How to practice what you preach and infuse financial literacy into your household.
Thomas Jefferson may tell you that knowledge is power, but many are concerned that financial literacy is still sorely lacking here in the United States. In FINRA’s most recent five-question National Financial Capability Study, only 34% of respondents answered at least four questions correctly.
The President’s Advisory Council on Financial Literacy defines financial literacy as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”
Financial literacy encompasses the whole of financial understanding. It begins with knowing how to spend and save within a budget, and it extends all the way through advanced concepts like credit scores, interest rates, bond prices, and much more.
Those best positioned to create a more financially literate society are the ones who not only have a firm grasp on economic and financial matters, but also those who have a front-row seat to how people are emotionally connected to their money. And there’s a group that perfectly fits the bill: Financial advisors.
The Key: Behavioral Finance
Financial literacy begins with understanding how things work, but the key in making good money decisions over the long term is an understanding of the self.
It sounds like philosophy, but it’s called behavioral finance.
Money has a way of influencing people to make decisions that aren’t quite rational, and nobody knows it better than a financial advisor. You field calls from clients who heard about a hot new stock, or you have to talk clients off the ledge when the markets start their regular teeter-totter.
It’s exactly why tens of thousands of advisors have embraced the Risk Number®. It quantifies the semantics and dissuades irrational behavior. When clients use Risk Assessments in Riskalyze, they’re not only pinpointing their Risk Number — they’re actively learning about the connection between risk and reward. They’re actively getting to know their money.
Starting Education with Kids
When financial literacy begins early, people have a higher chance of successfully managing their money.
While financial education is increasingly offered in high school curriculum, many believe it’s not nearly practiced enough.
Forty-five states offer personal financial education in their curriculum, but only twenty-one require a personal finance class to graduate.
School districts are taking the right steps toward requiring more financial education for students, but kids won’t learn everything they need to know in a one semester course.
Financial education is something that can be taught daily—and there are fearless advisors making it a point to demonstrate for their kids what it looks like.
If we want our kids to learn money we have to start telling them the truth. When kids ask how much houses and Cars cost they might be ready to know the honest answer.— Charlotte Geletka #TheAdvisorWarrior (@CharlotteGelet1) April 1, 2021
It can start small.
Start with real money when they are little. Give a six year old a five dollar bill and have them pick out something at the grocery store. They think $5 is a lot then they realize it buys 1 Gatorade and it blows their mind. Then move up into bigger conversations— Charlotte Geletka #TheAdvisorWarrior (@CharlotteGelet1) April 2, 2021
But it can also include being honest and transparent with them about some of the largest and most important financial decisions a person can make.
Agree! I took my boys to the bank with me yesterday to get the cashiers check yesterday for them to see the process for my new home purchase. I took them to the closing this morning. I explained how mortgages and home purchases work. They saw first hand vs. just concept.— NINA O’NEAL (@noneal510) April 2, 2021
But with kids, financial education doesn’t have to be all serious. Riskalyzer Patrick Hannon has an interesting way to make sure his kids understand taxes.
This is one of the many reasons Halloween candy is taxed in my house.— Patrick W. Hannon (@patrickwhannon) April 2, 2021
If you’re a parent, being the advisor that your kids need you to be is about being there for them in everything. It’s about being at soccer practice or making the recital. But it’s also about using your position and knowledge to make sure that they’re part of a financially literate society.
If Risk Assessments aren’t just about pinpointing a Risk Number — but also about actively educating the user about the connection between risk and reward — maybe it’s time your kids discover their Risk Number! Sure, it might not be why you’ve equipped yourself with the world’s #1 risk questionnaire, but it may facilitate a memorable moment between you and your loved ones. And we’re all about that.
If you’re equipping your family with the information they need to be successful — no matter what they choose to do — you’re being the advisor they need you to be.
Empower your world to invest fearlessly. Start here to see how Riskalyze can help you create more financially literate clients.