but exposure to financial matters often ends there. The path to financial literacy may or may not resume until the teen years – if at all.

Financial service industry professionals are emphasizing the importance of becoming literate in investing and finance at a young age. There are now even finance books for children as young as two. Teachers of grades K-12 can also download an array of financial literacy classroom resources.

Tracey Jackson200x200“Financial literacy can help set up young people for financial freedom later on in life thereby reducing future stress generated by financial uncertainties that come up in life,” says Tracy O. Jackson, MS, CFP®, president and prinicpal of Jackson Financial Management who was recently acquired by Mercer Advisors over the summer of 2019. “Sometimes today’s youth is only worried about today and only today, and neglect how today’s choices can impact future decisions,” he adds.

Jackson emphasizes that it’s vital to create a culture of understanding around how money works, which can help teenagers and young adults navigate major financial decisions even early in life. He says that when meeting with younger clients – usually the children of existing clients – his firm will convey the idea of money being the “energy needed to power whatever other goals you have in life.”

Optionality is another concept Jackson will communicate to younger clients.

For example, taking on large student loans might create a situation where the young person must choose a certain career that generates enough to service those loans and pay living expenses – all while trying to reach other future goals such as purchasing a home or retirement. Armed with financial literacy, there might be another career choice that could make sense – one in which earnings might be less, but without any massive student debt.

“Could they still pay for a similar lifestyle and achieve the same financial goals? It’s just a question that young people might ask if they had financial literacy,” Jackson notes.

He also maintains that financial literacy could dictate decisions about whether to attend a public or private university, as well as whether to pursue advanced degrees.

“Having an idea of financial concepts surrounding present value, interest and when it’s deductible in relation to student loans, and a general idea of earning power related to a profession you’re pursuing can provide more information to make an educated financial decision,” Jackson says.

Sheldon Altman, founder and owner of Altman Advisors, agrees with the need to start young, and recognizes that the learning path to financial literacy usually begins outside the home.

altman quote“Financial literacy is very important to young teenagers and adults especially as they are not taught about this in schools and their parents may not be prepared, perhaps uncomfortable, or lacking the skills to teach this critical subject,” Altman says.

“It would be wonderful if they were taught the ‘magic’ of compound interest, paying oneself once a month, saving for the future, and creating a truly financially independent life,” Altman continues, noting that “building this for our clients’ families continues to inspire me and everyone at Altman Advisors.”

Becoming financially literate and investment-wise at a young age will also yield future dividends – when handled properly and if the financial services industry embraces change – something Altman is passionate about.

“Somehow our industry must move away from encouraging ‘free trading,’ and focus on long-term investing, which in turn benefits our lifelong clientele,” he says.

Jackson echoes the call for lifelong relationships and better communication and education.

“The industry needs to do a better job of communicating to clients that advisors and clients should be looking for lifelong relationships to grow and evolve in both the good and bad times,” he says.

One step he recommends, which could especially appeal to younger clients in the age of video media:

“It would be great if all advisors were required to create a one- or two-minute video communicating information in plain English and post it on their website – and upload it to the applicable regulator’s website for archiving purposes.”

The Jump$tart Coalition is the original promoter of April as Financial Literacy Month. It evolved from Youth Financial Literacy Day, introduced by the National Endowment for Financial Education (NEFE) nearly two decades ago as an activity of its High School Financial Planning Program.

Since then, FinLit progress has been made. Yet, fewer than half of states require a financial literacy course to be offered at the high school level. Several colleges, however, are now requiring completion of a financial literacy course as a graduation requirement.

Katie Williams CFP®, AIF®, CRPC®, an LPL registered representative and president of Classic Financial Services, has built a niche market over the last 20 years focused on public education K-12 403(b) participants, non-profit 403(b) participants and government 457 plans. Along the way, she has helped clients’ financial literacy.

“Listening to my investors’ questions, especially the similar questions repeated by investors across my accounts, led me to rethink and redevelop my approach to serving them,” Williams says, adding, “I want to see them progress to the proverbial ‘next-step’ in their financial development.”

The road to financial literacy runs both ways between clients and their financial services advisors. Williams developed a repeatable, subscription-based process to provide ongoing advice to her investors by intertwining financial coaching with the financial planning process.

She’s quick to say she “wants to speak to her clients, not at them.” Her process starts by building a solid budget that works for the investor.

“Often it is as simple as starting with identifying their income and where their income is spent,” Williams explains. She shows clients how several small debt payments can add up to a big part of their budget, and “then they can visualize the positive effect debt elimination has on their budget. The elimination of debt leads to cashflow they can invest.”

An unexpected outcome of her process and a tangible bonus was Williams’ development of an education library specifically for her clients – and actually created by them.

“Reviewing questions they ask me during client meetings and phone calls, has provided the topics for their library,” Williams summarizes. “It may be simple, but it meets them where they are and allows them to build the foundation to take them to the next level in their financial education and their financial growth.”


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