MONEY financial literacy

The Financial Literacy Test You Need to Pass

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Martin Shields—Getty Images

Answer these 5 questions to find out how much you know about money.

It’s generally useful to be literate in at least one spoken and written language. But that’s not the only kind of literacy that matters. We need to be savvy about managing (and growing!) our money, too. Here’s a financial literacy test that will help you figure out where you are on the road to financial success.

Answer the following questions without reading below them until you’re done:

  1. What is your net worth?
  2. Is it more important to pay off high-interest rate debt or save for retirement first?
  3. When should you start saving for retirement?
  4. How much money will you need to have accumulated for retirement?
  5. Do stocks, bonds, or real estate grow fastest over long periods?

Now let’s review each question and what your answer reveals.

What is your net worth?
There isn’t exactly a right or wrong answer to this question, though an answer of $0 or negative $100,000 would clearly be undesirable. Instead, the way to get this question right is to know what your net worth is, roughly.

Many people have no idea, because they haven’t given much thought to the matter. But as you take control of your finances, and aim to build a comfortable future, it’s important to have a handle on how financially healthy you are.

To determine your net worth, add all your assets together, including cash, savings and investing accounts, and the value of your home, car, and other belongings. Then subtract from that total all your debt, including the balance on any mortgage, car loan, or credit card account. What do you get?

Ideally, your net worth is positive — and poised to grow. If it’s negative, or lower than you want it to be, start figuring out how much money you have coming into your household, where it’s all going, and what changes you might be able to make to boost your net worth.

Is it more important to pay off high-interest rate debt or save for retirement first?
Tackling the debt should be your priority. With pensions having been phased out at myriad companies, it’s more important than ever for us to save for our retirements. But don’t do so while carrying high-interest rate debt, or you’ll likely end up losing ground.

You can hope to earn close to the stock market’s long-term annual average growth rate of around 10% with your stock investments, and that can turn a single $10,000 stub into almost $26,000 in a decade. But if you’re carrying $10,000 in credit card debt and are being charged 25% interest, you can expect that balance to soar to more than $90,000 in a decade, if you don’t pay it off pronto.

It’s OK to maintain low-interest rate debt, such as a mortgage, while saving and investing for retirement; but debt with steep rates should be tackled as soon as possible. Otherwise, what you owe is likely to grow faster than what you own.

When should you start saving for retirement?
The right answer here is as soon as possible. It’s easy to assume that it’s safe to put it off while you’re in your 20s and even 30s, but that would be a big mistake. The later you start saving and investing for retirement, the more aggressive you’ll have to be. If you start at age 45, for example, you’ll have only 20 years to accumulate your nest egg, while someone starting at age 25 will have 40 years — twice as long.

That’s important, because the longer your money has to grow, the faster it can do so. Consider that if you save and invest just $5,000 per year, and it grows at 10% annually, it will become $315,000 in 20 years. That total wouldn’t just be twice as much over 40 years — it would be $2.4 million! If you sock away just $1,200 at age 18 and it grows at 10% for 47 years until age 65, it will top $100,000. Your earliest dollars have the most growth potential.

How much money will you need to have accumulated for retirement? There’s no one-size-fits-all answer here. You’ll probably need to crunch some numbers on your own to arrive at a decent estimate.

For starters, note that, per many experts, a relatively safe annual withdrawal rate from your nest egg in retirement is 4% (adjusted for inflation each year), if you want your money to last. Thus, estimate how much annual income you’d like in retirement, and multiply it by 25 to determine how big a nest egg you need. Want $50,000 annually? Aim for $1.25 million.

Of course, you can also factor in Social Security income and any other expected income. (As of June, the average Social Security benefit was $1,335 per month, or $16,000 per year.) If you earn an above-average income, and assume an annual income of $22,000 from Social Security, then you’ll only have to aim for $28,000 annually on your own, which would mean a nest egg of $700,000.

Do stocks, bonds, or real estate grow fastest over long periods?
The answer here is clear, and it’s stocks. If you don’t understand how much you can expect to earn on various kinds of investments, you can leave thousands or hundreds of thousands of dollars on the table during your investing lifetime.

Check out this data from Wharton Business School professor Jeremy Siegel, who has calculated the average returns for stocks, bonds, bills, gold, and the dollar, between 1802 and 2012:

Asset Class Annualized Nominal Return
Stocks 8.1%
Bonds 5.1%
Bills 4.2%
Gold 2.1%
U.S. Dollar 1.4%

Source: Stocks for the Long Run.

The annualized rate for stocks from 1926 to 2012 was 9.6%, by the way. Stocks overpower bonds over both the long run and — usually — the short run. Siegel’s data shows stocks outperforming bonds in 96% of all 20-year holding periods between 1871 and 2012, and in 99% of all 30-year holding periods.

Meanwhile, the research of Nobel-prize-winning economist Robert Shiller, famous for his studies of the housing market, has home prices averaging annual growth of about 5% in the post-war period since World War II.

Don’t doom yourself to financial illiteracy. Keep reading and learning about smart money management, and your future may be much brighter. Give yourself a financial literacy test every now and then, too, to keep yourself on your toes.

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MONEY financial literacy

6 Nuggets of Financial Wisdom I Wish I’d Learned in School (But Didn’t)

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JGI/Jamie Grill—Getty Images

Financial literacy 101 should be a required class.

As I reflect back on my years in high school and even college, one thing has become readily apparent: learning about the many facets of financial management wasn’t part of the plan.

Admittedly, the constraints on the education system these days are tremendous. Veritably every parent has an idea of what their child should be learning in school. But, when push comes to shove, America’s kids are woefully unprepared for the real world when they graduate with respect to their financial knowledge.

A financial literacy survey conducted by the Financial Industry Regulation Authority, or FINRA, that was released last year demonstrates just how much trouble our nation’s young adults could be in when it comes to their finances. The five-question survey covered relatively basic topics such as interest, savings, and investments. A passing score was considered four or five questions out of five answered correctly. Less than a quarter of millennials aged 18 to 34 passed the quiz.

Arguably a lot of these issues could be solved if they taught basic life skills in school as it relates to our everyday finances. Here are six things that I should have learned when I was in school, but didn’t until after I graduated and sought the answers out for myself.

1. How to balance a budget
In terms of basic money management skills, nothing is more critical than understanding your cash flow. Most people have a pretty good bead on how much money is coming in via paychecks, but when you ask them where their money went by the end of the pay period you’re liable to get a shoulder shrug.

Students in school should be taught early and often about the basics of keeping a record of their financial transactions. This means recording cash flow into and out of a checking account, and understanding how to properly formulate a budget. Operating on a budget will teach critical money management skills that should allow students to save money and not live paycheck to paycheck — something that could come in handy if they graduate with student loan debt or don’t land their dream job right out of high school or college.

2. How to manage credit
Another financial nugget of wisdom not being taught in schools is the concept of credit, credit scores, and how lending rates can affect our financial decisions.

Not understanding your credit score, or what goes into the makings of a credit score, can be a big problem. In general, your credit score is the single most important component that will determine whether or not a financial institution will lend to you. It’s also a determinant of what interest rate you’ll qualify for. The higher your credit score, the more favorable the lending rate, and the more financial institutions are likely to compete to obtain your business (which could further lower your lending rate).

Along those same lines, it’s imperative today’s youth understand the concept of interest and how dangerous making minimum payments on a credit card can be. According to a 2011 Harvard study by Dennis Campbell that looked at Affinity Plus Federal Credit Union’s 30,000+ member portfolio of credit card holders, a mere 8% of members were on track to pay off their credit cards in 36 months (three years) or less. This means more than nine out of 10 cardholders are in danger of paying substantial interest fees over the life of their debt.

3. How to invest for retirement
It’s not only important that schools teach kids how to save and manage their credit profile, but it’s equally important that they teach students how to invest for their future.

A Money Pulse survey from Bankrate in April showed that, for adults under the age of 30, only 26% owned stock. That might not seem like a terrifying figure, but with time and compounding being the best friend of the long-term investor, it could really put millennials in a tough bind come retirement. The reason is the stock market has historically returned 7% per year. Comparatively, next to bonds, CDs, money market accounts, savings accounts, and metals, it’s been the greatest long-term creator of wealth. Other investment vehicles may not even outpace the rate of inflation, resulting in real money losses.

On top of understanding their basic investment options, students should also be introduced to common tax-advantaged retirement vehicles like IRAs and 401(k)s, and they should leave school with a basic understanding of what Social Security and Medicare cover and how these entitlement programs could affect them before and after retirement.

4. How taxes affect us
Who here remembers getting their first paycheck and feeling dumbfounded at all the deductions that were taken out? I (vaguely) remember I did because I wasn’t taught about the basics of taxes — why we pay them and who benefits from our tax payments — in school.

Since all working Americans pay taxes, all students should be taught some tax basics. They should understand how much we pay in payroll taxes, and ultimately how those payroll taxes get funneled into the Social Security program. Students should also understand why federal income taxes, state income taxes, and Medicare taxes exist, and be prepared to estimate how much of their paycheck may wind up being taken out to cover taxes. Understanding how much you’ll pay annually, monthly, or weekly in taxes is another component to proper budgeting.

5. How to market yourself and interview for a job
I’m not exactly sure how schools get away without teaching this, but at no point during my tenure in high school and college was I ever taught the basics of developing a resume, how to market myself, or how to be interviewed by a prospective employer. In my opinion, these real-world situations should be at the top of the list of what we’re teaching in school.

Throughout high school we should be teaching students the skills necessary to land a well-paying job. These include how to prepare a resume and highlight their strengths, how to find and apply for a job, how to successfully interview and sell their strengths in person, and also how to negotiate contracts and/or their salary. Without these basic tools, millennials and generation Z could wind up being underpaid and/or underemployed.

6. How to set goals
Finally, schools need to do a better job of teaching students about goals and goal-setting.

Understandably goal-setting sometimes involves more than just your finances. Taking a European vacation, owning a beach house in Florida, or being married with two kids and a white picket fence by the age of 35, are all examples of potentially lofty goals. However, most goals will ultimately tie back into your finances. You need to be able to save enough in order to take a trip to Europe, buy a beach house, or start a family.

Schools these days should be teaching students about creating achievable goals for the short- and long-term, and should be advising students on how to hold themselves accountable. This means creating measurable goals that are easy to keep track of.

Although I personally believe these six financial nuggets of wisdom should be taught in our schools, there’s no reason kids these days shouldn’t also be learning about these concepts in their home. If you have the time and the know-how, there may be no greater gift you can give your child than giving them a head start in understanding real-world financial concepts.

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MONEY retirement income

QUIZ: How Smart Are You About Retirement Income?

senior sitting in chair reading newspaper with beach view in background
Tom Merton—Getty Images

Only 4 in 10 Americans have seriously looked at their retirement income options.

Do you have a credible retirement income plan? A TIAA-CREF survey earlier this year found that only four in 10 Americans had seriously looked into how to convert their savings into post-career income. To see just how much you know about creating income that will support you throughout retirement, answer the 10 questions below—and see immediately if you got them right. You’ll find a full explanation of all the correct answers, plus a scoring guide, just below the quiz.

When $1.5 Million Isn’t Enough for Retirement

Scoring:

0-4: You really need to brush up on retirement income basics, preferably before you start collecting Social Security and drawing down your nest egg.

5-7: You understand the basics, but you’ll improve your retirement prospects immensely if you take a deeper dive into how to create a retirement income plan.

8-9: You clearly know your way around most retirement-income concepts. That doesn’t mean you couldn’t profit, however, from learning more about such topics as Social Security, different ways to get guaranteed income and how to set up a retirement income plan.

10: If the answers in this quiz weren’t so obvious, I’d say you’re a retirement income expert. Still, congratulations are in order if for no other reason than you actually read this story from top to bottom and got every answer right.

Explanation of Answers:

1. Based on projections in the Social Security trustees report released last week, the trust fund that helps pay Social Security retiree and disability benefits will run out of money in 2034. That means…
c. that payroll taxes coming into the system will still be able to pay about 79% of scheduled benefits.
d. that Congress needs to do something between now and 2034 to address this issue.

Both c and d are correct. Although the trust fund’s “exhaustion date”—2034 in the latest report—gets a lot of press attention, all it means is that we’ll have run through the surplus that accumulated over the years because more payroll taxes were collected than necessary to fund ongoing benefits. When that surplus is exhausted, enough payroll taxes will still flow in to pay about 79% of scheduled benefits. That said, I doubt the American public will stand for a system that eventually calls for them to take a 21% haircut on Social Security benefits. So at some point Congress will have to act—i.e., find some combination of new revenue and perhaps smaller or more targeted cuts—to deal with this looming shortfall, as it has addressed similar problems in the past.

2. Given the low investment returns expected in the future, what initial annual withdrawal rate subsequently increased by the inflation should you limit yourself to if you want your nest egg to last at least 30 years?
a. 3% to 4%

In eras of more generous stock and bond market returns, retirees who limited their initial withdrawal to 4% of savings and subsequently increased that draw for inflation had a roughly 90% or better chance of their nest egg lasting 30 or more years. Hence, the oft-cited “4% rule.” But later research that takes lower investment returns into account suggests that an initial withdrawal rate of 3% or so makes more sense if you want your money to last at least 30 years. Truth is, though, whatever initial withdrawal rate you start with, you should be prepared to adjust it in the future based on on market conditions and the size of your nest egg.

3. An immediate annuity can pay you a higher monthly income for life for a given sum of money than you could generate on your own by investing the same amount in very secure investments. That is due to…
c. mortality credits.

Some annuity owners will die sooner than others. The payments that would have gone to those who die early and that are essentially transferred to those who die later are called mortality credits. Thus, mortality credits are effectively an extra source of return an annuity offers that an individual investing on his own has no way of earning.

4. A Roth IRA or Roth 401(k) …
c. may or may not be a better deal depending on the particulars of your financial situation.

While it’s true in theory that a traditional 401(k) or IRA makes more sense if you expect to face a lower tax rate when you make withdrawals in retirement and you’re better off with a Roth 401(k) or Roth IRA if you expect to face a higher rate, in real life the decision is more complicated. The tax rate you pay during your career can vary significantly, which means sometimes it may go to go with a traditional account, other times the Roth may make more sense. It can also be difficult to predict what tax rate you’ll actually face in retirement, making it hard to know which is the better choice. Given the uncertainty due to these and other factors, I think it makes sense for most people to practice “tax diversification,” and try to have at least a bit of money in both types of accounts.

5. Starting at age 70 1/2, you must begin taking annual required minimum distributions (RMDs) from 401(k)s, IRAs and similar retirement accounts. If you miss taking your RMD in a given year, the IRS may charge a tax penalty equal to what percentage of the amount you should have withdrawn?
d. 50%

That’s right, there’s a 50% tax penalty for not taking your RMD—and that’s in addition to the regular tax you own on that RMD. (If you’re still working, you may be able to postpone RMDs from your current 401(k) until after you retire, if the plan allows). You can plead your case and ask the IRS to waive the penalty—and sometimes the IRS will. But clearly the better course is to make sure you take your RMD every year rather than putting yourself at the IRS’s mercy.

6. Many retirees focus heavily on dividend stocks to provide steady and secure income throughout retirement. How did the popular iShares Dividend Select ETF perform during the financial crisis year 2008?
d. It lost 33%.

Tilting your retirement portfolio heavily toward dividend-paying stocks and funds can leave you too concentrated in a few industries. The main reason iShares Dividend Select ETF lost 33% in 2008 was because of its heavy weighting in financial stocks, which got hammered in the financial crisis. If you want to include dividend stocks and funds in your portfolio, that’s fine. But don’t overdo it. A better way to invest for retirement income is to build a portfolio that mirrors the weightings of the broad stock and bond markets and supplement dividends and interest payments by selling stock or fund shares to get the income you need.

7. To avoid running through your savings too soon, you should spend down your nest egg so that it will last as long as the remaining life expectancy for someone your age.
b. False

Life expectancy represents the number of years on average that people of a given age are expected to live. (This life expectancy calculator can help you calculate yours.) But many people will live beyond their life expectancy; some well beyond. So if arrange your spending so that your nest egg will carry you only to life expectancy, you may find yourself forced to stint in your dotage. To avoid that possibility, I generally recommend that you plan as if you’ll live at least to your early to mid-90s.

8. If your Social Security benefit at your full retirement age of 66 is $1,000 a month, roughly how much per month will you receive if you begin collecting benefits at age 62? How about if you wait until age 70?
c. $750/$1,320

For each year you delay taking Social Security between the age of 62 and 70, your benefit increases by roughly 7% to 8% (and that’s before cost-of-living adjustments). If you also work during the time you postpone taking benefits, your payment could rise even more. To see how much delaying benefits and other strategies might boost the amount of Social Security you (and your spouse, if you’re married) collect over your lifetime, check out the Financial Engines Social Security calculator.

9. With yields so low these days, bonds and bond funds, no longer deserve a place in retirement portfolios.
b. False

There’s no doubt that if interest rates continue to rise as they already have since the beginning of the year, that bonds and bond funds could post losses. But as long as you stick to a diversified portfolio of investment-grade bonds with short- to intermediate-term maturities, those losses aren’t likely to come anywhere close to the 50% or more declines stocks have suffered in past meltdowns. Which means that while bonds at current yields may not provide as much of a cushion as they have in past years, a portfolio that includes bonds will be much more stable than an all-stocks portfolio. In short, for diversification reasons alone, it still makes sense to include short- to intermediate-term bonds or bond funds in your retirement portfolio.

10. A new type of longevity annuity called a Qualified Longevity Annuity Contract, or QLAC (pronounced “Cue Lack”), allows you to invest a relatively small sum today within your 401(k) or IRA in return for a relatively high guaranteed lifetime payout in the future. For example, a 65-year-old man who invests $25,000 in a QLAC might receive $550 a month starting at age 80, or $1,030 a month starting at 85. Putting a portion of your nest egg into a QLAC also allows you to…
b. Worry less that overspending early in retirement will exhaust your nest egg since you can count on your QLAC payments kicking in later on.
c. postpone taking RMDs on value of the QLAC (and avoid the income tax that would be due on those RMDs) until it actually begins making payments.

Both b and c are correct. The main reason to consider a QLAC is to hedge against the possibility of running through your savings and finding yourself short of the income you need late in retirement. But the fact that you can postpone RMDs and the tax that would be due on them is an added bonus. To qualify for this bonus, however, you must be sure that the longevity annuity you buy with your 401(k) or IRA funds meets the Treasury Department’s criteria to be designated as a QLAC and that the amount you put into the QLAC doesn’t exceed the lesser of $125,000 or 25% of your account balance.

Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

Read next: Why the Right Kind of Annuity Can Boost Your Retirement Income

MONEY Kids and Money

Why Virginia Teens Have a Big Edge Over Teens in Florida

high school students walking out of school
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Florida's governor just sold the state's teenagers short.

Florida Gov. Rick Scott vetoed a pilot project at the end of June that would have taken a big step toward mandating personal finance as a standalone course in high schools throughout the state. Meanwhile, Virginia’s high school class of 2015 just became the state’s first to finish with a personal finance requirement.

The developments highlight the on-again, off-again nature of the effort to make financial instruction a part of every child’s education. “Virginia’s class of 2015 enters the real world with a comparative advantage,” says Nan Morrison, CEO of the Council for Economic Education, adding that she was “disappointed” Florida killed the Broward County project, which would have cost just $30,000.

Financial education is gaining traction globally. The U.K. and Australia have mandatory money management classes in schools. Last month, Canada announced a national strategy for financial literacy and is rolling out 50 programs as part of Count Me In, Canada. These will include websites with educational resources for students as well as seminars and workshops for seniors.

The U.S. has a formal national strategy for financial capability, approved in 2006 and updated in 2011. Yet a persistent barrier to progress, at least at the school level, is that individual states have domain over their school curricula. There can be no federal mandate for financial education, as in other countries. So organizations like Jumpstart Coalition and the CEE have been leading the effort to establish standards for personal finance coursework and convince states to sign on, one by one.

It’s been a long slog. Just 17 states currently require students to take a personal finance course, according to the most recent Survey of the States report; 22 require high school economics. Both numbers are trending upward.

Will There Be a Test on That?

But in education, unless students get tested on a subject it never really gets taken seriously. And in both economics and personal finance, the number of states with required testing in these areas is falling — to 16 from a peak of 27 in economics and to six from nine in personal finance.

Why does this matter? Advocates for financial education see it as a buttress against the next financial meltdown. If more people understand more about how their mortgage works and why an emergency fund equal to six months of living expenses is important, they may be less likely to take on debts they cannot afford or default at the first hiccup in their financial plan. The idea is that this could stop any downward spiral in the national economy.

Yet even if that seems far-fetched, it is hard to deny the individual benefits of a population that knows more about retirement saving, budgets and credit. Millennials and younger generations will grow old in an age of greatly diminished public and private pensions; the sooner they understand that — and many are getting the message — the more likely they will be to save more at an earlier age.

So bravo, Virginia class of 2015. You have blazed an important path. One recent study found that a required high school course in economics and personal finance resulted in higher credit scores and lower delinquency rates as adults.

“In Virginia, since our course is relatively new, we have only anecdotal evidence,” says Daniel Mortensen, executive director of the Virginia CEE. “One student recently wrote a letter to the editor, talking about the required course and the value it has brought to his life.”

As for the setback in Florida, it is somewhat surprising in that the state last summer became the first to adopt CEE K-12 national standards for financial literacy. This is not a backward-thinking group of legislators. In effect, all the governor did was shoot down an attempt to strengthen what’s already in place: a required one-semester economics course that is 25% personal finance.

By comparison, Virginia’s requirement is two semesters — about half of which is personal finance. So it’s not as though Florida is doing nothing about financial illiteracy; it just isn’t doing enough.

MONEY couples and money

The Surprising but Essential Thing You Don’t Know About Your Spouse

couple sitting in separate chairs
Steve Hix—Corbis

Many people don't even know how much their partner earns.

If you harbor any doubt that money remains a taboo subject around the household, consider these findings from the 2015 Fidelity Investments Couples Retirement Study:

  • 43% of couples do not know how much their spouse earns annually, and of those, 10% cannot guess within $25,000;
  • 36% of couples disagree on the amount of their household’s investable assets;
  • 60% of couples have no idea how much their Social Security benefits might be worth, including 49% of boomer couples—a group in or on the cusp of retirement.

Not talking about money around the house can have broad reaching repercussions. Without discussion, odds are there is little financial planning. Nearly half of couples say they have no idea how much they will need to retire, and a similar number disagree over the amount, Fidelity found. Those with a plan are twice as likely to expect to live comfortably in retirement. Other surveys also have found that people who have a plan are more confident about their future.

On another level, the taboo around money conversations may be passed down generationally. We do our children no favors by making the subject mysterious. Young people are coming of age in a period of diminishing social safety nets and would benefit immeasurably from discussions around the house about budgeting and saving. That such conversations do not take place in many households has given rise to a broad effort to require money management courses in schools.

Among the more confounding aspects of the money conversation is the misperception that it is actually taking place. Some 72% of couples in the Fidelity survey say they communicate exceptionally well with each other, and 90% say that starting a conversation about budgets, savings and investments, and estate planning is not difficult. Yet these are some of the same respondents who said they don’t know how much their mate earns.

Meanwhile, nearly half of parents say they strongly encourage their kids to talk to them about money, but only one in five kids strongly agree that this is the case, a T. Rowe Price survey found. Nearly three-quarters of parents say they talk regularly with their children about spending and saving, but just 61% of the kids agree. A third of kids believe their parents are leaving them in the dark about money issues.

Clearly, money is a tougher family topic than most of us realize. But it has never been more essential to talk about. This quiz might help you get started. And here are four questions that can help you and your spouse get on the same page when it comes to household finances.

  • What are the next big goals? Buy a house? Save for college? Identify what you want to achieve in the next three to five years, and make saving a habit.
  • Do you have an emergency fund? What if you get laid off? What if the car breaks down? You should have three to six months of living expenses safely tucked away, just in case.
  • Do you share a vision for retirement? Travel the globe or tend the garden? Downsize and live near the kids or move to a warmer climate? Make sure you see eye to eye.
  • Are your documents in order? Plan for the inevitable by having an estate plan, a durable general power of attorney, and a health care proxy. Designate beneficiaries for investment accounts and insurance policies. To do this as a team you will need to talk about things like inheritance, estate planning and eldercare.

Read next: How to start a money conversation with your mate

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 literacy

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

people taking quiz
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

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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.

 

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