Among all Star Wars characters, parents identify most closely with Yoda when it comes to passing on financial knowledge to their children, a new report finds. Forgive my groan. Families lose thousands of dollars a year to financial ineptitude, finds another report out this week (see below). Why on Earth do parents judge themselves to be so savvy?
Yoda, of course, is the two-foot Jedi master who in 900 years of life became renowned for his wisdom and teaching skills. Nearly a quarter of adults chose Yoda as their money wise archetype, and one would assume they did not do it based on his good looks. Researchers at New York Life and Ipsos concluded that the popularity of Yoda “means more parents are understanding the connection between a bright future for children and financial literacy.”
It’s not clear how they reached that conclusion. But there is no doubt that wise people understand the link between financial literacy and long-term financial security. And, well, Yoda did save the galaxy by training Luke Skywalker in the ways of the force. Parents just might save their children’s future by training them in the ways of credit, budgets and saving.
Speaking of young Luke, he clocked in at 19% based on his family-first orientation and willingness to heed professional advice. Those are laudable qualities. Studies show that adults who seek financial advice…
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…are better prepared for retirement and other big financial moments. Three quarters of those who seek advice have a retirement plan or emergency fund, one study found.
The problem is that not nearly enough adults bother to seek money advice. Nearly 80% of Americans have never hired a financial professional—and less than half in this group has a retirement plan or emergency fund.
Continuing down the line: 14% identified with Chewbacca—again, one would assume not for looks, but for his loyalty; 13% identified with Princess Leia for her balance of hard work and celebration of success; and 9% identified with C-3PO, a fretful and insecure robot that in the real world would be destined to wind up in a financial bind. The C-3PO identification strikes me as one that should be more widely shared. After all, half of adults give themselves a C, D, or F in money management. Three-quarters agree they would benefit from professional advice for even sinple everyday money matters.
The Price Of Financial Illiteracy? Now We Have A Number
How much does financial ineptitude cost households? Last year, the average family missed out on $1,171, according to the National Financial Educators Council. This is based on a survey where individuals were asked to estimate their losses due to financial illiteracy.
The figure could be off by quite a bit, given that many people don’t know how much they don’t know about money. Still, the typical adult clearly understands that they do not understand enough to avoid money mistakes. One in five believe their money mismanagement cost them as much as $2,500 last year while about half of those put their losses due to financial illiteracy at higher than $10,000. Some 60% believe their losses were contained to less than $500.
Over their lifetime, a third said they had lost more than $15,000 due to financial inability and a quarter put their lifetime losses at more than $30,000, according to an earlier survey. A third believe their lifetime losses due to financial inability were contained to less than $1,000.
Should You Pay Allowance In Bitcoin?
At Right About Money, we are big believers in paying young people allowance as a means for teaching them to handle money responsibly as they mature. Not everyone is on board. One expert even calls paying allowance to youngsters “cruelty” if it is not accompanied by a discussion. But most adults find value in the exercise. They mostly debate whether allowance should be tied to chores or doled out regularly no matter what.
Now comes another issue. The nature of money itself is evolving. That is perhaps clearest in the rise of Bitcoin and other “cryptocurrency.” It is also notable in the popularity of e-payment systems like Apple Pay, Venmo and PayPal.
Kids need to learn about money in the form they will most often use it: digital accounts and plastic. It seems much too early in the evolution of money to pay kids allowance in Bitcoin, and the venerable piggy bank still has relevance for the very young. But in an increasingly cashless society a physical piggy bank and even physical coins and bills are fast becoming relics, like the typewriter and buggy whip.
No matter how you disperse allowance, it remains an effective tool—and the amount and the discussion that go with it remain paramount. To that end, we are encouraged by the accompanying graphic, which shows that kids, on average, get more allowance as they age and the amounts seem large enough to matter but not be excessive.