Knowledge is power, as the saying goes, and this is especially true when it comes to personal finance. At a time when many Americans are saddled with debt and struggling to pay bills, financial literacy in the U.S. continues to decline.
A recent Bankrate survey found that just 44% of Americans had enough savings to cover an unplanned $1,000 expense—an eight-year polling high. Bankrate also reported that 49% of Americans are saving less for unplanned expenses due to inflation. In addition, according to the 2021 TIAA Institute-GFLEC Personal Finance Index (P-Fin Index), 22% of American adults are unable to fully pay their bills on time during an average month.
A lack of financial education for young people often leads to difficulties making sound financial decisions as adults. But there is hope. Children and teenagers who receive financial education in school grow up to practice healthy spending and saving habits which can lead to higher credit scores. For example, financial education was mandated in schools in Georgia, Idaho and Texas beginning in 2000. According to research by the FINRA Investor Education Foundation, cited by the National Financial Educators Council, students who participated in these programs’ third year of implementation saw their credit scores increase by 10.89% in Georgia, 16.19% in Idaho, and 31.71% in Texas.
It’s never too early to begin teaching children about financial concepts and values related to money. Efforts by various state governments to incorporate financial literacy education in schools can certainly help alleviate the financial knowledge deficit. In the private sector, financial advisers are uniquely positioned to take the lead in strengthening financial understanding among children and teenagers (as well as their parents).
Here are five tips for financial advisers to get started offering this vital education:
1. Offer to meet with clients’ children: Conversations about money are among the toughest for families to have. Advisers can help clients and their children become more comfortable discussing financial issues, and also encourage those children to develop healthy financial habits at young ages. During initial meetings with clients, advisers should inquire about their children and discover their current understanding of money and finances.
As a complimentary service, advisers can also offer to meet with these children in person or virtually. This provides an opportunity to speak with them about age-appropriate financial topics, including saving, budgeting, investing, and personal debt. For younger children, topics related to income and savings can be taught and modeled by establishing a savings account for their allowance. For middle- or high-school students, advisers and parents should discuss savings and spending, and introduce them to investing. They can do this by talking with students about saving and investing for college, or how they can use earnings from a job to save for an important purchase later.
Advisers can also help parents teach children and teenagers the basics of investing, and take the lessons to the next level through the establishment of a custodial account.
2. Create a financial plan and budget for clients’ children: Advisers can offer to prepare a complimentary financial- or goal plan, or budget, tailored to address a specific child’s future big purchases or goals. Such a plan could show high school students the steps they can take to save up enough to for a special purchase and balance that longer term goal with their near term purchases, or an expense budget they can stick to while on their own in college. For young children, advisers can prepare a budget that shows them how they can save for something they really want using their allowance money. Advisers can also leverage financial planning tools to help children of clients understand the benefits of investing for achieving their goals.
Building a practice that helps multiple generations meet their financial goals, where children feel like they are clients along with their parents, also increases the likelihood that families will stay with an advisery practice when wealth is passed from one generation to the next.
3. Be aware of available financial literacy tools: Many financial industry organizations, 401(k) plan providers and recordkeepers, colleges and universities, and government agencies, among others, offer accessible educational resources dedicated to financial wellness. Advisers should familiarize themselves with the financial literacy and wellness materials available online, identify the most informative and interactive, and compile them in a document or on their homepage for clients and their children.
Advisers should communicate that they can offer assistance with financial education as a service for clients at the beginning of each client relationship, on an continuing basis. In addition, advisers can work with clients to use tools such as a Greenlight or GoHenry debit card, which are designed to enable children and teenagers to develop healthy and responsible saving and spending habits.
4. Volunteer with the FPA pro bono program: Financial Planning Association (FPA) chapters and members provide free one-on-one planning advice for individuals and families in need. By volunteering their time through the FPA Pro Bono Program, advisers can work closely with people in their communities who can benefit from holistic financial advice and guidance to develop better saving and spending habits.
5. Lead seminars for parents: Advisers can organize special seminars to teach parents the skills they need to instill financial competence and confidence in their children. This type of educational program can be held online for all clients or in-person for the broader community. As valued members of their communities, financial advisers are well-positioned to work with local chambers of commerce, Rotary clubs, libraries and businesses to organize and/or sponsor financial education seminars. They can use curricula from financial industry associations or create their own.
Read: Financial literacy is low across all generations — the school of hard knocks is failing
Also: ‘Time in the stock market is more important than timing the market’ and more critical money and investing lessons I wish my younger self had understood
In addition, many school districts around the country offer digital- or in-person classroom financial literacy courses. Advisers can put their local school officials in touch with the providers of these programs to enable students in their own communities to benefit.
With both student- and consumer debt rising, and investment products and strategies becoming more complex, financial literacy is more important than ever to help the next generations achieve peace of mind. Advisers have a tremendous opportunity to make financial wellness a reality for children and teenagers who will become consumers, investors, and retirement-savers.
Rose Palazzo is group head of Envestnet | MoneyGuide.
More: Meet the 16-year-old high schooler who created his own financial-literacy classes for elementary- and middle-school students
Plus: Gen Z is positioned to get rich—5 steps to getting there