4 Steps that can help
According to research from FINRA, “financial literacy is a significant indicator of positive future financial outcomes and behaviors.” That is, the greater the degree of financial literacy, the more positive the financial outcomes. With this being the case, the National Financial Educator’s Council insists that society needs to do more to school today’s youth and college students in personal finance.
“Financial literacy matters because it provides a foundation of knowledge that can be built upon as you move through major life events,” says Christopher Calabro, CFP® and CEO of CPC Financial Group. “It includes – but is not limited to – creating a budget, paying your bills promptly, managing your debt, and checking your credit score.” “It is critical,” insists Calabro, “that this knowledge is engrained in a young adult so that they can create smart habits with their money.”
Four suggestions
So what can and should be done to improve financial literacy in teenagers and young adults? We posed this question to our panel of wealth advisors and in the process developed the following four ideas:
1. Increase efforts to introduce younger family members to investing
“As a former social studies teacher, the issue of financial literacy is near and dear to my heart,” says Michael S. Silverstein, CRPC®, an advisor with Freedom Financial Planning LLC. “With the disintegration of the defined benefit system over the last 40 years, the onus is now on individuals to provide for his or her own retirement.” “Still,” says Silverstein, “even with this tremendous responsibility to manage one’s entire retirement savings, the public school system doesn’t do enough to prepare young people for this daunting task.”
So indeed, Silverstein does all he can to help his adult clients do more to engage their families at large at as early an age as possible. “I firmly believe that every time we open a Roth IRA for someone in their late teens or early 20s, an angel gets its wings,” he said.
Such efforts are essential, says Silverstein, and he also believes that by introducing more students to the basics of personal finance, far more young people will make better financial decisions earlier in their lives leading to more positive outcomes throughout their lives.
“Living within one’s means, creating an emergency fund, and understanding the power of compounding savings are core pieces of knowledge everyone needs to understand,” says Silverstein.
2. Lobby school officials to bring literacy into the classroom
“Currently, financial literacy is something that simply is not being taught in our school systems” says Andrew Rosen, CFP®, CEP® and partner at Diversified Lifelong Advisors. But the more the investment community can do to raise awareness regarding that challenge, the greater the chance that local school boards can be persuaded to act.
Rosen believes advisors – and their clients – need to do more to make the case and that businesses and investors themselves should be adding their voices to the cause. The point is, by introducing financial literacy earlier in schools, more people can avoid common missteps as well as make better financial decisions in general.
“The sooner you can start making smart financial decisions the better off you will be, and it has a compounding effect for years to come,” says Rosen. “If you start early, you are putting yourself in a smart financial position and knowing the right moves to make. Personally, I see it all the time where people start late, or make some really poor financial decisions early on, and they're playing catch up for years.”
3. Embrace and promote digital tools
Want to actively engage youth? Calabro believes todays technologies can be a potential boon for young investors. For example, “we can create automatic savings plans and systematic investment purchase; there are applications for monitoring your budget and tracking your goals.”
But such tools cannot meet their potential without at least some degree of financial literacy. Thankfully, a June 2020 survey cited in a Forbes blog found that 75 percent of gen Z-ers and millennials are becoming significantly more active in investing – no doubt a trend being driven by this age group’s affinity for technology.
It begins with tools such as NerdWallet or Credit Karma, sites which help young investors better understand and manage core financial affairs. But from there, these age groups are embracing a collection of “hip” apps like Robinhood, Acorns, Stash, eToro and Coinbase. Combining with investor groups on social media giants like Reddit, it was primarily young investors who propelled securities like Gamestop, BlackBerry, and AMC to remarkable heights much to the angst of hedge funds who had shorted the stocks.
4. Do more to promote financial literacy in the workplace
If the education system and today’s technologies aren’t getting the job done, Nicholas A. Ibello, CFP®, AIF®, vice president of wealth management at Williams Asset Management, says businesses themselves should step up to the challenge.
“For those in the workplace, financial literacy and financial wellness are of paramount importance,” says Ibello. “We have all seen data and studies that show that one of the most common stressors for employees is their finances. If we could arm employees with a tailored, objective, and up-to-date financial literacy program or curriculum, this could help liberate some of the confusion, stress, and financial problems employees face on a day-to-day basis.”
“Being armed with this type of financial literacy is so important as it can help promote higher self-confidence and better household and personal money management skills,” he said. “In turn, this can also “reduce marital stress – as finances are constantly touted as being one of the top contributors of divorce.”
Of course, in the end, employers will also benefit, as financial literacy leads to financial fitness and ultimately greater employee satisfaction – as financial stress is alleviated, you’ll see enhanced productivity levels, says Ibello.
Overall, Ibello shares that he is “hugely passionate” on the issue of financial literacy. Consequently, he is the President of the Mid-Atlantic Chapter for the Society for Financial Awareness, a non-profit group that provides seminars and related resources to help roll out financial literacy curriculums.
