The New Falcon Herald has published my articles on educational topics within the financial services field for four years. The premise that I have worked off of was that most people have a certain level of financial literacy to understand some, if not all, of the concepts that I have put forth. Two years ago, I obtained my certified financial educator certification, and I have been teaching courses to different employer groups for their employees. This is not my first time teaching, as I have been presenting workshops for 15 years. This is, however, the first time that the 20 and 30-year-olds have outnumbered the “older crowd.”This is where I need to scare you and scare you good. It is too early for Halloween, and April Fools jokes are long past. Yes, the Dow and S&P 500 have nose-dived into territory we last saw over two years ago. Yes, the mortgage market is shaky, and the federal government is supporting Fannie Mae, Freddie Mac and investment banks. Something worse is coming down the road that will have an even greater impact.Financial illiteracy: To put it simply, millions of Americans graduate from high school and college with no idea how to manage money. Consequently, many young adults fall easy to the lure of credit card and installment loan debt. As parents, they fail to save for their children’s college expenses, and they assume they can catch up with their retirement funding. They are realizing that they will not be able to afford to retire on the pittance they have saved with the investment choices they have made.Current conversations with the 40-year-olds indicate they believe that they will never be able to truly retire. The very quick jump in gasoline prices is catching the younger generation of currently retired persons, and heating their homes this winter is a big planning problem. The real concern is that this older generation and the one before them will try a “quick fix” of higher returns with much greater risk. Some will run after the promise of higher returns and bonuses in financial products that lock them in for 15 years, with high penalties for early withdrawal.Financial illiteracy does not go unrecognized. Scores of programs are in our schools, the work force and the private and public sectors. The media provides an enormous amount of time and space to personal finance topics, in print and online. The Heartland Institute of Financial Education, a nonprofit 501(c)(3) educational organization that teams with colleges and universities to provide financial education, describes financial literacy as “the ability to read, analyze, manage and communicate about the personal financial conditions that affect personal material well being.” It also includes “the ability to discern financial choices, discuss money and financial issues without discomfort, plan for the future and respond competently to life events that affect their everyday lives.”Getting back to this last class of adults and reality. I ended up separating the class into two distinct groups based on age and education. The older group ended on time; the younger group ended a week later. The difference? The younger group needed additional time creating a budget they could live within and learning how to balance a checkbook. Ninety percent of the younger group had no estate plan versus 50 percent of the older group. Ninety-eight percent of the younger group had not considered or looked at life insurance to make sure their family would have some semblance of financial security upon their death or that of their spouses. Long-term care and disability income coverage are things their parents talk about that this generation has no concept of. Credit card debt is well over $15,000, on average.Many, if not all of the participants in both groups, could have faired better in this latest downturn by two simple concepts: diversifying their portfolios and having a cash reserve account equal to six months of their current income.Even with the current courses, government assistance and the media’s help; the American public does not recognize financial literacy as a major, much less critical, issue.Remember, this up and coming generation will have the task of getting your Social Security check to you on time and for the right amount, as well as deciding which extended-stay senior-living facility you will be dropped off at.Scared yet?Alex Donnell is a nationally published author on financial planning, investing and estate planning. He is the president of Colorado Comprehensive Wealth Management LLC in Colorado Springs, Colo., Phone: 719-886-3377. Email: alex@donnellservices.com.
