Financial literacy is contagious

Bridging the financial literacy gap in our country is largely a matter of education. When people understand money matters, they are equipped to make better decisions and put themselves on a more solid financial footing. When it comes to improving the financial literacy of Main Street Americans, insurance and financial professionals are crucial.

The latest Financial Industry Regulatory Authority National Capability Study reveals some troubling statistics for us to contemplate as we recognize April as National Financial Literacy Month:

» Sixty-six percent of American adults cannot pass a basic financial literacy quiz.

» More than 40% lack retirement accounts.

» Fewer than 50% have emergency savings.

» Fewer than 30% have financial plans in place.

» Fewer than 20% use the continuing services of financial professionals.

I have an interesting perspective on financial literacy and Main Street consumers because I work directly with school system employees in the St. Paul, Minn., area. Whether the schools are in the inner city or the surrounding suburbs, you can’t get much more “Main Street” than teachers, guidance counselors, principals, coaches and other educational system employees.

When it comes to financial literacy, I often find myself teaching the teachers. Although they are universally intelligent people and may be experts in geometry, biology, music or English (and all of them certainly have a strong understanding of the children they educate), I often find they are befuddled when it comes to concepts such as creating budgets, repaying student loans, preparing for retirement and protecting their financial well-being.

Helping our clients understand the basic tenets of financial literacy is vital to our own success. After all, no one will purchase life insurance if they don’t understand the importance of protecting their family’s financial security and mitigating risk. No one will plan for retirement if they don’t understand how short-term sacrifices can pay off in the long run.

It is important for us to help each client understand their relationship with money and to develop their “money story.” I encourage the educators I work with to pay themselves first — create a savings plan and stick to it. Then, create a budget for paying other people — for bills, clothes, entertainment and luxury items. I help them create financial goals, understand the “magic” of compound interest, and know the importance of managing risks and protecting their assets and families.

Helping them understand the basics makes it much easier when we get into the nitty-gritty of 403(b) plans, Roth IRAs, public service loans, insurance options or annuity products.

My hope is that educating the educators will create a trickle-down effect. When they have a strong base of financial understanding, they have something they can pass down to their own children. And as influential coaches, teachers and counselors, they can pass their financial understanding along to their students as well. Financial literacy is contagious. The more people we have talking about it and sharing these basic financial concepts, the better.

In my work with NAIFA, we are advocating to formalize this process in our schools. In Minnesota, we support a bill that would make passing a personal finance class a requirement for high school graduation. The course would teach students about the process of taking out loans, how interest works, basics about insurance and home mortgages, and what payroll deductions are, among other topics. Eight states currently make a personal finance course part of high school graduation requirements, nine more will implement such requirements in coming years, and several others have proposals under consideration.

Educated consumers make our job as financial professionals much easier. I consider teaching an important part of my job and take great satisfaction in knowing that I am helping improve financial literacy in my community. It’s good that we shine a spotlight on education and personal finance during National Financial Literacy Month, but as financial professionals we know financial literacy is a subject, we need to keep at the top of our syllabus year-round.

Winona “Win” Havir, CPCU, CLF, LUTCF, FSS, LACP, AIC, is executive vice president of business development at Educators Insurance Resource Services, representing the Horace Mann Companies. She is also a member of the NAIFA board of trustees. She may be contacted at [email protected].