The urgency of building financial intelligence

The urgency of building financial intelligence

It was a dark and cold November evening. The moon was hiding behind the clouds, and the wind was howling through the treetops of the small woods outside our backyard. I was helping my son with his homework when the doorbell rang. Outside the door, standing looking distressed, was a middle-aged man, our neighbor’s second son, Peter. He asked me to borrow twenty dollars so that he could take a bus to visit his older brother. With sympathy, I gave him the money and wished him good luck, knowing that he would not be able to pay it back.

Peter was raised in a typical middle-class family. His now-retired father was the manager of a local bank. Peter was a lovely kid and everyone’s darling when he was young. Although he was not the brightest student in the school, he did well academically. Yet after he graduated from college, he went through a series of financial troubles. Eventually, he moved back to live with his parents. He had some part-time jobs now and then but never enough to fill up the holes. He once had a girlfriend, but not anymore. At forty-one, he was still single and couldn’t afford to move out. Or worse, he still had to rely on his parents to pay for most of the groceries. The relationship between him and his father had recently become worse when the economy was in crisis mode and people were suffering from it. It was not the first time Peter was kicked out of his parents’ home. He would stay with his brother on the other side of town for a couple of days before going back to his parents.

Sounds familiar? I bet you have heard similar stories of the boomerang generation, either from news or from neighborhood gossips. It is a very common phenomenon now. Almost one in five young adults in their twenties and early thirties are living with their parents. Of the people who do live by themselves, many still can’t cut the financial umbilical cord. About 60 percent of people in their twenties and early thirties are still receiving financial support from their parents. Many are even heavily depending on it.

Are generation Y and Z really “the lost generation”? It seems that the word was used for every generation, including those who gave this declaration. It is unfair to declare any generation lost. Then how can we explain the rampant occurrence of these “never grown-up” grown-ups? You can find a thousand answers from a thousand people. However, most people will agree on one thing: the financial knowledge, or what people generally call financial intelligence (FI), of the younger generation is relatively low compared with the much higher demands of the financial reality of the current world.

On one hand, in early days, most children couldn’t go to college; many couldn’t even finish high school. Even for those who were able to stay in school longer, many had to work part-time from a very young age. All these factors forced children to interact with society early and deeply. Today, many children, especially those in the middle class, will not finish their education till their mid-twenties, if they choose to go to grad school. Many of them will have their tuition paid by parents or by student loans. With the increased focus on schoolwork and college-oriented social activities, many students are shielded from the cruel financial world. When they finally face the jungle themselves, many will not feel comfortable.

On the other hand, society and the financial world are themselves evolving. Our financial activities are getting more complicated than even one generation ago. Owning a stock used to mean being among a select group of people. Now, more than half of the population owns stocks. Once, the government and corporations would provide pensions, as long as you worked there for twenty or thirty years. Now, you have to manage your own 401(k), IRA (Individual Retirement Account), and other retirement savings. Once, you just went to a local store to buy everything with the cash in your pocket. Now, you can buy online or off-line and pay with cash, check, credit card, debit card, PayPal, or even your smartphone. With all the innovations and evolutions, the financial world is getting far more difficult to navigate, even for us, not to mention social freshmen.

Let’s look at the following survey.

Budget, Spending, and Savings
In 2014, about two in five US adults (39%)—a proportion that has held roughly steady since 2007—say they have a budget and keep close track of their spending. The proportion of adults who are spending less compared to the previous year has continued to decline since 2009 when this question was first asked (57% 2009, 51% 2010, 42% 2011, 39% 2012, 32% 2013, 29% 2014). Though more than half of adults (55%) say they are now saving the same as last year, the proportion who have nonretirement savings has decreased slightly from 69% in 2013 to 66% in 2014. When it comes to retirement savings, about one in three US adults (32%) still do not save any portion of their household’s annual income. In fact, when asked what areas of personal finance are most worrisome, the top responses were: insufficient “rainy day” savings for an emergency (16%), and retiring without having enough money set aside (16%).
(The 2014 Consumer Financial Literacy Survey, prepared for The National Foundation for Credit Counseling [NFCC] by Harris Poll. A complete survey can be found from
Sounds alarming? It surely is. Many people are now criticizing the reading and math capabilities of Americans. The financial deficiency is even more astounding. Most of the younger generations know how to use the newest smartphone apps, but many do not know how to minimize their credit-card interest. What is missing here is a sound foundation of FI. As parents, many of us tried our best to improve the IQ (intelligent quotient) of our children; many also noticed the importance of EQ (emotional-intelligence quotient), but many ignored the significant role of children’s FQ, or financial-intelligence quotient. Without a sufficient level of FQ, it will be difficult for kids to survive, not to mention excel, in the future. Please consider the following statistics and quotes:
There are five reasons we need to teach financial literacy in our schools:
1. In 2010, the same number individuals filed for bankruptcy as graduated from college.
2. Class of 2009 graduated with an average of $24,000 in student-loan debt.
3. Thirty percent of eighteen to twenty-four year olds spend thirty percent of income on debt repayment.
4. Seventy-five percent of college students with credit cards were unaware of late fees.
5. Consumer debt and bankruptcies are at an all-time high.
(2014 Survey of the States, by Council for Economic Education [CEE]. A complete report can be found from their website at
Let’s start with a reality check on the nation’s current financial-literacy education system. The Council for Economic Education (CEE) reports that only four states—Utah, Missouri, Tennessee, and Virginia—require high-school students to take a one-semester course devoted to personal finance. According to the report, the students from these states were more likely to display positive financial behaviors. They were less likely to be compulsive buyers, more likely to save, and less likely to max out their credit cards.
Unfortunately, other states don’t have similar requirements. Some counties or school districts will have their own guidelines, but most are leaving this field blank. Students will learn how to solve an equation, how to write an article, and how to play soccer when they are in school, but they may never learn how to balance their checkbook and take care of their financial well-being. Without giving our children proper financial education and preparation, we cannot expect them to make sound financial decisions when they grow up. Oftentimes, we simply blame young adults for overspending or being irresponsible. We have to realize that a lack of FI, or financial knowledge, makes them behave that way.
Fairly speaking, schools and teachers are trying very hard to improve the situation. Unfortunately, the change will be very slow, since financial education is not the forte of the traditional school curriculum. Before there is a significant change, educating our children about money and personal finance has been left up to us as parents. We have to shoulder the responsibility and teach them at home. Even in the future, when all schools will include FI education in their curriculum, parents still can’t neglect it at home. Just like the other parts of the curriculum, school is always not enough. As opposed to the other parts of the curriculum, FI education will foster a habit that will last a lifetime and benefit coming generations.
Even if we fully appreciate the importance and are willing to take on the task, FI education is not easy. A recent study found that one-third of parents are more comfortable talking with their kids about smoking, drugs, and bullying than about money. We earn money. We use money. We can’t live without money. Still, we are reluctant to talk about money, especially with our children. Many people fear that talking about money will pollute the child’s pure heart. The reality is indeed the contrary. Since money is everywhere, wrong ideas about it will fill up children’s brains if we don’t provide correct concepts. Some people will wait till their kids are old enough. When they finally sit down and start to talk about money, it is often too late.
Before going to college, many children will assume that money is a given, something that will magically come out when they need it. Many families, especially middle-class families, will shield the children from the harsh reality of earning and saving money. Once, a friend asked her seventeen-year-old daughter to keep track of receipts and spending from her school activities in a purchase book. The young girl was very surprised and thought that her mom was being unreasonable. “Why should I do this, Mom? Isn’t this your job?”
“In considering means to improve the financial status of families, education can play a critical role by equipping consumers with the knowledge required to make wise decisions when choosing among a myriad of financial products and providers.”
—Alan Greenspan, testimony on financial literacy before the US Senate Committee on Banking, Housing, and Urban Affairs, February 5, 2002
Don’t rely on other people. Don’t rely on changes to the school curriculum. We trust that schools will improve significantly over time. The problem is that your child needs financial education right now! If children fail, they will not boomerang back to school; they will be back to us, the parents. We will be ultimately responsible for the growth of our children. We need to educate and prepare our children by taking the matter into our own hands. This book will provide you with the tools to arm your children with the essential financial knowledge needed to succeed in school and in life.