The Thrift Shift?

I heard a very interesting story this Thursday on NPR's Morning Edition.  Linda Wertheimer chatted with the Wall Street Journal's David Wessell about the recent rebound in the savings rate from near zero to 5%.  

Click here for a link to audio and print

Click here for NPR's Savings Rate Tracker

I'm hopeful but skeptical that America's relatively sudden interest in saving will keep but I'm mostly curious to know what you think.  Once conditions improve economically, do you think Americans will go back to their spendthrift ways or do you think that the current crisis has or will radically alter American consumption and that we're entering an "Age of Frugality"?  In short, are we seeing a "Thrift Shift?"  Please comment.

-John

President's Council Report

"While there are many causes to the economic problems facing this country, it is undeniable that lack of financial literacy is a contributing factor."

-Charles Schwab, Chairman of the President's Advisory Council on Financial Literacy

You can click here to read the 2008 report.  

Keep in mind that although I have highlighted this very important government foray into improving financial literacy in America, I still firmly believe that parents are at the heart of the solution.  Although we should all appreciate the effort being put forth to improve youth financial literacy on the national and state levels in our schools, children will ultimately learn their most important lessons from parents who model behaviors, good and bad, for their children.

-John

40,000 Reasons You Can't Ignore

"Children are already a major target audience for advertisers. American companies currently spend $15 billion a year on marketing and advertising to children under the age of 12—twice the amount they spent just 10 years ago. Each year, the average child sees about 40,000 ads on television alone and collectively influences $500 billion in spending annually on fast food, junk food, toys and other advertised products.

Due to their susceptibility to persuasion and the amount of media they consume, children are the perfect targets for television advertisers. Children under the age of eight do not recognize the persuasive intent of ads and tend to accept them as accurate and unbiased. In fact, 30-second commercials have been found to influence brand preferences in children as young as two years old."

This excerpt is from a report by Children Now, "Interactive Advertising and Children: Issues and Implications." These numbers are eye-popping reasons for why we must speak to our children about advertising and the value of money as young as possible. It's unfortunate that kids are preyed upon, but they are and it's essential that we educate them so that they start to think about the messages that they are inevitably receiving.

-John

President’s Advisory Council on Financial Literacy

I am following up my post of December 11th to let you know that the President’s Advisory Council on Financial Literacy will present its annual report on January 6th. The meeting is open to the public. To find out more, click here.


-John

President's Advisory Council on Financial Literacy

Just in case you weren't convinced of the importance of youth financial literacy...The President's Advisory Council on Financial Literacy (yes, there is one) is releasing a draft recommendation on how to advance advance financial literacy in the US (check out the top link).

-to expand and improve financial education for students from kindergarten through post-secondary education;

-to support the increasingly important role of employers as providers and conduits of financial education for their employees;

-to increase access to financial services for the millions of unbanked and underserved Americans;

-to identify and promote a standardized set of skills and behaviors that a financial education program should teach an individual; and

-to promote more awareness among Americans of the state of financial literacy and dedicate more resources toward educating Americans on how to improve that.

Granted, these are only recommendations, but it shines a bright light on the importance of teaching young kids (not to mention teens and adults) to share and save and spend smart. Lack of financial literacy in the US is like a disease that has infected our economy badly. It's so important that we marshall as many resources as possible to cure this disease.

You can find out more about the council by clicking here.

Mistakes Is Good

There may be no better teacher than a good, old-fashioned mistake.  For a time, my five-year-old daughter had been sinking all of her money into her Save jar after success with goal setting and managing her allowance effectively enough to buy a scooter, shoes and mini pottery wheel (long-term saving for a youngin').  Daddy was happy.  The lessons were working and it made good blog fodder.  But then, suddenly, she started plunking her allowance dollars into her Spend Smart jar.  What was this?!  Regression?  A big mistake?

Whatever it was, it was her choice and it remains to be seen whether she is making mistakes by shifting her focus from saving to spending.  What it certainly means is that Daddy has to heed his own advice to her - allow her to control her own money.  The purpose of the allowance is to teach her about money and making mistakes is part of that process.  We'll see what she does.  And after all, if she does slip up it's ok because, you know, mistakes is good.

-John

Graddad's Wisdom - Waiting Compounds the Problem

My grandfather, who grow up in the depression, tells me he doesn't recall a time when he wasn't saving money.  His advice when I headed into the adult world was "live below your means and understand the power of compound interest."   I wish I hadn't waited so long to heed his advice. 

Jason Alderman of Visa posted a very simple explanation of compound interest on the Practical Money Skills for Life site this week.  Here's an excerpt:

"What is compounding? Basically, it's where you put aside money – whether in savings, a retirement account or the stock market – and then essentially leave it alone. As your account earns interest or dividends, you continually reinvest those profits, generating (compounding) additional earnings at an accelerated rate."    

Although compound interest is not an easy concept to grasp, it's not a bad idea to get the concept into your child's head early.  The earlier they get it, the better off they'll be.

Click on the title link to read the entire article.

-John