It Starts at Home

In my grandfather’s generation, it was just a manner of practice to have a will, life insurance, and a family burial plot with all arrangements pre-determined.  In this article comparing Boomers to their Depression era parents, it shared the likelihood that because Boomers grew up in prosperity and have been free spenders, they didn’t save or know how to save, which now is impacting their financial security. 

---

I am proud to say that my father, a Baby Boomer, was an exception to what this article indicated, following in my grandfather’s footsteps in making sure his and my mother’s affairs are in order. I and my siblings are grateful. What about the other generations including Gen X, Y (Millennials) and Z? It only gets more alarming.

How Generations Compare
According to a 2021 TIAA Institute – GFLEC Personal Finance Index study, there is a lot of work to do in financial literacy.

• ​Financial literacy across the generations is lower among those who have never attended college, emphasizing the importance of learning starting at home with parents and family members.
• Financial literacy in the areas of saving and borrowing were lower earlier in the life cycle of Gen Z.
• Financial literacy around being insured tends to be low in particular with Gen Z and Gen Y (Millennials). 
• Financial challenges related to making ends meet monthly appeared the most stressful to Gen X, with Gen Y and Gen Z following close behind in percentages. 
• There may be hope for Generation Z. Gen Z is the generation most likely to have participated in financial education classes or programs (40%). They are also the generation most likely to have been offered financial education (48%) in secondary and higher education. Being that they are currently between the ages of 19 and 24 years old, they have time to apply what they have learned. Additionally, Gen Z had the highest percentage (52%) in which COVID-19 motivated them to increase their financial literacy. 
  

The bottom line, according to the Academic Director of the GFLEC, is financial literacy is essential.  “The number of Americans who lack financial literacy, particularly in our younger generations, is deeply concerning,” states Annamaria Lusardi, “Until financial education is offered in schools, institutions of higher education, and workplaces, we will continue to see generations of adults struggling with their personal finances.”

Three Buckets

My daughters are 8 years old, and it was around when they turned 5-years-old that my husband and I began our three buckets of income distribution with our twins. We noticed that our daughters were in an “I want, I want, I want” mode of thinking, and we decided they needed to begin to learn the value of money. 

The buckets are entitled, “Save,” “Share,” and “Spend.” From money given as gifts from family, our daughters are taught to manage their money using these three buckets as their guides for decision-making. We have guided them in the following way. Ten percent of all money received must be distributed to Save. Another 10 percent is to be distributed to Share. The remaining 80 percent is then remaining to Spend. Savings continues to accumulate and then is deposited into a bank account. Money set aside for sharing can be given at their discretion. For instance, their school has NUTS (No Uniform to School) which can be taken advantage of periodically with a donation given to the school. This is to be paid out of their own Share bucket to take advantage of this opportunity. When it comes to spending, we help them make better decisions by helping them assess whether it is a need or a want. 
​
Watching them make thoughtful decisions is rewarding as a parent and reassuring with the hope they will never take the mighty dollar for granted.

---

4 Things to Teach Your Children

​Like my grandfather taught my father, it is now our turn to teach our children how to be better stewards of their money. Here is what every parent should be teaching their children.

1. Savings Is Priority: The old saying, “Save for a rainy day,” should be changed to “Save for a storm ahead.” A rainy day sounds like fun -- stomping in puddles and letting rain drops hit your tongue! Thinking that savings is for having fun or splurging on something is only part of what needs to be understood. Especially when it comes to teaching your children, they need to understand that they may have different reasons for saving and one of them is in case of emergency. Helping them understand having an emergency fund is a valuable insight to share and for them to understand. Explain with different scenarios, so they can comprehend. And encourage them to save with different objectives in mind. As they get older and become adults, encourage them to automatically deposit a portion of each check into a savings account and a retirement fund whether with their employer or their own retirement fund. 
2. Credit Isn’t Free Money: It is easy for children to believe that that little plastic card you use to pay for things is “free money.” As we get more and more into a digital age of transactions, this can only get worse in children not fulling understanding that money must be earned or paid back, depending on what is being used -- a debit card, credit card or an app. 
3. Budgeting Guides You: Probably one of the most valuable things we can teach our children is about cash flow and budgeting. Helping them look at their money, what is coming in, and what is flowing out, is a basic principle that will take them far in life. Helping them understand that a budget guides you in how you make financial decisions, what can be purchased now and what needs to wait, is also valuable in them seeing you practice what you preach. 
4. Have a Safety Net: Insurance is that safety net when savings and assets aren’t enough, and debt may be a real concern. Insurance also is a way to prepare for the unexpected more than any other financial instrument. This Smart Asset article provides great insight to the top 10 reasons to buy life insurance. 

For Your Future,
Lori

Lori Capozza Zeind
www.lczconsulting.com