When Alexa von Tobel graduated from Harvard in 2006 and was about to take a job on Wall Street, she wondered whether her first savings priority should be retirement or an emergency kitty. "I thought, wow, I'm graduating from Harvard and I've never gotten an education about this," says von Tobel, now 27. When she couldn't find a good guide to managing money, she founded one--LearnVest--in 2009.
She has plenty of potential customers. That year, in the first comprehensive study of U.S. adults' "financial capability," fewer than 10 percent of participants were able to correctly answer five simple quiz questions about everyday money matters.
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"The costs of financial illiteracy are high," says Annamaria Lusardi, an economics professor at George Washington University's business school and director of the nonprofit Financial Literacy Center, who helped design the study. Among them: missing out on opportunities (by failing to refinance when interest rates fall, for example, or buying stocks high and selling low in a panic) and poor debt management. "It's a travesty to work hard and then have a strike against you because you forgot to pay your power bill," says John Ulzheimer, president of consumer education at Smartcredit.com, which sells credit management services.
Once upon a time, financial literacy was taught in school, but under a quarter of states require a personal finance class for graduation today, says Ted Beck, CEO of the National Endowment for Financial Education, a private foundation focused on promoting financial literacy. At the same time, as job security has lessened and pensions have disappeared, the stakes have risen dramatically. "There's this idea that you're responsible for managing your own resources," Beck says. "You have to figure out how to invest the money. It's a big fundamental change."
Where to start? Beck thinks the Thorndike arithmetic books from pre-World War II offer a great grounding, and make for fun reading besides. (Reproductions are available on Amazon.com.) But for anything involving rules and regulations, you're going to be better off with a website. Tops on many experts' lists is the U.S. government's Mymoney.gov, which gathers the wisdom of more than 20 federal agencies into a library of info on financial planning, savings, and investment. "You don't need 10 websites," notes Lusardi. "The principles don't change. It's about rigorous information." Beck's Nefe.org offers a series of primers for consumers on everything from planning a wedding (or a divorce) to leasing a car to investing for retirement.
Lusardi also recommends LearnVest's boot camps, 10-to-17-day free email programs on subjects from personal finance basics to getting out of debt. Every day, boot campers receive an email with advice and suggested actions, such as how to check your credit score or negotiate a lower cable bill. The site makes its money from advertising and premium subscriptions, which allow you, for example, to send questions to a certified financial planner.
While websites may be the most convenient resource, research shows that education works best when it's delivered face-to-face, says Sharon Laux, associate director of the Center for Entrepreneurship & Economic Education at the University of Missouri-St. Louis. Where to find free or low-cost unbiased options? She recommends looking at your local university extension offerings, which put faculty from the country's land-grant institutions into communities. Every state has a council for economic education, too.
Historically the councils worked with schools to train teachers, but in recent years they've expanded into community education in financial literacy. The regional Federal Reserve banks offer free workshops and training in communities; click your region on the U.S. map at www.federalreserveeducation.org to check your district for events and resources. Finally, the nonprofit National Foundation for Credit Counseling offers financial education plus free or low-cost counseling. "People don't realize if they can pay 2 or 3 percentage points less on a car loan or a mortgage, that's just as effective as choosing the right mutual fund," says Ulzheimer.
If you want your edification with a dose of fun, games abound. Laux suggests looking for games that involve role-playing, such as creating a budget or acquiring money or property. "You need to engage the person in the doing of it for it to be understood and for it to take hold," she says. This fall, the Seattle start-up Bobber Interactive launched GoalCard, a cash-management app integrated with Facebook that encourages people (well, probably kids mostly) to establish a savings goal and work toward it. Players get points for certain spending patterns (not too much junk food, putting a portion of each paycheck to savings) and for succeeding on quizzes, for example. The points end up as cash on a "debit card" that can be used at partnering merchants in Bobber's online "mall" when players achieve their goal.
If having more money isn't incentive enough to master personal finance, maybe your kids will be. A 2008 University of Arizona study surveyed 2,000 college freshmen and found that the effect of a parent's teaching about financial matters was twice that produced by a high school class and twice that produced by a part-time job. You don't need a Ph.D. in finance to hold class: Let young children play "store," says Laura Levine, executive director of the Jump$tart Coalition for Personal Financial Literacy, which advocates for finance classes in schools. Elementary school kids can observe parents comparison shop, begin to understand the difference between wants and needs, and learn to save for a rainy day. Beck suggests showing older kids how to run a budget, and talking to them about your mistakes. You'll want to keep training their savings muscles, too, since they're so clearly key to future well-being.
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