Building Blocks of Finance: Education at all age levels

From banks to investment firms, companies throughout the Ozarks are seeing the value of early education about proper saving techniques.

Children have a huge impact on the nation’s economy, according to the American Bankers Association:

• Teens spent or influenced the spending of $172 billion in 2005.

• High school seniors averaged only 50 percent correct on a personal finance knowledge test.

• In the next 20 years, $12 trillion in assets will move from one generation to the next.

As part of the effort, Empire Bank and Peoples Bank of the Ozarks were among financial institutions across the country involved in the ABA’s National Teach Children to Save Day in April.

The program took banking representatives into grade schools across the country to talk about budgeting, saving, recognizing needs and wants, and the concept of interest.

According to the ABA, the country’s ability to save is at an all-time low. America has the lowest personal savings rate – at 1 percent of total disposable income – of any major industrialized nation.

Peoples Bank offered financial worksheets to three first-grade classes at Thomas Elementary in Nixa, along with free piggy banks.

Marketing Officer Robin Rees said the bank also participates in the Nixa Chamber of Commerce Adopt-a-Class program, adopting a first-grade class and visiting students each week.

“It’s amazing (now) how much faster they can recognize different denominations and how much they’re worth, unlike at the beginning of the year when maybe they can’t tell a quarter from a nickel,” Rees said.

James Philpot, finance professor at Missouri State University, said beginning the financial education process early in life is an effective tool to changing spending habits.

“Even in situations where the parents may not be the most responsible managers of finances in the home, the children are being exposed to someone who proposes responsible money management, and that’s a good thing,” Philpot said.

Rees added that there is a return simply by presenting money in a positive light.

“When some of these kids were coloring what they were saving for, some wanted to help their parents buy a house so they could get out of their rental, or some wanted a car because they didn’t have one,” Rees said. “It’s a reminder for us that those children face real money problems every day, and we wanted to give them a positive view about decision making and how their decisions and habits now can affect them for the rest of their life.”

Changing spending habits

Early knowledge about saving can counteract some of the prevailing fallacies about security offered by company pensions or Social Security, Philpot said, adding that effective saving for retirement needs to start right from the beginning of a person’s working life.

“If you skip your (individual retirement account) contribution for a year, let’s say that’s $4,000,” Philpot said. “If it earned 8 percent over 35 years, at retirement you’re going to be short about $60,000 – and that’s just one year. The math is powerful.”

Great Southern Bank also participates in educational initiatives at the request of individual classes. The wide age range of students gives the bank an opportunity to address a variety of financial topics, from the value of money to the importance of building good credit.

Teaching the younger kids, though, makes the most impact, according to spokeswoman Kelly Polonus.

“The earlier you start with them, the better. Then as they get older, you can apply more of the concepts,” she said. “When you’re in middle school, you can apply the issues of credit. Then in high school, talk about establishing good credit. You just add as they get older – lay a good foundation and build on that.”

The real thing

In Joplin, one institution is aiming at the college crowd in an attempt to develop a more educated finance work force.

Edward Jones has partnered with Missouri Southern State University’s Department of Finance and Economics in the School of Business Administration in Joplin to create a new finance laboratory on the university campus.

The facility has 30 new computers and access to real-time financial databases including Bloomberg and Reuters.

Brad Kleindl, dean of the MSSU School of Business Administration, said the lab gives his college a unique opportunity.

“While we were covering similar course content in other classes, having this lab brings reality to the theoretical practice in the classroom,” Kleindl said. “Instead of talking to students about what they’re going to find when they go to work, they’re actually in that environment.”

Members of the finance program will be handling $300,000 of the Missouri Southern Foundation’s money, developing a portfolio and making investment decisions – a fact that Kleindl said gives MSSU students an advantage.

“Instead of saying on a résumé that they have the experience of working in a mock investment environment, they can say they made suggestions in a portfolio that actually, hopefully, had a positive return,” he said.

Any money earned on the $300,000 will be returned to the foundation’s coffers, Kleindl said.

MSU professor Philpot said educating young adults, even if they are not planning on going into the finance industry, can make a big impact, especially in today’s consumption-driven society.

“We can teach these personal finance courses in one semester, and we’re really trying to undo in one semester what parents have taught over 18 or 19 years through their actions,” he said. “They see their parents spending money, and they don’t realize that the money is the result of 20 or more years of hard work.”

Financial Principles to Know

The American Bankers Association Education Foundation says there are 12 principles essential for a complete financial education:

Map your financial future. List financial goals, along with a realistic plan to achieve them.

Pay yourself first. Set aside an affordable amount monthly before paying bills.

Start saving young.

High returns equal high risks. Diversification is the best protection against risk.

Rule of 72. To determine how long money will take to double, divide the interest rate into 72. (Example: If investments earn 6 percent, it will take 12 years to double.)

Budget your money. Identify expected income and expenses, including savings.

Know your take-home pay. Net income is much more important to estimate than gross income.

Don’t expect something for nothing.

Your credit past is your credit future. Credit reports record borrowers’ histories of repaying loans.

Compare interest rates. Obtain rate information from multiple financial service firms.

Don’t borrow what you can’t repay. Show you are worthy of getting credit in the future.

Stay insured.