Remember the Crosby, Still & Nash song, “Teach your children well?’’
When it comes to managing money, we’re all wondering how best to teach our children the basics of financial literacy. The need is apparent, especially when young adults launch their careers. They’re more on their own when it comes to money decisions than earlier generations and the financial landscape is extremely complex.
Think student loans, saving for retirement, buying a home and the so-called “democratization of credit,” a catchphrase highlighting the trend of loans once limited to the well-off gradually offered throughout society, from credit cards to second mortgages. The modern credit economy is extremely convenient, but it comes with a steep price tag. Lenders are adept at promoting the ease of credit and hiding the true cost of debt.
But first, give young adults a break when it comes to money (especially because boomers haven’t been exactly shining examples of prudence). Millennials are doing much better at personal finance than much of the commentary I read and hear. A recent report from the Transamerica Center for Retirement Studies has millennial workers saving for retirement at a median age of 22 compared with 27 years for Generation X and 35 years for boomers. Besides student loans, millennials are less indebted than those two preceding generations. As for student loans, it’s an investment that will pay off for a most borrowers measured by career opportunities over a lifetime.
Still, we can do better, much better. The other day I had a conversation with David Horan, a certified financial planner in Bloomington with UBS, about young adults and their financial education. The genesis of this column was our agreement that too much emphasis is put on the tools — the how — of personal finance with young adults, such as budgeting, stocks vs. bonds, and whole and term life insurance.
Not enough time is spent framing the “why” of personal finance. What kind of lifestyle do you want? What career or careers do you desire? What are your passions and your interests? Personal finance is really about deciding how to live your life and then putting your money behind those goals and beliefs. (You can then give them a copy of fellow Star Tribune columnist Kara McGuire’s new book, “The Teen Money Manual: A Guide to Cash, Credit, Spending, Savings, Work, Wealth, and More.”)
In that spirit, I want to recommend focusing on a topic I don’t believe gets enough emphasis: giving. The actual sums most young people — most of us, really — are able to give to charities and social causes are small compared with, say, our retirement savings or our mortgage payments.
Nevertheless, when we think about giving we ask all the right personal finance questions. How would we like the world to be a better place? What causes move us deeply? The act of giving also breaks the hold money can have on us and reminds us to show gratitude to those around us.
So, why not ask the same “giving” questions — about meaning, about legacy, about mindfulness, about justice — when framing the rest of our money choices, including spending and saving? That’s what putting giving at the core of our household money management does for us.
I can’t prove it. But the young adults I meet are typically idealistic and philanthropic at heart. You want to improve their financial literacy? Talk about giving long before asset allocation.
Chris Farrell is economics editor for “Marketplace Money.” His e-mail is firstname.lastname@example.org.