Study: Financial uncertainty ahead

A generation ago, people could pretty much expect that their children would be at least as well-off financially as they were. The Greatest Generation had lived through the Great Depression, which had a major impact on how they spent and saved. Their children — the Baby Boomers — indeed profited from their parents’ frugality, financial smarts and the booming postwar economy. But a new study has cast doubt on whether the Boomers’ children and grandchildren can expect to have as rosy a financial future, while at the same time pointing out that our kids may be better at managing their financial futures than we were.

Financial Finesse, a company that studies trends how Americans spend and save and provides workplace programs to help employees maximize their “financial fitness”, on Wednesday released its 2014 Generational Research Study. The study (www.financialfinesse.com) has pointed to what many consider a “major turning point in the future financial well-being of Americans.” Financial Fitness’ founder Liz Davidson notes out that this could turn out to be one of those historical junctures where a generation made decisions that had big implications for the future.

Buffeted by the lingering effects of the Great Recession, the study noted, the newest generation of adults today (Millennials) appear to be focused on meeting short-term needs, rather than planning for the future, or focusing on “not losing money, rather than growing their wealth for the long term.”  One example is in retirement plan participation for this group, which has the “lowest 401(k) participation rate of all generations at 83 percent in 2014,” the company noted in a press release.

The increased needs have led to a response from the business community, in the form of a growing “financial wellness” industry. “Financial wellness is becoming the next ‘green’ movement,’ says Davidson.

The study also pointed out that the parents of Millennials (Generation X, born from the early 1960s through the early ‘80s) are “in the most danger and the least likely to achieve financial security.” Gen-Xers may be putting their children first, at the expense of their own financial security. While few would fault parents investing in their kids’ education, it could prove costly down the road. Only 17 percent are on track to retire comfortably, yet 23 percent are contributing to a 529 college savings plan.

Even Boomers are vulnerable to financial instability as they face the challenges of living longer. As retirement looms on the horizon for Boomers, they are likely to feel the pain of having set aside too little to support their lifestyles. One key “pain point” is long-term care insurance, held by only 16 percent of Boomers, despite the fact that around 70 percent will need long-term care services at some point during retirement.

Despite the bleak statistics, however, there is reason for hope. The study points out that Millennials are actually doing a “relatively good job with day-to-day money management.”  That’s partly because of increased awareness of the need to develop healthy financial habits.

Here in Mississippi, while we’re certainly not immune to the pitfalls of poor money management, we can also be proud of the efforts being done to equip Mississippians with the tools to become better-educated financially.

That includes bringing public and private agencies together to “move the needle” on economic education, and those efforts are already bearing fruit. In August, Treasurer Lynn Fitch announced TEAM (Treasurer’s Education About Money) to bring businesses and government together to address the issue of financial literacy.

Among the organizations involved in TEAM is the Mississippi Council on Economic Education (MCEE), which has become a national role model for getting financial literacy curriculum into the classroom.  The MCEE was ranked in the Top 10 nationally by the New York-based Council for Economic Education, so I asked MCEE President Selena Swartzfager to give her thoughts on the study and how her organization might have changed the future potential.

“We have been working to meet this mission since 2002 by teaching teachers who then teach students,” Swartzfager noted. “We are teaching students to make the best choices as it relates to financial decisions.  While the mechanics are essential, they are nothing without the ability to make good choices.”

Swartzfager points to the efforts MCEE has made in helping train Mississippi teachers in economics, personal finance and/or entrepreneurship. Teachers can then take that knowledge to the classroom, reaching thousands of students. One key feature of that education is teaching students to understand the power of compounding to either enhance wealth (through investment) or take it away (through debt).

The organization has enrolled thousands of students in financial literacy challenges and the “Stock Market Game”, helping teach practical skills to help them understand everything from balancing a checkbook to making wise investments. Underlying it all is helping empower Millennials to make the right choices.

“When MCEE teaches financial literacy we do so using the ‘Economic Way of Thinking,’ Swartzfager added. “Ultimately this method of teaching educates students to understand that people’s choices have consequences for the future.”

She pointed out that while Generation X’s focus on getting their kids educated amounts to an investment in the next generation, the equation must be balanced so they can plan for the needs they’ll have in retirement. “Society tells parents that college graduation is most important for their children; what we need are adults thinking about the opportunity cost of saving for their children’s college education versus saving for their own retirement,” she noted. “Perhaps the ratio of saving for both needs to be considered so that both goals are addressed.”

Davidson noted that the problems are not insurmountable, but will require an unprecedented focus. “Is this solvable? Absolutely, but it will require a herculean effort,” she said. “Will it be solved? I believe eventually it will, but the question is this: how many generations will have to face these financial challenges before we make the necessary changes in our society to help people improve their financial security? The actions employers, employees, the public sector and financial industry take over the next three to five years will be pivotal to the level of financial security each generation is able to attain.”

Whatever the outlook, the impact of helping our kids make better decisions with money will reverberate well into the future; investments in young minds today is certain to pay off down the road. And that can only be good for Mississippi. “The education we provide for teachers and students,” Swartzfager noted, “has been proven to be effective.  With support from the business community in Mississippi, we will continue preparing students for a better economic future for our state.”

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