Journal of Financial Planning: April 2023
Dani Fava is group president of product innovation at Envestnet, the financial services technology company transforming the way financial advice and wellness are delivered. For more information, please visit www.envestnet.com, subscribe to https://envestnet.blog, and follow them on Twitter (@ENVintel) and LinkedIn at www.linkedin.com/company/envestnet/.
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What’s a “finfluencer”? A finfluencer is a social media influencer (think TikTok star) focused on financial education. Are they giving sound advice? Maybe. But really, who knows?
Should we care? Absolutely.
Financial education is not only a critical component of personal development, but also important for the health of the economy. If our ability as financial professionals to fulfill our promise to clients includes the ability to sustain a healthy economy, it could be argued that the ethical responsibility to provide financial education to the next generation falls squarely within our purview.
Sure, financial education is a luxury and if we have it, we should spread it for the good of humanity. But what if we took that a step further and believed that we must promote financial education in order to sustain economic growth and for our clients to reach their goals? Then, ethically, we should be promoting financial education in every possible way.
Is financial education proven to work? Well, for students receiving financial literacy as part of their K–12 curriculum, according to “Better Borrowing: How State-Mandated Financial Education Drives College Financing Behavior” (a study by the National Endowment for Financial Education), “the amount of debt they took on went down, both across credit cards for students from lower-income homes and private student loans for students from higher-income homes.”
The study also found that exposure to financial education decreases the likelihood of carrying credit card balances by 21 percent and reduces private loan balances by $1,300. Good for the economy? Check!1
Why does financial education have this positive outcome? At its core, financial education promotes responsible borrowing and spending and helps individuals understand the consequences of taking on too much debt or overspending, which can lead to instability and can negatively impact the economy. A sound financial education can also lead to more savings and investments, which can reduce financial insecurity and poverty. A more financially educated person may be a less likely target for scams and fraud, and in this regard, a line can certainly be drawn from personal financial security to a decrease in crime rates.
Furthermore, financial education is proven to be effective. According to a recent FINRA study, across 33 countries and 76 financial education experiments, financial education showed overall positive, robust effects on student financial knowledge and behaviors, with no indication of the effects waning over time, including the ability to budget and the ability to save.2
Even though the importance of a strong financial education cannot be overstated, most schools in America don’t have it in the curriculum. And the effect of this missing education carries into adulthood, with less than 50 percent of adults able to pass a basic personal finance quiz.3 And still, there is no federal mandate requiring financial education in schools, leaving this decision to offer financial education up to the individual states. To date, only nine states require a standalone high school course before graduation. With limited curriculum space, lack of teacher training, and other resource constraints, it’s not surprising that financial education in schools is sparse—or only found in private schools, furthering the disparity of access.
This leaves financial education up to parents and guardians. But, as many parents know, providing a financial education in addition to all the other daily tasks of parenting is almost impossible. And in most cases, parents either don’t have a strong financial education themselves or simply don’t know where to start.
Enter financial advisers, financial coaches, and financial planners. Surely, they have the knowledge. But they also don’t have the time to invest in educating the children of their clients, even if they know the education and brand awareness may turn into profitability in the next 15–20 years. Nor do they have time to take on clients who are in debt, and as a result, are potentially years away from having investable assets.
So, what’s the answer? And who is brave enough to attempt to tackle this gaping hole in financial education of the next generation? And as financial planners, how can we contribute to financial education in support of a more sustainable economy?
There are a few paths to consider.
1. Pro-bono work.
CERTIFIED FINANCIAL PLANNERS™ and other financial professionals can use their volunteer hours to become financial coaches to those in need. Organizations like the Foundation for Financial Planning make this possible and give financial professionals an on-ramp to helping people. It’s a perfect match of their skill set with someone who is looking for help.
2. Adding value to your clients and their families by providing awareness and access to financial education.
Let’s look at Goalsetter as an example. This is an app, backed by Nike, that can help your clients teach their kids about money without needing a teaching degree or a bunch of free time. Goalsetter enables parents and guardians to give their kids access to an engaging app, created by a former Nickelodeon executive.
Goalsetter allows parents to give their kids budgeting tools, a debit card, education on earning and spending, and financial literacy quizzes, which teach the basic concepts of finance.
If you believe the argument that financial professionals should be promoting financial education to sustain the economy and help clients reach their goals, then ethically speaking, financial education tools like this should be in every financial professional’s toolkit.
But we can’t just make financial education available. Like every product, we need to have a willing consumer (unless of course, there’s a government mandate). But, in this case, kids want this training. As a matter of fact, according to www.annuity.org, 73 percent of teens reported wanting more personal finance education in 2021.4
The evidence is staggering. Ethically, we as financial advisers and planners should lean into financial education. We aren’t innocent bystanders in the economy. We can help our clients set, monitor, and achieve their goals, which directly contributes to a healthier, growing economy. Adopting financial literacy and education solutions into our practices can make a big impact on the future—helping our clients’ children and grandchildren achieve their goals, which can directly affect their communities and the overall U.S. economy.
The information, analysis, and opinions expressed herein are for informational purposes only and represent the views of the writer, not necessarily the views of Envestnet. The views expressed herein reflect the judgement of the writer as of the publication date and are subject to change at any time without notice. Information obtained from third party resources is believed to be reliable but not guaranteed.
Endnotes
- See www.nefe.org/_images/research/Effects-of-K-12-Financial-Education-Mandates/Better-Borrowing-Report-MSU-Executive-Summary.pdf.
- See www.finrafoundation.org/sites/finrafoundation/files/Financial-Education-Matters-Testing-Effectiveness-Financial-Education_1.pdf.
- See https://finrafoundation.org/sites/finrafoundation/files/NFCS-Report-Fifth-Edition-July-2022.pdf.
- See www.annuity.org/financial-literacy/financial-literacy-statistics/.
