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The Editor's Desk - From Beneath the Clutter
Feature Article - Memo to Business Owners, Universities and Parents: Help Alleviate the Savings Crisis in This Country!
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Ariel started preschool yesterday. She's quite delighted. Her class is bigger than the one she was in last year. But the thing she's most excited to see is the new playground equipment the school just had installed.
It amazes me how much playgrounds have changed since I was a kid. The new equipment is great! The kids have a tunnel they can climb around on the outside of as well as play inside, and the usual assortment of slides, stairs and ladders.
Gage will be in some toddler gymnastic classes shortly. In his case, my primary reason is to encourage him to talk by exposing him to more kids his age. 18 months and still only 3 words. We don't think there's anything wrong, and we can tell he can hear, but the doctor said if he isn't talking within 3 more months to give him a call to have him checked, just in case. If there is a problem, better it get looked into early.
It's going to be a busy school year. I have to help in the class 3 days a month. I've talked with one of the moms in the class who has a 16 month old about watching each other's toddlers on days we have to help. She needs the help more than I do, I think, since my husband regularly has Mondays off. However, Gage could use a playmate his own age, so I don't mind. Just not sure how the drop off/pick up issues would work. That part's a little tricky, but I'm sure we can come up with something.
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Congress has been meeting to address a growing crisis in this country, the fact that Americans don’t save much money. According to the AARP only one in five baby boomers has more than $25,000 in assets. Only 40% of the people eligible to contribute to a 401k plan do so. With the recent headlines about the shakiness of Social Security this issue becomes even more important. Congress is considering a number of different measures: Increasing contributions to retirement plans, tax incentives, etc. All of this is great but there is one change that could be made right away that I think would make a huge difference.
Financial Literacy in Schools
Our schools do a great job of preparing us to get a job. Nobody teaches us what to do with our paycheck. Financial literacy is the biggest gap in our education system. College students are bombarded by offers for credit cards but nobody teaches them how to use credit wisely. I believe that a lack of financial literacy is the main reason why Americans don’t save. Nobody told them that they should save money and nobody ever told them how to save money. I think we all agree that the average 21 year old could save at least $5 day. If they where able to do that over their working lives they could retire with $1.2 million dollars. I wish someone had told me this when I was 21.
Financial Literacy in the Workplace
Once we get a job our employer expects us to decide whether or not to enroll in a 401k and tells us to pick from a menu of mutual funds. Many people don’t even know what a mutual fund is, or how to pick one. Less than half of large employers offer financial education to their employees, and none require participation. I was watching the Suze Orman show the other day and a woman stood up to ask a question. She had left her job and wanted to roll her 401k over to her new employer. She had her old employer send her the check directly and she had held it for 90 days. Suze had to tell her that it was too late to put it into the 401k and that she would have to pay taxes and penalties. Two things about this struck me. First, someone should have told her how to roll over a 401k plan. Second, this woman was probably in her 30’s and she had only saved $900 in her 401k. Somebody should have taught her the importance of saving money in a 401k plan.
Parents Can Teach Financial Literacy
Parents can help too. Lets assume you child is 15 and is able to get a summer job earning $3,000/year until they are 19. That qualifies him or her to contribute to a Roth IRA. Now, they don’t have to contribute what they earned, you or a grandparent can make the contribution for them. $3,000/year contributed for just four years to a Roth IRA for your child could equal $1.1 million dollars by the time they retire. I wish someone had told me this when I was 15. Amassing a seven figure net worth is not difficult, it just takes time, something your children have in abundance.
I suggest the following measure to help alleviate the problem:
1. Universities should mandate basic financial literacy courses. Students should learn about the time value of money, how to handle debt, basic investments, etc.
2. Employers should mandate financial education. Employees should be taught about the importance of contributing to their 401k and how to choose investment options.
3. Parents should teach their children about the time value of money. When I was 12 I had a paper route. I could have found a number of things to invest my earnings in but my mother convinced me to buy a mutual fund. If I had bought toys they would be long gone, I still have the money I invested in the mutual fund.
Matthew Tuttle is the author of "Financial Secrets of my Wealthy Grandparents". For more information, or to sign up for his free newsletter, please visit http://www.matthewtuttle.com.
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