Volume XIV, Number 3 Fall 2017
You'll never be successful at handling your inheritance well unless you make your financial literacy education a high priority.
"What you are aware of you are in control of; what you are not aware of is in control of you." – Anthony de Mello
I am an unlikely teacher of financial literacy. For me it is not a passion that comes easily. But, I see many [avoidable] consequences of financial illiteracy and cannot help but wonder why it is not a much higher priority for everyone. So much unnecessary hardship would be preventable if the younger generation were given the tools to deal with their upcoming financial lives. Regrettably, it is often only when hardship comes that people learn.
So many times I have been curious about why our schools don’t teach financial literacy. Or if they do, why it isn’t prioritized higher and taught better? It is an important subject, “unacademic,” but so is sex education and it is taught in schools. Recently, I was considering how fraught with hazards the teaching of financial literacy would be. What would one teach?
1. Would you teach about developing good credit and managing debt OR how to live debt free? Would it be possible to teach both well?
2. Parents who don’t handle their own finances well exemplify bad financial habits and practices. Of course, they are embarrassed and unprepared to try to guide their own kids because of their own dearth of good financial habits. This would apply to teachers as well as parents. We all know it is difficult to impossible to teach something we cannot do well.
3. Where do you start? With economics? The personal practices of saving, spending wisely, and giving money away? Business? Could educators agree on a starting point for financial literacy? Of course not.
Not long ago, March 19, 2017, I saw a Wall Street Journal article, “Should College Students be Required to Take a Course in Personal Finance?” While all of us learn best when the information and concepts are ones that we need to use in our current lives to solve problems or accomplish goals, the two writers of this article, who take widely different points of view, both make some compelling points.
The exploration was inspired by a 2015 global study conducted by Standard and Poor’s Ratings Group and others, in which the U.S. ranked 14th internationally, with a financial literacy rating of 57%. The article opens with the statements, “Being knowledgeable about money management, budgeting and finance is no guarantee of success in life. But ignorance about such concepts often comes at great cost.” This reminds me of a principle my financial mentor, Bob Pamplin, an investing genius, taught me. He said, “never invest in anything you don’t fully understand.” In the WSJ article, Dr. Annamaria Lusardi, Denit Trust chair of economics and accountancy at the George Washington University School of Business, who is in favor of teaching financial literacy to students, cautions, “Financial literacy is about prevention. Regulators simply cannot keep up; they tend to come in when a problem already exists. This is why regulation is not enough.” She claims that the best financial literacy education teaches financial decision-making, so that people can understand how financial instruments work.
Her counterpart in the article, Prof Lauren E. Willis, who is a professor of law at Loyola Law School in Los Angeles, presents the opposing point of view, against teaching financial literacy in college. One of her criticisms is that courses for students teach “about specific [financial] products, without giving students the context to evaluate these products.” She adds, “What’s more, even experts disagree about the right investment and retirement-savings strategies.” These two simple points shed light on the reasons against requiring college students to take a course in personal finance.
When I have the opportunity to work with young adults, I always include basic financial vocabulary and concepts like stocks, bonds, compounding interest, inflation, and asset allocation. It is a long list. Ultimately, all of the young adults I work with take Accounting 101. It is fine to take it at the local community college, where courses are often user-friendly. According to investment manager, Jeff Auxier, accounting is the language of business. Knowing the words and concepts that identify business and investment qualities is essential to understanding both. This kind of education leads to the ability to track with advisors and family members in meetings, the skill of asking good questions, and financial maturity.
Though it is easy to make an argument that all young adults would be well-served by financial literacy as they enter the work force, it is especially critical in the wealthy families I see, where this education could prevent a lot of damaging lessons and fortunes lost. I am all for hard lessons that we can learn from, but too often, where there is great wealth, there is great potential for destruction of character and money. If young adults could learn skepticism alone, they would be much better armed for the financial world with all of its temptations.
In fact, for inheritors in families with great resources there is additional importance to developing financial literacy. As parents, we want our children to succeed in life. How devastating and debilitating would it be for your young adults to lose the financial wealth they inherit, because of financial illiteracy that could have been avoided? Aside from the loss of financial resources, the psychological effects of such unpreparedness can be crippling.
How does one begin to address this issue? Start with a book (The Complete Guide to Personal Finance for Teenagers and College Students, by Tamsen Butler, Get a Financial Life: Personal Finance in your Twenties and Thirties, by Beth Kobliner, or see the list of Recommended Books on my website), take a course at the local college, or develop a financial literacy education plan with one of your advisors. Do one or all, but do something, for your children’s sake.
Note to all of my readers: Thank you to those of you who have purchased and read my first book, Navigating the Dark Side of Wealth. As of this month, it is sold out. It was a labor of love, and I’m delighted to have sold 9,000 copies. I know this book introduced many to the attitudes and concepts of hard work that can make inheritance a blessing instead of a curse.