By Deanna C. White
Turns out American kids aren't the only ones with a foggy idea about the financial future. According to a recent study by T. Rowe Price, many parents are also neglecting to prepare for their families' long-term financial stability.
The T. Rowe Price Fifth Annual Parents, Kids & Money Survey found that both parents and kids share an optimistic, but ultimately shortsighted, view of the financial future.
According to the survey, more than half of both groups believe children will be better off than their parents when they reach their parents' ages. But the survey also found household conversations about money revolve more around short-term goals, like saving for a vacation, instead of the long-term planning and action needed for financial success.
The survey delved into the financial literacy, attitudes, and behaviors of families with children between the ages of eight to fourteen. Researchers talked to 1,014 parents and 839 kids in February 2013 to glean the survey results.
According to T. Rowe Price, the survey found that many parents seem to be "missing the basics" when it comes to leading discussions and modeling good examples of strategies that lead to long-term financial security.
The survey found:
- Fifty percent of parents surveyed do not save regularly for retirement.
- Forty-two percent of parents do not maintain an emergency fund for unexpected expenses.
- Fifty-four percent of parents do not have life insurance.
- Seventy-four percent of parents do not have an up-to-date will.
The survey also found family finances and long-term financial subjects are "still off the table" or, in some cases, even taboo topics for many families. According to the survey:
- A large majority of parents (73 percent) report they are having regular conversations with their kids about money, but the conversations revolve around short-term financial topics like back-to-school shopping (62 percent) rather than long-term planning such as family savings goals (39 percent).
- Fourteen percent of parents say they discourage kids from talking about money altogether.
The survey also found that while kids (70 percent) and parents (66 percent) agree that a college education is the key to a strong financial future, they don't practice what they preach when it comes to saving for college. Fifty-nine percent of parents have talked to their kids about how to pay for college, but only 41 percent of parents are regularly saving for that college education. In fact, more parents (46 percent) save regularly for vacation than for college.
Additional findings include:
- Kids are focused on the short-term financial future; 25 percent of kids save their money for long-term goals and 63 percent save their money for short-term goals.
- Twenty-five percent of kids say they spend their money right away on things for which they were not saving.
- Despite estimates that kids will need well over a million dollars for a secure retirement, only 21 percent believe the most likely way to obtain a million dollars is to invest in stocks and bonds.
- Twenty-four percent believe the most likely way to gain a million dollars is by becoming famous.
Bucking the slacker stereotype, 84 percent of kids think they will be financially independent from their parents between the ages eighteen and twenty-five, but some may have a big surprise in store for them.
The survey also found eighteen percent of parents believe their kids will need to support them in retirement.
Despite their parent's errors of omission when it comes to financial literacy, however, the survey also found that many children are interested in learning about the tools to achieve long-term financial prosperity:
- Thirty-four percent said they want to talk about how banks and credit cards work.
- Twenty-seven percent are interested in learning about inflation.
- Twenty percent are interested in learning about diversification.
The survey also found that 29 percent of kids say they aren't sure what the stock market is, but 20 percent are interested in learning about investing and how the stock market works. However, of those who "know what the stock market is", 14 percent believe it's a tool to "get rich fast."
Finally, and perhaps not surprisingly, when it comes to learning more about finances, the survey found kids wish there was an app for that. Seventy-five percent of children say they believe an online game or mobile app would help facilitate their financial know-how.
To that end, on March 27, T. Rowe Price launched MoneyConfidentKids.com, a "mobile-friendly resource with money games, tips, and information" that parents and educators can use to jumpstart "useful discussions and teach kids about money."
But, comments from T. Rowe officials seem to indicate the most important "app" for teaching children about solid financial planning is still the original one – their parents.
"Kids look to their parents as financial role models, and for that reason parents need to not only have frequent discussions with their kids about money, but also lead by example", said Stuart Ritter, CFP®, senior financial planner at T. Rowe Price, and the father of three young kids. "Parents could do better on two fronts: They need to share financial concepts with their kids like goal setting and smart saving, as well as prepare their own finances for the long term."