Capital InsightsFinancial Planning

Planning for Financial Literacy

As we wave goodbye to tax season and usher in spring, our thoughts and conversations with clients begin to include some new topics. We begin to welcome in graduation announcements with May flowers, and chat cash flow ahead of an upcoming summer wedding. We introduce 529 College Savings plans and celebrate 72nd birthdays that kickstart Required Minimum Distributions from retirement accounts. Every step of the way though, our focus is not just making sure that clients and their families alike understand the how – it’s also a priority to make sure they understand why! This is because as a financial planning firm, we are focused on the best future possible. And we know one of the most effective ways to achieve that future is through sharing and supporting financial literacy, in our firm, among our clients, and in our communities. Knowledge is power – financial knowledge, that is.

Getting started: The sooner, the better

Early steps make big strides. Introducing general financial concepts to children at an early age can be as simple as presenting structured spending decisions in making choices. This also helps children recognize that money comes in limited amounts and can lead to them gaining self-confidence in making decisions as well as analyzing simple alternatives. Some examples of this type of introduction to finances include:

  • Basic introduction to U.S. Coins
  • Making toy cost comparisons using coloring pictures (ex: coloring in pictures of toys that cost money)
  • Setting up a pretend store to shop in with the child

Building blocks: Continuing to grow and educate on a financial literacy foundation

An easy way to continue the growth your child’s financial awareness is through the practice of setting short and long-term goals. This helps introduce them to another key tenant of financial literacy – planning for the future. As they grow up, they can apply math skills to balance a spending plan or budget and recognize the importance of keeping track of purchases. It’s also where they can learn how to prioritize budget goals and saving money – earnings from a summer job can go into a Roth IRA, or a college fund to build for a dream school or future dream house. While there’s no shortage of personal finance information on social media these days, it may be helpful to share information or connect them with a CPA or CFP® professional to ensure that early confidence and informed decision-making skills continue to grow.

On campus or on the road: Financial literacy for young adults

  • Building and maintaining an emergency fund
  • Checking their credit report at least once a year
  • Writing down or storing electronically spending and savings goals
  • Contributing to an employer or personal retirement plan (401ks and IRAs)

Next steps for the next generation: Continue to set up for success

The ongoing pandemic, international conflict, and economic volatility have prompted families in any stage of life to discuss financial security, investment management, income taxes, retirement, and estate planning. Many families are also engaging in risk planning and risk mitigation activities to protect their families for the future. Recognizing the importance of financial literacy can improve overall well-being and lay a strong foundation for future generations. We have included some suggested activities below that can be used to improve the financial literacy of all members of your household – not just those who pay the bills!

  • Hosting family financial meetings where short- and long-term goals are discussed
  • Prepare a budget and review it frequently with family members for extra insight
  • Including professional advisors – wealth planners, financial advisors, business partners, tax advisors, and legal counsel can all be useful resources in setting up a young family, or bringing peace in an established one
  • Discuss estate planning intentions – having a plan and including others is a great way to improve cooperation and cohesion in the future

There is no one-size-fits-all approach to teaching financial literacy as every family’s circumstances are unique. However, our experience has shown that beginning financial education at an early age and maintaining that dialogue throughout adulthood can help achieve the best results for you and your family.