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Kids and money: What kind of financial legacy are we leaving our children?

with 6 comments

When I graduated with a BA in English, the only thing I knew how to do financially was a budget. I loved literature, but financial literacy?

I knew land could be good. I’d learned about budgeting and land from my parents.

During my first year of work, it didn’t take long for me to learn that there were a lot of things I didn’t know a whole lot about.

The stock markets had just crashed. (It was a great time to buy.)

Every day as I rode the TTC, I read about things I couldn’t begin to understand. For a pretty smart guy, I felt stupid. That year, I read everything I could about investing and financial planning and gave myself the expertise I needed to understand the events in the newspapers.

I have never regretted that investment.

It’s been part of my active research ever since.

Financial literacy is on the move this year. The $5 million Task Force on Financial Literacy released a report with a host of recommendations. November is Financial Literacy Month in Canada. Non-profits are collaborating on monthly events.

Why do we need this focus on Financial Literacy?

• Average debt to household income has increased in Canada

And it’s not so-called good debt (where you can write-off the interest payments). Our burgeoning debt alone should prove the need for financial literacy.

The B.C. Securities Commission, in a survey of more than 3,000 17-to-20-year olds, released the following last week:

• They expect to be making $90,000 a year by 30. Three times the national average.

• Three-quarters think they’ll own homes at that age. Government data estimates 42 per cent of 25-to-29-year olds are homeowners.

• Many students graduate with “weak financial skills and little knowledge of the financial realities they will face.”

Those stats should give parents and concerned members of Canadian society great pause. During a time when credit-binging has led to some brutal consequences in the U.S., Canadians have loaded up on debt. Some people have warned of our own inflated housing prices … Low interest rates are making this housing price boom long. Too many people think housing will go up forever.

There are always exceptions, but the statistics are overwhelming. Kids are out-of-touch with financial reality.

The digital universe is changing so fast some can practically feel the wind blowing them back into their chairs. Information has more channels than most can keep up with. Plugged-in like never before, but disconnected from financial reality, kids need help understanding debt, budgets and saving.

Add to this:

• Baby boomers are aging

• Europe and the U.S. are having their issues with taxes, debt and political infighting

• Though Canada’s doing comparatively well, the crisis of 2008-2009 illustrated how global markets and economies are interconnected , and how poor the average person’s understanding of market volatility is

Of Canadians in general:

• One in three is struggling or can’t keep up with their finances

• One in four is weak in key areas of planning and budgeting

• 30 per cent are not preparing for retirement

• Millions of Canadians won’t have sufficient retirement savings and no pension plan other than the CPP/QPP and Old Age Security

• People have very low tolerance for market volatility (and without being able to process market volatility, it’s pretty hard to be an investor. Without becoming an investor, it’s hard to get ahead.)

While there are great agencies doing their part to raise awareness and make lasting and effective changes to our education system, parents need to teach their kids about debt.

The consequences to our economy and economic future of financial illiteracy are immense. Championing long-lasting positive changes in the way schools teach financial literacy is no longer optional.

It’s our future. It’s their future.

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6 Responses

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  1. My parents grew up in Italy during WWII and the depression so I was taught to save money, buy a house and pay for it, not use debt, save up and buy with cash. I have applied all these frugal lessons even though frugality was out of style. I think frugality today is the only way to get out of our individual and societal mess. I have a 12 year old daughter and try to teach these lessons all the time. I do not trust the school system or any financial institution to teach this lesson. I let my daughter know what I’m doing with my money and she knows more about stocks now than I did at 22. I don’t budget but instead calculate how many after tax hours I need to work to make a purchase. If it is not worth it, I leave it on the shelf.

    Andrew

    November 16, 2011 at 2:57 pm

  2. Looks like you’re quite pro-active about financial literacy! Congratulations. It all starts at home, but I am optimistic about raising awareness and helping kids (and adults) get more knowledgeable.

    There’s a great challenge for financial institutions these days … Many people feel as you do and so the challenge (and opportunity) for the financial sector is to reach out, provide information and other resources to the public.

    An open and honest conversation is always the best starting point for companies and government to engage people. The better one’s education regarding fin lit, the better for us all as investors, savers and future retirees …

    People like you demand transparency. That’s a good thing for the investing public and financial services companies and for society ultimately. In the end, reputation is incredibly important for companies, their bottom lines and future growth.

    If government and the private sector engage the public through best practices, everybody wins. The great advantage to introducing fin lit in school is that it will put information, especially about debt, into very young minds. There’s a lot of research to show that when kids are exposed to topics, they, in their own way, will move forward in a positive direction. There’s also a lot of evidence to suggest that educating someone about the dangers of excessive debt and investing benefits families over time.

    I think it’s great your being proactive about your daughter’s financial future.

    Thanks for the comment!

    John

    johnrondina

    November 17, 2011 at 6:55 pm

  3. Great post. As a teacher, I don’t always know how to address this issue but feel it’s important. Any help is welcome. As you point out, this is an enormous task to try to remedy. The problem is, this subject’s often labelled as “boring”.

    It’ll certainly be more “exciting” if we raise a generation mired in debt. What’s happening in Europe right now’s pretty “exciting”, but I’m not sure it’s the kind of excitement most of us want to live with.

    CC

    November 23, 2011 at 12:47 pm

    • Thanks, CC!

      You’re right about the label. What’s important is that financial literacy increases.

      There are so many ways it will contribute to society.

      johnrondina

      December 1, 2011 at 6:14 pm

  4. […] Kids and money: What kind of financial legacy are we leaving our children? (johnrondina.wordpress.com) […]

    Great article!


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