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Brad
Stewart is the Director of Business and Estate
Planning for the Northwestern Mutual Financial
Network - Northern Indiana (NMEN). Brad has
been in the financial services industry for
over 20 years. Brad works closely with tax,
legal and business advisors to ensure the sale
or transfer of a business can provide a meaningful
income for the owner and minimize taxes. Brad
and his wife Kim have one son. When he is away
from the office, Brad enjoys staying active
in the church and other charities close to his
heart.
See
other articles by this author.
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Financial
Literacy: What You Don't Know May Hurt You
Most
of us "get" the basics of financial management. While it may
not be our favorite pastime, we generally know the gist of
balancing our checkbook, paying credit card bills and identifying
retirement funds. But, for many, that's the extent of our
financial comprehension.
In
fact, most Americans fail to make the grade when their financial
knowledge is tested beyond the ABC's of financial literacy.
According to a 2006 study commissioned by Northwestern Mutual,
Americans have little grasp of important - and relevant -
financial matters that can affect their financial futures.
In response to the study's questions, which test financial
knowledge, the vast majority of the more than 1,000 study
participants failed to get 60 percent correct - that's an
F in school terms1.
The
study found that Americans score well when they're presented
with a list of answers to questions that ask them to identify
terms like asset allocation, diversified portfolio and IRA.
However, when asked questions that delve a little deeper,
Americans don't make the grade with issues such as:
Bonds
vs. stocks. Most Americans erroneously say bonds provide
better long-term protection against inflation and other adverse
market conditions as opposed to stocks.
Group
insurance. Six in 10 wrongly believe they will be able
to take their group life or disability policies with them
should they leave their job.
Nursing
home costs. Most underestimate such expenses; while the
average yearly cost is approximately $75,000, most estimate
the cost to be less than $60,000. In addition, few protect
themselves against these costs.
College
savings programs. Less than half know 529 plans are savings
vehicles for funding education.
Yet
these results raise another important concern that must be
addressed: our children's knowledge of financial matters.
Most parents know the importance of teaching their children
how to manage money. In fact, two-thirds of teenagers look
to their parents, not teachers or peers, to learn how to make
money and manage it.2 Yet according to a 2004 study by Northwestern
Mutual on kids and money, nearly half of the parents surveyed
admitted that they did not believe they were good financial
role models for their children.3 So how's their financial
future looking? Not good, according to Jump$start.
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Kids
and money
The
Jump$tart Coalition for Personal Financial Literacy has conducted
national research underscoring that the average high school
graduate also lacks basic personal finance skills and, therefore,
struggle with everyday earning, spending, saving and investing.
The
coalition's most recent biennial survey, released in April 2006,
shows that nationally, 12th grade students are in trouble. Though
they also understood fundamentals like asset allocation, at
large, they correctly answered only 52.4 percent of the questions4
- or the equivalent of an F- a sure sign that students' lack
of financial literacy remains an issue that affects all Americans.
The
fact is that in today's complex world, it's not enough to know
only the basics, and this holds true for both parents and kids.
There is so much to understand about retirement, college saving,
protecting our families with the right kind of insurance, and
more that it's up to each of us to stop this cycle.
So
where does the answer lie? If we aren't grasping financial knowledge
beyond the basics, how will our children ever learn it?
Investing
in education
The
answer lies in education - both at home as well as at school.
For Americans who want to take a proactive approach to building
financial knowledge and change the cycle, utilize the wide array
of financial resources available to get you on track. Look at
financial statements on a monthly basis to better understand
and track investments.
Reading
reliable financial publications, such as The Wall Street Journal,
Barron's, and Investor's Daily, can also grow one's financial
knowledge base. And don't forget to include your kids in the
conversation so you can learn together.
The
Web also offers a variety of resources: Northwestern Mutual
offers a Learning Center at www.nmfn.com, which features articles
on a range of topics, as well as a glossary of financial terms
and calculators to help gauge financial well-being. Moreover,
parents and teachers can access information on teaching young
kids about earning, saving, spending, investing and owing at
www.TheMint.org, www.JumpStart.org and www.mymoney.gov.
Your
children's school can also play a role, though it's best if
they are learning the foundation at home from you. However,
encouraging school officials to consider classes and curriculum
on the importance of being money smart shouldn't be overlooked.
There are plenty of free resources available to teachers through
organizations like The National Council on Economic Education
and The Northwestern Mutual Foundation to help get them started.
It
also may be eye-opening to gauge your own financial knowledge
by taking the Money Maladies Test at www.moneymaladiestest.com,
a condensed, 14-question version of the 2006 study. See where
you are strong and also identify some areas you may want to
address.
While
some may be born into money or great wealth, no one is born
knowing how to save or to invest. Building a financially secure
future depends on learning the basic principles of earning,
investing and saving. As Benjamin Franklin once said: "An investment
in knowledge always pays the best interest."
- Northwestern
Mutual, Money Maladies Financial Matters Study, March 2006
- "Kid
Stuff", US News & World Report, 12/12/05
- Northwestern
Mutual, Teaching Kids About Money Study, 2004
- Jump$tart
Coalition, 2006 Survey of Financial Literacy Among High
School Students, April 2006
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