One of the new “hot topics” in the financial services industry is the concept of “financial literacy”. In general, most people, including the news media, feel that most Americans don’t really have a strong understanding of financial issues. Granted, many colleges, and even some high schools, teach a class about economics, but this focuses on more global and national economic issues. What ever happened to the old-fashioned class that taught us how to balance a checkbook? When I was in high school, boys took “Shop” or “Industrial Arts” and girls took “Home Economics”. Both of those classes often taught some of the basics about finances...such as balancing a checkbook. Today those types of classes are a thing of the past and only a small percentage of high schools have similar programs that help students learn the basics of financial literacy. And one of the most important concepts linked to financial literacy is financial responsibility.
Spectrem recently asked investors with between $100,000 and $25 million of net worth if their parents taught them about financial responsibility. Three-quarters of older individuals with children were more likely to indicate they were satisfied with how their parents taught them about financial responsibility. Only 51% of younger households who currently do not have children but anticipate them in the future indicate that they are satisfied with how their parents taught them about financial responsibility.
Teaching kids about financial responsibility today is a little different than in the past. Why learn to balance a checkbook when you can just go online and find out how much is in your account? Our parents may have said “do you think money grows on trees?”. That changed to kids who thought that money just came out of a machine. Today it appears on an app on their phones. But while the way money is disbursed is different and perhaps harder to teach the lessons learned in the past, there needs to be new ideas and ways to teach kids the value of a dollar. And for the most part, individuals believe that parents are responsible for teaching their children about financial responsibility. Ninety-three percent of investors with grown children believe parents are responsible for teaching their children financial responsibility and 90% of those who currently have dependent children agree. Seventy-three percent of those who hope to have children someday believe they will be responsible for teaching financial responsibility.
While most parents acknowledge it is their responsibility to teach financial responsibility, parents are still looking for schools to teach financial literacy. Ninety-one percent of those with grown children support schools teaching financial literacy along with 84% of those currently with dependent children. Because financial literacy includes so much more than financial responsibility, it is important that children begin to learn many concepts that their parents may only have learned about through experience. Understanding retirement plans, IRA accounts, stocks and mutual funds is important for young people as they move into a financial future that is more than cash-based.
It’s an important role and to the extent that financial advisors and financial firms can assist with this educational process, it is likely that they may gain some future loyalty from those who have depended upon lessons learned. Our new report, Parenting and Financial Issues, discusses these issues and many more.