Personal Finances

Generational Financial Literacy and Well Being

Personal Finances by Mo Vidwans

April is National Financial Literacy month. I realize that we are nowhere near that right now, the only reason for me to mention it is that overall, the community in general and financial community, have felt the need to recognize the deficiency in such literacy.

We need to understand the missing element of lack of literacy in financial matters. During April, there are lots of activities that happen in that month just to get people to get involved, get educated, get to pass the word to as many as one can. But this type of financial literacy is useful the whole year. When you consider many of the aspects of financial matters and literacy, they are a wake-up call for many.

One big aspect of financial literacy is retirement readiness. Out of more than 1200 adults ages 60 to 75, who were surveyed and quizzed by The American College New York Life Center for Retirement Income, just 5 percent scored the equivalent of a B grade or higher; worse yet, nearly three quarter of the respondents failed this quiz. What was on the quiz? Topics include when to claim Social Security, the relationship between yields and risk and more questions about annuity, long term care, Medicaid, and Medicare.

There was nothing much out of the ordinary but the results were outright disheartening because every one of us, undoubtedly, will be dealing with such subjects at some point in our lives. And I would think that we should be knowledgeable enough so that we can talk smartly with people who may be handling our finances, money and assets.

Results of such quizzes beg the questions of not only how to educate the adults who are not conversant with such subjects but, even more importantly, when and how to start educating our next generation.

The simple and logical answer is sooner the better. But how soon? Should it be when our next generation starts working or when they enter college or in high school or even earlier than that? It makes sense to think that the sooner we educate our children with the idea of handling the money the better it would be. But for all this to happen we must make separate efforts, take time away from our busy and hectic schedules, understanding that there will not be immediate visible results but may be ideas will sink in which will manifest themselves later. We may have to wait for the victory lap which will be OK if we just know that such education is sinking in.

I remember when my children were growing up, I sure could not spend enough time with them for such literacy efforts even though I knew it needed to be done. Somehow, though, there was enough conversation around the dinner table and other dealings that plenty of knowledge got passed on. Part of the reason why I could not do enough was because, being an immigrant, I was learning many things for the first time myself.

Now I notice that my son-in-law is working with his daughter who will be seven soon, to open an account with Charles Schwab with her Petsitting money and they discuss where the money should be invested. Of course, in her mind it is to be invested where her immediate world is, like Disney, McDonalds, Pokémon or dresses or toys. But the fact is that she is making the connection between her surroundings and her interests today via investments. Peter Lynch, the well-known manager of the Magellan Fund of Fidelity, was running that fund in the 70s and 80s and was following the same sort of philosophy. His teenage daughters at the time were always talking about certain stores for clothes and other teenage amenities and he decided to follow that instinct and invested in those new companies after doing serious research (Book: One up on Wall Street). Needless to say, Magellan was growing at the time at a hefty rate.

Financial Literacy should start as early as possible and the best place for it is at home; like mathematics, we need a teacher to learn about finances.

It is left up to us, the parents, to initiate such activity so that children understand the importance of saving and then long-term investing. Also, there is no better time to understand the concept of “compounding” than at a young age, if nothing else one can see the results of such thinking within a few years. Small starting amounts can grow to large sums when invested in a disciplined manner over a sufficient long period of time. I should also say that Debt has the opposite impact on wealth. Fail to pay down the principal and the interest paid on interest will drag you into a bigger hole.

Luckily, there is plenty of help available if someone is serious about educating the young ones in financial matters. Many high schools have programs just for that reason. There are well known contests in which students can participate