MONEY real estate

This Problem Is Unexpectedly Crushing Many Retirement Dreams

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Peter Goldberg—Getty Images

Housing is most Americans' most important source of retirement security. So a sharp reduction in the rate of ownership, coupled with rising rents, is taking a toll.

The housing bust of 2008 touched every homeowner. The subsequent recovery has been selective, mainly benefiting those with the resources and credit to invest. This has had a more damaging effect on individuals’ retirement security than many might expect.

For a quarter century, home equity has been the largest single source of wealth for all but the richest households nearing retirement age, accounting for 44% of net worth in the 1990s and 35% today, new research shows. The home equity percentage of net worth is greatest among homeowners with the least wealth, reaching 50% for those with median net worth of $42,460, according to a report from The Hamilton Project, a think tank closely affiliated with the Brookings Institution.

By comparison, the share of net worth in retirement accounts is just 33% for all but the wealthiest households, a figure that drops to 21% for low-wealth households. So a housing recovery that leaves out low-income families is especially damaging to the nation’s retirement security as a whole.

There can be little doubt that low-income households largely have missed the housing recovery. Homeownership in the U.S. has been falling for eight years, down to 63.7% in the first quarter from a peak of over 69% in 2004, according to a report from Harvard University’s Joint Center for Housing Studies. Former homeowners are now renters, frozen out of the market by their own poor credit and stricter lending standards.

Meanwhile, rents are rising, taking an additional toll on many Americans’ ability to save for retirement. On average, the number of new rental households has increased by 770,000 annually since 2004, making 2004 to 2014 the strongest 10-year stretch of rental growth since the late 1980s.

The uneven housing recovery is contributing to an expanding wealth gap, the report suggests. Among households near retirement age, those in the top half of the net worth spectrum had more wealth in 2013, adjusted for inflation, than the top half in 1989. Those in the bottom half had less wealth.

Housing is by no means the only concern registered in the report. Much of what researchers point to is fairly well known: Only half of working Americans expect to have enough money to live comfortably in retirement; longevity is putting a strain on retirement resources; half of American seniors will pay out-of-pocket expenses for long-term services and supports; the percentage of dedicated retirement assets in traditional defined-benefit plans has shrunk from two-thirds in 1978 to one third today.

All of this diminishes retirement security. Individuals must adapt, and with so much riding on our personal ability to manage our own financial affairs it is surprising that the report goes to some lengths to play down the importance of what has blossomed into a broad financial education effort in the U.S.

Financial acumen is generally lacking among Americans and, for that matter, most of the world. Just half of pre-retirees, and far fewer younger folks, can correctly answer three basic questions about inflation, compound growth, and diversification, according one often-cited study. Yet researchers at The Hamilton Project assert that it is an “open question” as to whether public resources should be spent on educational efforts, citing evidence of its effectiveness as “underwhelming.”

I have argued that we cannot afford not to spend money on this effort. Yet I also understand the benefits of promoting things like automatic enrollment into 401(k) plans and automatic escalation of contributions, which The Hamilton Project seems to prefer. The truth is we need to do all of it, and more.

MONEY 401(k)s

The Painless Way New Grads Can Reach Financial Security

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Steve Debenport—Getty Images

You don’t need to be sophisticated. You don’t need to pick stocks. You don’t need to understand diversification or the economy. You just need to do this one simple thing—now.

A newly minted class of college graduates enters the work world this summer in what remains a tough environment for young job seekers. Half of last year’s graduates remain underemployed, according to an Accenture report. Yet hiring is up this year, and as young people land their first real job they might keep in mind a critical advantage they possess: time, which they have more of than virtually everyone else and can use to build financial security.

Saving early is a powerful force. But it loses impact with each year that passes without getting started. You don’t need to be sophisticated. You don’t need to pick stocks. You don’t need to understand diversification or the economy. You just need to begin putting away 10% of everything you make, right away. And 15% would be even better.

Consider a worker who saves $5,000 a year from age 25 to 65 and earns 7% a year. Not allowing for expenses and taxes, this person would have $1.1 million at age 65. Compare that to a worker who starts saving at the same pace at age 35. This worker would amass half that total, just $511,000. And now for the clincher: If the worker that started at age 25 suddenly stopped saving at age 35, but left her savings alone to grow through age 65, she would enjoy a nest egg of $589,000—more than the procrastinator who started at age 35 and saved for 30 more years.

That is the power of compounding, and it is the most important thing about money that a young worker must understand. Those first 10 years of a career fly by quickly and soon you will have lost the precious early years of saving opportunity and squandered your advantage. That’s why, if possible, I advise parents to get their children started even before college.

Once you start working, your employer will almost certainly offer a 401(k) plan. More than 80% of full-time workers have access to one. This is the easiest and most effective way to get started saving immediately. Here are some thoughts on how to proceed:

  • Enroll ASAP Some companies will allow you to enroll on your first day while others require you to be employed for six months or a year. Find out and get started as soon as possible. Most people barely feel the payroll deductions; they quickly get used to making ends meet on what is left.
  • Have you been auto enrolled? Increasingly, employers automatically sign you up for a 401(k) as soon as you are eligible. Some also automatically increase your contributions each year. Do not opt out of these programs. But look at how much of your pay is being deferred and where it is invested. Many plans defer just 3% and put it in a super safe, low-yielding money market fund. You likely are eligible to save much more than that and want to be invested in a fund that holds stocks for long-term growth.
  • Make the most of your match A big advantage of saving in a 401(k) is the company match. Many plans will match your contributions dollar for dollar or 50 cents on the dollar up to 6% of your salary. This is free money. Make sure you are contributing enough to get the full match.
  • Keep it simple Choosing investment options are where a lot of young workers get hung up. But it’s really simple. Forget the noise around large-cap and small-cap stocks, international diversification, and asset allocation. Most plans today offer a target-date fund that is the only investment you’ll ever need in your 401(k) plan. Choose the fund dated the year you will turn 65 or 70. The fund manager will handle everything else, keeping you appropriately invested for your age for the next 40 years. In many plans, such a target-date fund is the default option if you have been automatically enrolled.
  • Take advantage of a Roth Some plans offer a Roth 401(k) in addition to a regular 401(k). Divide your contributions between both. They are treated differently for tax purposes and having both will give you added flexibility in retirement. With a Roth, you make after-tax contributions but pay no tax upon withdrawal. With a regular 401(k), you make pre-tax contributions but pay tax when you take money out. The Roth is most effective if your taxes go up in retirement; the regular 401(k), if your taxes go down. Since it’s hard to know in advance, the smart move is to split your savings between the two.
  • Get help An increasing number of 401(k) plans include unbiased, professional third-party advice. This may be via online tools, printed material, group seminars, or one-on-one sessions. These resources can give you the confidence to make decisions, and according to Charles Schwab young workers that seek guidance tend to have higher savings rates and better ability to stay invested for the long haul in tough times.

Read next: 6 Financial Musts for New College Grads

 

 

MONEY Kids and Money

Shark Tank for Kids: This Game Delivers the American Dream

A cattleman from Peoria, IL gets a second chance to show the Sharks what he's learned about his gourmet meat business since his Season 4 visit to the Tank.
Kelsey McNeal—ABC

Educators are using reality TV as a model for teaching kids about money. Here's why it works.

As part of his middle school history and civics classes, James Kindle incorporates a segment on money. He calls it Shark Tank after the popular TV show, and while the idea is to introduce personal financial concepts and entrepreneurship what Kindle believes he really teaches is how to achieve the American dream.

Just like the competitors in the TV show, Kindle’s students must come up with a business idea, write a proposal, and pitch the concept to teacher “investors.” He’s a pretty good pitchman himself. Bringing financial education alive through his Shark Tank program at Sullivan Community School in Minneapolis, Minn., earned Kindle first place in the PwC Financial Literacy Innovation Challenge and a $50,000 prize for his school.

“I want to give my students a taste of this dream, while teaching persuasive language, entrepreneurship, and financial literacy skills,” Kindle wrote in a request for funding. In an email, he added “while it might be awhile before my students are meeting with investors and venture capitalists to fund their business ideas, it won’t be long until they are presenting at science and history fairs, competing in speech and debate, or meeting with college admissions officers.” So his program teaches presentation skills, too.

As one of the judges in the PwC Charitable Foundation contest, I can say that what resonates in Kindle’s program is the game-based approach to a difficult subject, along with the infusion of popular culture to make the experience relevant. These were common traits of all top finishers. The results suggest to both parents and educators that they would do well to keep the principles of fun, hands-on, and timely instruction in mind when trying to teach young people about money.

Second place went to a history and civics class at Lawrence County High School in Moulton, Ala., where they play Biggest Loser, also modeled after a popular TV show. Students visit “exercise stations” where they choose a loan or credit card or make some other decision to help them lose “weight” (debt). Who knew reality TV could serve a purpose? Other finalist programs were organized around things like how much various careers pay, and everyday saving and spending decisions.

“Mr. Kindle’s Shark Tank lesson bases financial literacy around core values and behaviors versus facts and figures in order to teach skills like persuasion, negotiation and ownership,” says Shannon Schuyler, PwC corporate responsibility leader. “The idea was contagious, authentic and, most importantly, fun.”

Interestingly, this contest’s winners are taking bows even as educators around the country wrestle with the role of play in learning. With today’s focus on formal education, kids are being asked at earlier and earlier ages to put away the blocks and listen to their teachers lecture. Yet some researchers say this “head start” may backfire. Rebecca Marcon, a psychology professor at the University of North Florida, found that pre-school students allowed to learn through play earned significantly higher grades in the third and fourth grade. With financial education, especially, most experts agree that a game-based approach works best.

One study found that when good instruction is paired with high-quality digital games there is a 12% jump in cognitive learning outcomes. The game-oriented H&R Block Budget Challenge has produced evidence that this type of learning significantly improves financial know-how. Says Kindle: “Using games always increases student engagement. An activity that seems mind-numbingly boring, when slightly twisted into a game, suddenly becomes thrilling.”

Relevance and timeliness are also important. Modeling programs after Shark Tank and Biggest Loser gave students an instant touchstone. At home, parents trying to make a financial point might choose an opportune moment—perhaps when their teen is getting an iPhone upgrade, which means more to them than the incremental cost of your adjustable-rate mortgage as bond yields tick higher.

Understanding personal finance isn’t just a way to make ends meet. As the enterprising middle school teacher from Minneapolis might say, it’s how you achieve the American dream.

Read next: Kids and Money: The Search for What Really Works

MONEY Financial Education

The Surprising New Company Benefit That’s Helping Americans Retire Richer

chalkboard with graph showing increase in money over time
Oleg Prikhodko—Getty Images

Financial education at the office is booming—and none too soon.

Like it or not, the job of educating Americans about how to manage their money is falling to the corporations they work for—and new research suggests that many of those employers are responding.

Some 83% of companies feel a sense of responsibility for employees’ financial wellness, according to a Bank of America Merrill Lynch Workplace Benefits Report, which found the vast majority of large companies are investing in financial education programs. Among other things, companies are using the annual fall benefits re-enrollment period to talk about things like 401(k) deferral rates and asset allocation, and enjoying impressive results.

Workers are responding to other programs too. Another Merrill report found that retirement advice group sessions in the workplace rose 14% last year and that just about all of those sessions resulted in a positive outcome: employees enrolling in a 401(k) plan, increasing contributions, or signing up for more advice. Calls to employer-sponsored retirement education centers rose 17.6% and requests for one-on-one sessions more than doubled.

So a broad effort to educate Americans about money management is under way, including in government and schools—and none too soon. This year, Millennials became the largest share of the workforce. This is a huge generation coming of age with almost no social safety net. These 80 million strong must start saving early if they are going to retire. Given this generation’s love of mobile technology, it’s notable that Merrill found a 46% increase in visits to its mobile financial education platform. That means employers are reaching young workers, who as a group have shown enormous interest in saving.

“There is not a single good reason—none—that should prevent any American from gaining the knowledge and skills needed to build a healthy financial future,” writes Richard Cordray, director of the Consumer Financial Protection Bureau, in a guest blog for the Council for Economic Education. His agency and dozens of nonprofits are pushing for financial education in grades K-12 but have had limited success. Just 17 states require a student to pass a personal finance course to graduate high school.

That’s why it’s critical that corporations take up the battle. Even college graduates entering the workplace generally lack basic personal money management skills. This often translates into lost time and productivity among workers trying to stay afloat in their personal financial affairs. So companies helping employees with financial advice is self serving, as well as beneficial to employees. Some argue it helps the economy as a whole, too, as it lessens the likelihood of another financial crisis linked to poor individual money decisions.

 

 

 

 

MONEY Kids and Money

Why Mothers Know Best About Money

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Jamie Grill—Getty Images

Eight in 10 Americans say they learned something about money from Mom. That's good, because Dad may have been a tad overconfident.

Moms deserve a lot of credit for the things they teach kids about money, and with Mother’s Day this weekend what better time to celebrate their financial tutelage? More than eight in 10 Americans say they learned something about money from their mother, a new survey shows.

The chief overall lesson: live within your means. That motherly wisdom was cited by 55% in the survey from BeFrugal.com. The same percentage said she taught them the difference between a want and a need. Some 44% said Mom emphasized the importance of being self-sufficient. Mom also taught them how to shop wisely: 67% said she taught them about sales, and 57% said she taught them about coupons.

These findings jibe with other research on the subject. A few years ago, TD Bank found that in many families Dad doles out allowance and oversees big purchases, and that Dad tends to be the most confident about money and most interested in results. Meanwhile, Mom is most interested in the kids’ money learning process and the day-to-day aspects of financial management.

Mom’s softer approach to money lessons probably stems from motherly wisdom in many areas. Life lessons like “don’t be late” and “practice, practice, practice” and “don’t be afraid to ask for help” and many others have direct application to the money world. After all, it’s sage advice indeed to never make a late payment and to seek advice on complicated money matters.

Given the financial mistakes that many parents have made—poorly managing credit cards, for example—some argue that young adults would do better to skip parental advice altogether and find a financial adviser or third-party online advice. But the best advice is probably to listen to both Mom and Dad. They often see financial matters differently. That’s natural—opposites attract. And through discussion and compromise, your parents probably run the household finances better together than either one would alone.

That’s good since kids—and even young adults—seem to depend on both Mom and Dad for financial advice. Two surveys last fall, one by Fidelity Investments and the other by TIAA-CREF, show that Millennials seek out their parents more than anyone else for financial guidance. Fidelity identified parents as their top choice for trusted money advice. TIAA-CREF found that 47% view their parents as especially influential in money matters.

So here’s to all the moms out there, imparting financial wisdom in ways only they seem able—and for being an important counter balance to all the fathers with misplaced confidence in their own money skills. Several studies have shown that women make better investors. But let’s give a nod to dads too. Embracing risk and a focus on results have their place, and the balance that both parents produce may be the best lesson of all.

Read next: What Dads Can Do to Really Help Mom This Mother’s Day

MONEY financial literacy

Most 20-Somethings Can’t Answer These 3 Financial Questions. Can You?

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Getty Images—Getty Images

A new study finds that young Americans could use some help when it comes to managing their money.

Just in time for financial literacy month, a new San Diego State University study of young Americans has found that they are lacking when it comes to financial knowledge and behavior.

Out of these three questions measuring basic financial knowledge, the average respondent could answer only 1.8 correctly—and only a quarter got all three right. (Answers are at the bottom of this story.)

(1) Do you think that the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

(2) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: More than $102, exactly $102, or less than $102?

(3) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account?

Perhaps most troubling was what the research showed about how respondents have actually been managing their money. The average young person surveyed showed responsible behavior in only one of three categories: Paying off debts on time, budgeting and living within one’s means, and having any retirement savings at all. Only 2% of all respondents showed responsible behavior in all three categories.

Furthermore, the study—led by SDSU professors Ning Tang, Andrew Baker, and Paula Peter—found that there was little to no effect of financial knowledge on financial behavior. That is, young people manage money poorly, even when they know better.

But there is hope for America’s youth, says Tang.

“Our findings suggest that if you want to improve your own financial behavior, the best thing you can do is be open to the influences of others,” says Tang.

Though the study did not examine the influence of peers, its results suggest both family and financial professionals could play an important role in improving young people’s financial habits. The researchers found that being close with parents was correlated with better money management among women—and that higher self-reported levels of being “thorough” and “careful” was correlated with better financial behavior among men. Among both sexes, higher self-reported levels of being “self-disciplined” was correlated with better money habits.

That suggests educators and financial planners should focus on getting young people to be more self-aware in general and more motivated to improve their organizational habits across the board—not just when it comes to finances, says Tang.

“It can be helpful just to be more aware of your own psychological barriers,” she says.

One thing the study did not explore much is the cause of gender differences in the results. For example, the authors did not control for whether parents tend to treat daughters differently than sons.

And the answers to the questions above? They are: (1) false; (2) more than $102; and (3) less than today.

Read Next: This One Question Can Show If You’re Smarter Than Most U.S. Millennials

TIME

Why More Access to Credit Is Not a Good Thing

Getty Images

It's basically like getting the keys to a race car we don't know how to drive

According to a recent survey from the New York Fed, Americans today feel pretty good about their ability to get credit. The percentage of people applying for credit cards ticked up over the last quarter, and it’s up about three percentage points since October 2013, while the percentages of rejected credit card applications and involuntary account closures have fallen. The percentage of people rejected when they ask for a credit limit increase has fallen even more sharply; as of last quarter, more than 75% of people who asked for increases got them.

And we think the good times are going to keep rolling. The same Fed survey found that more people expect to ask for credit limit increases — and get them — over the next 12 months. Abut 12% of survey respondents expect to apply for credit cards in the next year, a jump of about four percentage points over the previous quarter.

This would be all well and good, except for one tiny detail: We really have no idea what we’re doing when it comes to credit, and being clueless can cost us big bucks.

The 2015 Chase Slate Credit Survey finds that about 40% of us have never checked our credit scores, and people in this camp have a fuzzy grasp of what a “good” credit score entails. People who have never checked their credit think, on average, a score of 668 is good (it’s really not terrific).

Even among the people who have checked, they think a score of 719 is good — which is better, but still not where you need to be if you want to get the best rates. With a score like that, you’ll probably be able to get credit, but you might pay more, and these survey results indicate that many of us might not even realize we could be doing better and saving money in the process.

Chase also shows that we’re overconfident about our credit smarts in other ways. While almost 90% of people who say they’re in a “poor financial situation” have a good handle on what constitutes a good credit score, only about 80% of those who think they’re in good shape, credit-wise, know what that really means.

A survey by credit bureau TransUnion finds a similar knowledge gap: More than two in five of the people in its survey who checked their credit in the last month think your income is included in a credit report, and almost half of those who have checked their score in the last year think getting a raise automatically boosts your score. (Neither is true.)

And while we’ve got great intentions, we don’t always follow through: Although two-thirds of respondents to the Chase survey say they want to improve their credit over the next year, only about a third of respondents say they have a plan to do so, and more than one in five say they’ve never lifted a finger to improve their credit. More worrisome: A majority of people surveyed don’t even know paying bills on time is the top factor that contributes to your credit score.

Sometimes, this lack of knowledge can prevent us from educating ourselves further: 20% of respondents in TransUnion’s survey who checked their score in the last year think doing so lowered their score, which could keep them from checking it more frequently. In reality, checking your own score doesn’t hurt it; it’s only when a lender makes an inquiry that your score takes a small hit.

So, while lenders are happy to keep giving America credit and borrowers are eager to take it, many of us are doing so without even a basic grasp of how the system works. This isn’t blissful ignorance; this is potentially expensive ignorance, and the worst part is many people don’t know how or why to improve their credit.

 

MONEY Financial Education

Kids and Money: The Search for What Really Works

piggy banks with chalkboard saying "savings 101"
Getty Images

A new study aims to understand the effectiveness of the money lessons kids learn in school.

Those who oppose integrating financial education into our nation’s classrooms have long argued money lessons don’t actually change behavior. Slowly, evidence to the contrary is emerging. But much more proof is needed before personal finance will be taken as seriously as math, science, or history.

That line of thinking underlies a new $30 million commitment from professional services firm PwC, which in 2012 launched its Earn Your Future program, designed to help educators gain the tools and knowledge they need in order to teach kids about money. PwC pledged $100 million worth of service hours from its employees and $60 million in cash over five years.

This new commitment is all cash, and a good chunk of it takes aim at a research void: finding what teaching methods and strategies result in lasting behavior change among students who study personal finance. PwC has teamed with two major universities to analyze financial education programs in grade schools and colleges with the goal of understanding how students learn and apply money lessons.

“Financial capability techniques are still evolving,” says Shannon Schuyler, corporate responsibility leader at PwC. “We need to make sure that as we are implementing them into classrooms, we are measuring their effectiveness and adjusting our strategy and approach based on the findings from sound research.”

Critics say this may all be a waste of resources. They argue that marketing messages overwhelm the common sense you might learn as a young student, and that the financial landscape changes so fast that anything you learn about, say, bank fees and cell phone packages quickly becomes obsolete.

Such issues have been studied for years. We have a global library of some 1,400 papers on the subject. But only recently has this research begun to hone in on what really works. In a groundbreaking study in February, researchers at the University of Wisconsin Center for Financial Security tied personal finance lessons in school to higher credit scores among young adults. Other recent research sponsored by H&R Block found remarkable attitude changes in students following a nine-week personal finance course, including that 92% said learning about money management was very important and 80% wanted to learn more.

The new PwC commitment will also fund research into how iPads and other mobile technologies can speed learning of financial concepts—even as the firm sets aside more funds for good old-fashioned learning from print. A colorful six-page magazine through Time for Kids, Your $, spotlights financial literacy for kids. The print version is being distributed in New York schools and will roll out in Chicago this month. It is also available online.

Policymakers in the U.S. and around the world are embracing financial education as a way to help prevent or minimize the effects of another financial crisis. In the U.S., the Obama administration has made its priorities clear—it wants clean data that can be analyzed and used to find proof of financial education strategies that work. We seem to be moving that direction.

MONEY Savings

5 Signs You Will Become a Millionaire

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Martin Barraud—Getty Images

A million isn't what it used to be. But it's not bad, and here's how you get there.

A million bucks isn’t what it used to be. When your father, or maybe you, set that savings goal in 1980 it was like shooting for $3 million today. Still, millionaire status is nothing to sniff at—and new research suggests that a broad swath of millennials and Gen-Xers are on the right track.

The “emerging affluent” class, as defined in the latest Fidelity Millionaire Outlook study, has many of the same habits and traits as today’s millionaires and multimillionaires. You are in this class if you are 21 to 49 years of age with at least $100,000 of annual household income and $50,000 to $250,000 in investable assets. Fidelity found this group has five key points in common with today’s millionaires:

  • Lucrative career: The emerging affluent are largely pursuing careers in information technology, finance and accounting—much like many of today’s millionaires did years ago. They may be at a low level now, but they have time to climb the corporate ladder.
  • High income: The median household income of this emerging class is $125,000, more than double the median U.S. household income. That suggests they have more room to save now and are on track to earn and save even more.
  • Self-starters: Eight in 10 among the emerging affluent have built assets on their own, or added to those they inherited, which is also true of millionaires and multimillionaires.
  • Long-term focus: Three in four among the emerging affluent have a long-term approach to investments. Like the more established wealthy, this group stays with its investment regimen through all markets rather than try to time the market for short-term gains.
  • Appropriate aggressiveness: Similar to multimillionaires, the emerging affluent display a willingness to invest in riskier, high-growth assets for superior long-term returns.

Becoming a millionaire shouldn’t be difficult for millennials. All it takes is discipline and an early start. If you begin with $10,000 at age 25 and save $5,500 a year in an IRA that grows 6% a year, you will have $1 million at age 65. If you save in a 401(k) plan that matches half your contributions, you’ll amass nearly $1.5 million. That’s with no inheritance or other savings. Such sums may sound big to a young adult making little money. But if they save just $3,000 a year for seven years and then boost it to $7,500 a year, they will reach $1 million by age 65.

An emerging affluent who already has up to $250,000 and a big income can do this without breaking a sweat. They should be shooting far higher—to at least $3 million by 2050, just to keep pace with what $1 million buys today (assuming 3% annual inflation). But they will need $6 million in 2050 to have the purchasing power of $1 million back in 1980, when your father could rightly claim that a million dollars would make him rich.

Read next: What’s Your Best Path to $1 Million?

MONEY Kids and Money

The High School Class That Makes People Richer

Graduates with $$ on their caps
Mark Scott—Getty Images

Kids really do benefit from learning about money in school, new data show

Most experts believe students who study personal finance in school learn valuable money management concepts. Less clear is how much they retain into adulthood and whether studying things like budgets and saving changes behavior for the better.

But evidence that financial education works is beginning to surface. Researchers at the Center for Financial Security at the University of Wisconsin recently found a direct tie between personal finance classes in high school and higher credit scores as young adults. Now, national results from a high school “budget challenge” further build the case.

Researchers surveyed more than 25,000 high school students that participated in a nine-week Budget Challenge Simulation contest last fall and found the students made remarkable strides in financial awareness. After the contest:

  • 92% said learning about money management was very important and 80% wanted to learn more
  • 92% said they were more likely to check their account balance before writing a check
  • 89% said they were more confident and 91% said they were more aware of money pitfalls and mistakes
  • 87% said they were better able to avoid bank and credit card fees
  • 84% said they were better able to understand fine print and 79% said they were better able to compare financial products
  • 78% said they learned money management methods that worked best for them
  • 53% said they were rethinking their college major or career choice with an eye toward higher pay

These figures represent a vast improvement over attitudes about money before the contest, which H&R Block sponsored and individual teachers led in connection with a class. For example, among those surveyed before and after the contest, those who said learning about money was very important jumped to 92% from 81% and those who said having a budget was very important jumped to 84% from 71%. Those who said they should spend at least 45 minutes a month on their finances jumped to 44% from 31%.

The budget challenge simulates life decisions around insurance, retirement saving, household budgets, income, rent, cable packages, student loans, cell phones, and bank accounts. Teachers like it because it is experiential learning wrapped around a game with prizes. Every decision reshapes a student’s simulated financial picture and leads to more decision points, like when to a pay a bill in full or pay only the minimum to avoid fees while waiting for the next paycheck.

Block is giving away $3 million in scholarships and classroom grants to winners. The first round of awards totaling $1.4 million went out the door in January.

The new data fall short of proving that financial education leads to behavior improvement and smarter decisions as adults, and such proof is sorely needed if schools to are to hop on board with programs like this in a meaningful way. Yet the results clearly point to long-term benefits.

Once a student—no matter what age, including adults—learns that fine print is important and bank fees add up she is likely to be on the lookout the rest of her life. Once a student chooses to keep learning about money management he usually does. Added confidence only helps. Once students develop habits that work well for them and understand pitfalls and mistakes, they are likely to keep searching for what works and what protects them even as the world changes and their finances grow more complex. Slowly, skeptics about individuals’ ability to learn and sort out money issues for themselves are being discredited. But we have a long way to go.

 

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