Current events have brought to light the financial woes of Americans. Although the market experienced some volatility over the past year, it has remained strong. The real crisis that has become apparent is the state of people’s personal finances, with more than one-third of full-time employed workers having less than $1,000 saved for emergencies and 63 percent living paycheck to paycheck.¹ 

In Part 1 of this series, we introduced the challenges that result from a lack of financial education, and its lifetime effects. While financial literacy rates have been falling for some time, improvement is possible.

Moving the Financial Literacy Needle

As awareness has risen, several trends in financial education are strong contenders for improving financial literacy.

School Curriculum:

In 2020, states that required high school students to take a personal finance course increased by 24 percent over the 2018 rate. It’s encouraging that more states are taking steps to incorporate personal finance education into high school curriculums.

Technology:

Technology has made it easier to start teaching kids about money at an earlier age using tools like debit cards with parental controls and apps that link family members, their bank accounts, and their money goals with one easy-to-access interface.

My company, FinLit Tech, for example, aims to educate children based on my financial literacy book, The Four Money Bears. When combined with technology, these more traditional ways of learning become a powerful resource for early financial education.

Workplace Wellness Programs:

More and more American workers are expecting their employers to be a resource for financial education. Workplaces that offer seminars, counseling, and financial wellness materials can help employees learn how to understand and manage the behaviors that influence their personal finances.

Community Organizations:

Organizations such as Junior Achievement, Council for Economic Education, and Society for Financial Education & Professional Development, Inc. continue to focus on community betterment and closing the wealth gap.

Financial Services Industry:

The Financial Planning Association (FPA), CFP Board, CFA Institute, and other financial services organizations support financial literacy and education in several ways such as providing virtual externships for college students and pro bono financial planning programs.

The Industry’s Obligation

For too long, the financial services industry made it difficult for many Americans to even open bank accounts. With large opening deposit and minimum balance requirements as well as high overdraft fees, it is often lower-income and minority consumers who suffer.

Studies show that bank account ownership has links to higher levels of financial literacy. According to a 2017 report published by the Organization for Economic Cooperation and Development, 15-year-old students who hold a bank account scored 40 points higher in financial literacy than students without one.²

Fortunately, however, most financial professionals want to help, and they are in a great position to do so. A recent survey showed almost 75 percent of financial professionals say it’s valuable for them to be involved in improving financial literacy, with about 40 percent of financial professionals reporting they are already involved and 42 percent of those who aren’t saying they are interested in doing so.³

Financial Education Starts with Clients

Aside from getting involved through their community, financial advisors can make a change by working with their clients. 78 percent of financial professionals strongly agree that financial literacy is an issue in America and almost 90 percent have encountered financial literacy issues among their clients. It is time for financial advisors to recognize the role of client education in wealth management.

No matter the focus of the financial professional’s business, they are bound by fiduciary responsibilities and rigorous professional standards. These requirements ensure that asset managers work with their clients’ best interests in mind. If a client is confused about the advice they are given, it is fitting for the financial professional to educate them to ensure understanding and acceptance of the recommendations being made.

Perhaps the best way to ensure your clients understand their financial plan and how it works is to have regular conversations about it. Approach the process with a spirit of open communication. Reassure your clients that no questions are off-limits when it comes to planning their financial future.

For clients who demonstrate a high level of curiosity about the process, there are books, podcasts, and apps to recommend that will advance their education. Even for clients who have a good understanding of the investment process, over three-quarters agree that considering what they already know, they could still benefit from advice and answers to everyday financial questions from a professional.⁴

Good for Business

Acknowledging the role of client education in wealth management and building a client relationship around improving financial literacy results in a more open connection. Clients can trust that you are providing the planning that meets their needs for a secure financial future.

People with higher rates of financial literacy are also more likely to seek advice from financial professionals and follow their recommendations.

Promoting financial education to young people could boost much-needed diversity in the financial planning profession. When our youth has a better financial education, they are more likely to realize that financial advice is a helping profession—something they can make a purposeful career out of. This will help make the financial planning industry of tomorrow better reflect the community it will serve.

By teaching your clients how to talk about money, you are helping them understand the ‘why’ behind the advice you are providing. The deeper, more supportive relationship you develop with your clients leads to more productive financial planning.

Learn more on this topic by watching our on-demand webinar where I host a panel of financial professionals to discuss the importance of financial education and literacy.

DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.

The views and opinions expressed by this blog post guest are solely those of the guest and do not necessarily reflect the opinions of eMoney Advisor, LLC. eMoney Advisor is not responsible for the content, views or opinions presented by our guest, nor may eMoney Advisor be held liable for any actions taken by you based on the content, views or opinions of the guest.

Sources

¹ HighlandSolutions.com, Survey Reveals Spending Habits During COVID-19, November 17, 2020, https://highlandsolutions.com/blog/survey-reveals-spending-habits-during-covid-19

² OECD (2020), PISA 2018 Results (Volume IV): Are Students Smart about Money?, PISA, OECD Publishing, Paris, https://doi.org/10.1787/48ebd1ba-en.

³ Iacurci, Greg. “Financial Literacy: An Epic Fail in America.” InvestmentNews.com, 2019. March 2. https://www.investmentnews.com/financial-literacy-an-epic-fail-in-america-78385.

⁴ Harris Insights and Analytics LLC, A Stagewell Company, 2020 Consumer Financial Literacy Survey, March 23, 2020, National Foundation for Credit Counseling, https://www.nfcc.org/wp-content/themes/foundation/assets/files/NFCC_Discover_2020_ FLS_Datasheet%20With%20Key%20Findings_Clean.pdf