Financial Literacy & Today’s Young Adults
- November 30, 2018
- Financial Planning
An Interview Between Jim Brogan & Dr. Laura Seery Cole
Many Americans, from young to old, lack confidence and understanding when it comes to personal finance. Recent research polled 1,000 individuals over age 30 and found that over half of those individuals feel lost when it comes developing a long-term, stable financial plan. For those under age 30, the numbers are even worse. It can be disheartening.
Teaching financial literacy is more than just a career focus for Dr. Laura Seery Cole – it’s a passion. Dr. Cole serves as the director of the Masters Investment Learning Center at the University of Tennessee, and is also the faculty advisor for the UT Investment Group.
This past April, I sat down with Dr. Laura Seery Cole on “More Living with Jim Brogan” to talk about basic financial literacy, and most of the content for this article was taken from her radio guest appearance.
With her ability to break down complex financial subjects, Dr. Cole easily answered questions about personal finance among the younger generations.
Let’s begin with your background. Why did you choose the world of finance & working with young people?
One of my first memories about the financial world is my dad taking me to the floor of the New York Stock Exchange. That was when they were still using the open outcry trading system, where the traders would basically use hand signals, noises, and shouts to communicate with one another. It’s very exciting! As a five-year-old girl, I was instantly intrigued, wondering what they were doing and what this was about.
I also had strong family roots in finance. From an early age, I remember having discussions about budgeting, saving, and what a dollar meant to me and to my family. As I grew up, I realized that not everyone else had those discussions or that encouragement. And so, at a young age, I decided to study business and found myself naturally attracted to the world of finance.
A study commissioned by GuideVine recently found that less than half of American adults over 30 could accurately explain what a 401(k) is. How can we become better educated with regards to finances?
Up through college, I think much of our education comes from our parents and family. It comes from seeing financial discipline and parents communicating what the value of a dollar is. Once in college, though, students don’t get much guidance. Many people don’t realize that there are no required personal finance classes for college students. Theoretically, you could actually study finance and not have one personal finance class. One of the things that we are doing at the University of Tennessee is to refocus that, trying to expose one student at a time to this world of personal finance.
After you graduate college, you have to seek information out yourself. Being better educated starts with seeking out courses for yourself or seeking someone with expertise who can share that knowledge with you. Many people don’t realize that there are a lot of free courses and resources available online. Some of my favorites include Money Essentials from CNN Money and Family Finance from Utah State University Extension. To me, becoming better educated is about learning the vernacular so that you can start delving into your own personal finances.
In regards to overall attitude and knowledge of personal finance, have you seen a difference between the current generation that you teach and previous generations?
I’ve been teaching finance classes for over 15 years now and the differences I’ve seen between generations is incredible. To me, it comes from the lifestyle and the economy that you grew up in.
Generation X was taught to have no debt, own a house, own a car, and save for the future. Millennials don’t follow that mentality. They put more value on life experiences than a high salary and want to use their money for different things. They are less interested in saving for the future; in fact, they are saving and investing at the lowest rate ever. They don’t seem particularly concerned about 20-30 years from now, putting them at a disadvantage for retiring comfortably. They’re missing out on 10-12 years of compounding interest, which will create a big gap between what they need and what they have.
The first time that many Millennials actually sit down and start doing financial planning is in their early 30’s, which, by then, you’ve potentially cut your savings in half at retirement.
We are just beginning to see Generation Z in college, but they seem to be different from Millennials: more academic and a little more focused. Hopefully, once they graduate, we will see saving pick up again.
You’ve given lectures about ethical investing, which consists of an investment strategy that considers not only the financial return but also the social and environmental good. Can you explain why ethical investing is significant?
It’s significant because the younger generation especially wants to find appealing ways to utilize their money. They want to put their money into something they feel is doing good: good for the country, good for the world. Therefore, if they have $10,000 to invest, they want to invest it in companies that are socially responsible. Previous generations have been less concerned with this, looking simply for a good rate of return on their investments. Investment strategies need to recognize what appeals to each generation.
What do you think are some common misconceptions that people have about money?
First, people think that you’re able to make more money at a faster rate of return than you really can. We did a survey in-house at the University of Tennessee, asking students in their first investments class what they thought the average rate of return was on an investment. Over 80% of our students said that when you start investing in the stock market, you make, on average, 40-60% per year. They were shocked to learn that 10% is the average return on any given year. There’s a basic lack of knowledge about how compounding works.
Second, people lack an understanding about returns from different investments. Many don’t know the difference between a stock and a bond, a mutual fund and an ETF. They lack understanding about risk and return. Different assets we invest in have different types of risk, and based on that risk, the rate of return can be more or less. There’s no right or wrong answer on your risk level, but you have to know and be comfortable with the types of risk you’re taking.
What advice would you give to a high school student looking to major in business or finance in college?
Take advantage of all of your business classes, especially if they don’t interest you. That seems counterintuitive, but those things that may not interest you can end up providing you a lot of value later in life. When you’re 19 or 20, you may not be able to see that learning finance or accounting can be useful 10-15 years down the road, but it sure can come in handy when you’re managing your family or your household budget. You are paying a lot for this education and you want to get the most you can out of it.
The Masters Investment Learning Center at the University of Tennessee is one of the top university Investment Learning Centers in the country. Can you touch upon what it does and the tools it provides students?
When the Haslam Business Building was renovated in 2009, we received funding to further students’ educational knowledge in finance. That led to the birth of the Masters Investment Learning Center. We started with one student employee and one Bloomberg terminal, a financial database where students can monitor and access real-time financial market data. We now have 20 Bloomberg terminals and have trained over 6,000 students on them. In essence, we’re teaching students how to deepen their understanding of financial markets by accessing, analyzing and interpreting economic data. We’re showing them how to find more information to solve business or financial problems more easily.
Talk about your initiative “Trade Like a Girl”.
“Trade Like a Girl” started from a survey we conducted at the University of Tennessee. We polled 1,000 students – half male, half female – and found that 90% of males were interested in investing money and personal finance, whereas only 6% of females showed any level of interest. I automatically re-ran the survey, thinking there was something wrong, only to find out it was true.
Women tend to earn less, live longer, and wait to save for retirement longer, so we need to make better decisions earlier. In college, we have the perfect platform for reaching females and teaching them about personal finance. “Trade Like a Girl” focuses on recruiting young women across all disciples, all colleges, and teaching them the basics about budgeting and saving for retirement. It’s really starting to grow, too. We recently met with Warren Buffett, who is very supportive about getting women more involved in the dialogue.
The key thing we learned is that it wasn’t about competence. Females tend to be afraid they can’t be good at investing, so they lack interest in it. They lack confidence. We changed our dialogue, explaining to women that investing can be just like shopping. Finding a good investment uses that same skill set: you want to buy something that’s on sale, or low, and sell higher. Once we start talking to women in different terminology, it turns out they are pretty interested.
If you are interested in learning more about the Masters Investment Learning Center or contacting Dr. Laura Seery Cole, visit https://haslam.utk.edu/milc. To listen to the original podcast this article is based on, go to https://broganfinancial.com/podcasts/do-you-feel-financially-literate/.