How Advisors Are Filling the Financial Literacy Gap

Let’s be frank: customers are often financially ignorant. Advisors spend a lot of time explaining the most basic principles. When a client’s family becomes involved, this learning curve can become even more complicated; different generations have different degrees of comfort with money.

Some advisers are working to improve the situation. By contributing to financial literacy programs, they hope to fill knowledge gaps and add value to their customers and communities. Should we join them? Here is an overview of how different practices approach the problem.

The scope of the knowledge gap
“You’d be amazed at the time spent on the basics of personal finance, even for the wealthiest clients,” said Tom Henske, financial adviser at The Affluent Insurance Advisor in New York and founder of Total Cents, a program that teaches parents how to talk to their children about money.

Henske, author of It Makes Total Cents, said money was a taboo subject for many people growing up. As a result, they never learned how to invest or budget wisely. “The reluctance to talk about money at home has led to some really bad habits,” he said. “Our industry has a chance, even an obligation, to make a difference. For advisers, it is a matter of perpetuating their practices.

Andrew Crowell, financial advisor and vice president of wealth management at DA Davidson & Co. in Los Angeles, agrees. “An alarming concern we’re seeing more and more is that customers think they have complete information just because they listened to a soundbite or podcast with an ‘expert,'” he said. . “They may have only seen a brief news notification, but they think they’ve read an in-depth dissertation on the topic.”

For Crowell, the only thing worse than being ignorant is thinking you’re knowledgeable when you really aren’t. “In a nutshell,” he said, “having access to more information does not equate to having more reliable knowledge.”

Educate your customers
How can advisors help clear clients up? “It is important that advisors educate clients on all wealth management topics related to [clients’] financial situation,” said Ashley Sullivan, private wealth advisor at LVW Advisors in Pittsford, NY.

But beyond that, she said, “weaving together educational content, rules of thumb, [and] statistics in every meeting is beneficial. Periodically organizing events of an educational nature can also be useful for clients. »

Additionally, Sullivan participated in a program called “Money Matters: Make It Count,” a partnership between the Charles Schwab Foundation and the Boys and Girls Clubs of America, to mentor teens and help them develop financial skills.

It starts with the children
The education of young people in money seems to be an essential and necessary basis. In a 2022 survey, the Council for Economic Education found that only 23 states require students to take a course in personal finance. “High-income schools were three times more likely to require enrollment in a personal finance course than their low-income peers,” Sullivan noted.

Kossandra McDuffie, senior partner at Homrich Berg in Atlanta, agrees. The education deficit is worse in “underserved communities,” she said. No single solution “will solve the problem”, she added, although raising awareness that the problem exists is a necessary first step.

The impact of early education can be profound. “Providing a foundational level of financial management knowledge and education in high school is absolutely essential,” said Dan Eck, managing director of group learning for EY Personal Finance, a unit of Ernst & Young, in Columbus, Ohio. “The financial decisions individuals make as young adults have an impact that lasts for decades, positively or negatively.”

Geraldine L. Melton