Everyone knows a family that has a long line of “somethings” in their pedigree. Five generations of police officers, four generations of doctors, or even mutliple generations of trapeze artists. There certainly is pride in many family traditions. One tradition that isn’t so revered however, is the passing down of bad financial habits.
For some people, the environment they grow up in is all they have ever known when it comes to money management. It might also be all they ever will know because we don’t really teach it in school. I know there are some facilitators doing a great job, but they are in the minority.
Those stock picking competitions we occasionally hear about in primary and secondary schools only encourage reckless risk taking and short term thinking about money and investing. I’m not against stock picking. I just think it would be more prudent for more people to start with indexing and asset allocation as the base case. Academia and practical experience suggest so. If people want to stray from that after learning the fundamentals, I have no issues with that.
Perhaps you’re thinking that it gets better later in your child’s school career? Perhaps not. I had the chance to audit a personal finance course at a Canadian university. The particular lecture I sat in on focused on portfolio management. Part of the day’s lesson was to figure out your nest egg requirement at retirement, determine if your portfolio’s rate of return was sufficient to meet your target given a set savings rate, and if it wasn’t, simply take out a loan and leverage your portfolio until the equation worked. I’m sorry, but the better answer would be to simply save more. Especially given the lack of discussion on associated risks. I’m paraphrasing, but theory and practice are the same, in theory. In practice they’re not. To compound the problem, now the students are setting up their own stock picking contests through the investing clubs on campus. Stock picking is certainly sexier, and sex sells.
With little formalized, practical personal finance education in schools, where does one turn? To family tradition? If your parents lived paycheque to paycheque, you’re more likely to find that acceptable. It follows that your children may use your financial habits as their benchmark as well.
We were supposed to have a Financial Literacy Czar appointed last November. There are multiple financial literacy groups and programs operating independently right now, but I’ve yet to see real progress across the board, coast to coast.
What is the hold up?