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Steps to Financial Literacy in 2009

posted on January 16, 2009 at 10:12 AM

About Seventy percent of the U.S. Gross Domestic Product is generated from retail sales. But the last six months have seen a fall off in such sales.  Statistically, Americans appear to be saving more.  But those numbers are clouded by other actions. There is some evidence that people are selling assets to pay bills.

Unemployment has been rising and people have been pulling money from stock and bond funds to make ends meet.  Cutting back in the face of an economic downturn may be saving, but it is forced savings, not elective.  Still the recession could well be the teachable moment for those who are preaching the gospel of thrift.

Adam Carroll co-founded National Financial Educators, a company dedicated to creating a more financially literate population of young people.  He co-wrote the popular seminar "The Money Game" which has been presented to more than 150,000 college students nationwide.

Adam Carroll:  "We've got a generation that's coming that has never been taught savings and so 18 to 25 year olds in this country are spending 125% of what they make every year versus Japanese students of the same age category are saving 25 to 35% of what they make every year."

Carroll was once among the multitude of college students who fall prey to credit card debt.  His first-hand experience helps fuel his passion for teaching financial literacy.  Carroll is also the owner of Four Legacies Mortgage in Des Moines and co-author of the book Winning the Money Game.

Adam Carroll:  "When I co-authored the book we decided let's just simplify this.  What financial literacy really is - it boils down to five things and we made an acronym of the word money and M stands for making and saving money.  People get caught up in "I need to make more money in order to afford my lifestyle" and in reality there is a law out there called Parkinson's Law and the law says "that your expenses will always rise to meet your income".  There's got to be a longer term outlook on what financial success is, know that it starts today with what you're spending or what you're not spending.  But what you're not spending is going to pay for all the things that you really want to enjoy ten years down the road."

Adam Carroll: "Ongoing savings - going back to the letter "M" and what you're making and what you keep at the end of the month, how much of what have left over at the end of the month goes into an ongoing savings plan?  Ongoing savings is about setting up a habit of continually putting money away every single month.  People have a put and take account.  They put a little bit in.  They take a little bit out.  They put a little bit in; they might take a lot out.  A save, save account is money that goes in and it does not come back out again, and once you have an emergency fund or a contingency fund in place so at least a thousand dollars and realistically it should be more like six to twelve months of your living expenses.  Once you've done that then all of the ongoing savings that you're doing goes towards investing."

Adam Carroll:  "Needs versus wants - under scores the concept that we all have needs in life you know basic human needs, food, clothing, shelter and those types of things.  We all have wants and those wants could be new clothes, it could be nights out, it could be going to a movie or renting movies or buying movies or CDs.  These are all wants and we treat them as needs most of the time.  So one of the core financial literacy principals being needs versus wants is identifying when you're buying something, taking one extra minute and deciding do I want this or do I need this and why am I buying it."

Adam Carroll: "Essential money skills - is all about things like you need to be able to balance your checkbook and what kinds of accounts you need to have.  It's understanding how interest works both for you and against you and a good story to illustrate that is a friend of mine was buying cars, and he was buying cars off of eBay because he could put them on his credit card not realizing that the interests rate on these purchases were 20 percent or more.  In that case interest is working against him all the time versus putting your savings you now what may be housed in the passbook savings account making less than 1% into an online account like emigrantdirect.com or an INGdirect.com that's paying almost three percent.  So just identifying those small differences of where can I maximize my money and make the most possible?" 

Adam Carroll: "Y stands for your money choices and their consequences - we asked the question in seminars would you rather have a million dollars a day or a penny that doubles every day for a month?  The penny that doubles every day for a month at the end of 31 days is over 10 million dollars; and the point of that is the money that we spend on random things whether it be driving through a fast-food restaurant, buying a People magazine, buying a soda, you know all of this money that we spend if we tallied it all up and, and decided that we were going to invest it at 10% interest what it would be by the time we retire is astounding." 

Tags: economy finance financial literacy Iowa jobs literacy money politics


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