Calls for improved financial literacy remain a constant refrain as a means to help assure the nation’s financial security – what do NAPA Net readers think?
Let’s start with how early should we start teaching kids about finance. More than 4 in 10 (41%) said between fourth grade and high school, but nearly as many (35%) put it as early as first to third grade. Roughly one in eight thought it should come in high school, but the rest didn’t want to wait for school.
And, as it turns out, readers put their thoughts into action with their own kids. Among those with kids, 40% had started finance education between first and third grades, 7% before they had started school. “My son is only 18 months,” noted one. “We intent to start teaching him about saving around 2 years old with a piggy bank and with children's books that discuss saving.” Another said, “I have a son but he's not yet 2. We haven't decided at what age he'll start receiving an allowance but whatever age that ends up being is when his financial education will begin.”
More than one in five (22%) said it had been between fourth grade and high school, and 9% to high school. The rest didn’t have kids, or didn’t remember. As one reader recounted, “I really don't know when it started. It was more by our example and by saving most of their birthday money each year. To date, they have not ever touched the principal in their accounts. Two of them use their dividends to pay off their student loans.”
Now, to their credit, academics have managed to work out to a fairly short and concise list of questions by which they claim to be able to assess one’s financial literacy – and it’s even multiple choice. We gave readers a chance to take that test – not surprisingly (though one never knows going into such things) we got a 100% pass rate. Well, except for one individual who I am guessing deliberately picked the wrong answers (including the true/false about whether buying a single company stock provides a safer return than a stock mutual fund).
However, keeping in mind that in a survey of Americans over the age of 50, only one third got all three right, we asked readers what they thought of the test’s ability to assess financial literacy. The most common response (though hardly a majority) was the 31% who said, “That's not exactly the questions I would look to measure financial literacy in a practical sense.” Just behind that – 27% - said, “Wow, people can’t get those questions right?” while 18% thought the assessment seemed “pretty good” to them.
The rest – and there were a lot in that “rest” who are probably best grouped in the “these are ok, but…” category. Here’s a sampling of the comments that accompanied that response:
“I think they are good questions, but should have more.”
“Those are reasonable questions – but the most fundamental task of financial literacy is to get people to stop living paycheck to paycheck and set aside money for a rainy day and retirement.”
“I don't think understanding compound interest or inflation is a very good test of literacy. I think we need more basic understanding of Credit vs Savings to buy items. Balancing a check book. importance of an emergency fund etc.”
“The vast majority of Americans are financially illiterate and will remain so, regardless of the efforts to each them. You can try to teach people brain surgery (or calculus), but the results will be the same. Lots of people who can do neither and don’t want to learn. These questions will identify the complete economic illiterates, but will do little to identify those who understand these trivial issues but will are financially illiterate from a practical matter.”
“That doesn't surprise me. Figured the stats would be low.”
“Overly simplistic! There needs to be questions assessing a person's understanding of credit management; planning for income in retirement; investing, insurances, and an element of personal responsibility thrown in, vis-à-vis when it’s appropriate to retire and how long you should expect your portfolio to provide for you in retirement.”
“I think it depends on your definition of ‘financial literacy.’ If it is strictly about market/portfolio returns, then these questions are good baselines that everyone should be able to answer. But if being financially literate means more than that, e.g., balancing a check book or understanding mortgages, then the questions are deficient.”
“This is a start, but only a start.”
And then, there was the reader who pointed out, “It's not fair to give a quiz if there hasn't been any attempt to teach the material first.” (Perhaps that was the reader who “missed” the questions?)
What Savers Need to Know
I then asked readers what they thought 401(k) savers needed to know in order to be better 401(k) savers – here’s the list (readers could pick more than one thing):
73% - the importance of saving
64% - how to budget
64% - the impact/importance of the employer match
59% - how to figure out how much to save
57% - the magic of compounding
55% - the impact of inflation
27% - what a mutual fund is – and isn’t
24% - the difference between stocks and bonds
22% - how social security works
9% - how to pick the right target-date fund
Other suggestions included: Saving is a habit just like anything in life (exercising, finding balance, etc.), Consumer debt impact on savings, how 401(k) loans hurt, setting and growing an emergency fund, and how long their retirement nest egg will likely need to sustain them and what is realistic to expect.
Asked if they could ensure that the participants they work with knew just one thing about saving/finance, readers offered a wide range of suggestions. Here’s a sampling:
- The story of the ant and the grasshopper.
- Benefits of compounding.
- The golden rule of personal finance – spend less than you earn and invest the difference wisely.
- Spend less than you make – and invest (or save) the rest.
- It is a necessity, not a choice.
- The power of compound interest – as Einstein said, it is “the 8th wonder of the world”!
- Spend less than you make.
- Start early and when you get side-tracked, start over as soon as possible to get yourself back on track.
- Starting today is the best thing you can do.
- The power of compounding.
- How to budget.
- Save now, spend later.
- Make it a habit.
- Start early – makes a huge difference
- It’s as important as your diet and exercise.
- Understanding market volatility and averages of the stock market over the long term.
- Pay yourself first.
- Save enough.
- No one else is going to do it for them. They must take responsibility and learn the basics. If not, find a trusted advisor.
- Put away lots of money; let someone else manage it; don’t panic when the market tanks (as it always does and will).
- The magic of compounding
- The importance of saving throughout your lifetime so you don't end up old and broke.
- How much to save.
- Impact of inflation.
- Start saving as soon as possible, even if it is a small amount. You can always increase it later on.
- The duration of your need for retirement income is probably substantially longer than you realize, so they need to be cautious about drawing it down too early or too aggressively.
- Pay yourself first.
- The benefits of starting early and compounding over life.
- Start saving early, avoid debt and live below your means.
- Begin saving early in your career to help you live comfortably in your retirement.
- Start early.
- How to become a true saver; we can teach them how to be an investor later.
- Save early, save a lot. You don’t want to have to work until you die, do you?
- Start saving early.
- Nobody will do it for you.
- Saving today will help save you tomorrow.
(Other) Reader Comments
As you might expect, we got a lot of reader comments on the subject, including these:
- It needs to come from both home and school. Home helps with spending, earning and saving components. Making theory practical.
- I believe that the fundamentals of financial success need to be taught early – deferred gratification, living within your means, buying based on value and not the perception in society.
- It would be good to teach appropriate debt/income ratios.
- Parents have got to stop hiding their financial struggles from their kids. They are dooming their kids to repeating their mistakes.
- This is critical and should not be added to core curriculum as a last measure, budgets permitting. It's ironic that this curriculum is often cut due to budgeting.
- It needs to be earlier and continuously a part of the education process year after year.
- Having grown up with parents who taught me the value of money and saving as early as I can remember, it never occurred to me all children don’t get that education. Now I see generations of people, young and old, who don't understand how harmful debt can be and the benefits of saving for the future. It took a recession and younger people seeing their parents devastated financially to wake up and look around. Let's do what we can to prevent that event again, because there is always another recession on the horizon.
- It needs to be mandatory in school every year.
- It needs to be a core class in high school and any college.
- Schools should all require financial literacy as a core curriculum. HS – 1 credit to graduate.
- I do think that the workplace should have some avenue by which employees can be financially educated; and it should be mandatory. Not all workplaces can afford to sponsor a DB or DC plan, but they may be able to offer a couple of hours of employee education.
- (FULL DISCLOSURE: I am actually working on a financial literacy curriculum, as we speak, so I am somewhat biased here.) People consume financial knowledge on a need to know basis; therefore I believe the delivery system needs to be ‘on demand’ as they stumble across a need. For example, you could waste a lot of time and energy teaching school kids about how to look for a home mortgage or evaluate a credit card offer, but until they need those services they will not be motivated to learn the information. The financial literacy curriculum therefore needs to be piece-meal, so people can go learn the piece they need right now, and it needs to be delivered in an ‘on-demand’ way, perhaps through a YouTube channel or some other webinar fashion.
- I think kids should have financial literacy as early as possible. Definitely in elementary school, even if it is just one per year. In high school I think every child should be required to take at least two financial literacy classes to prepare them to make smart financial choices before they graduate.
- Education isn’t enough. I think there are many of us who can say we understand the concepts but frequently still make the wrong decisions with our money. It takes a lot of willpower to choose saving when you’re bombarded by ads stating you deserve the best and should have it now; they even make it easier sometimes by offering 0% financing or great rebates. Our culture needs to change if we're going to increase people’s preparedness for retirement.
- It is a numbers game of touching as many people as possible to create a more stable economic environment for them.
- I strongly believe it starts at home. Responsibility starts at home. Schools role is to teach (or reinforce) the basics (learned at home first) and other financial basics (those not learned at home.).
- It should be required in all schools
- It would help if it were ingrained in us from an early age how much we are going to need for retirement and what it's going to take to get there. The importance of starting early cannot be stressed enough.
- Financial literacy won't solve the majority of the financial problems in our country, but it will help reduce the number of people taken advantage of by certain companies/people.
Thanks to everyone who participated in this week’s NAPA Net Reader Poll!