Too Rosy About Retirement

(Dow Jones) The new client sat down in the conference room and proudly announced he was planning to retire debt-free in 15 years at age 65.

But Larry Glazer, a managing partner of Boston's Mayflower Advisors, scratched his head: the client had just taken out a jumbo 30-year mortgage on a big home.

"At the most basic level, there was a disconnect here," says Glazer.

Even more amazing was that the man had an MBA from a top-ten business school.

But Glazer wasn't surprised; he sees it all the time.

"We work with very sophisticated investors," he says, "some of whom actually work in venture capital and investment banking, but they still lack basic financial literacy skills."

It's a hot-button issue for Glazer, who does volunteer work for the JumpStart Coalition, which promotes the teaching of financial literacy to children of all ages in public schools. JumpStart is an umbrella group that works with some 300 related organizations, from the Federal Reserve to commercial banks.

In his classroom visits, Glazer sees kids pop their eyes when presented with a chart illustrating the miracle of compounded interest.

"It's really simple and really powerful," he says. "It reminds me of our grandparents who grew up in the Depression and used to say 'pay off your mortgage early' and 'a penny saved is a penny earned.' Well, today we've come up with all sorts of more sophisticated financial solutions, but those basic rules need to be re-learned."

The goal, says Glazer, is a next generation of adults who live within their means, avoiding untold stress and frustration. But the bigger picture is preventing a future financial meltdown.

"When you look at the crisis we've just gone through in this country, which started really with housing," says Glazer, "many of those problems might have been avoided if we had had better youth financial literacy. So there are preventive aspects to teaching this stuff."

Oddly, poor youths are now getting a better financial education than more affluent kids.

"The program has been aimed at the inner city because those families have been hit hard by the housing crisis," Glazer says, "but we don't want to lose sight of kids in the leafy suburbs, who are at huge risk of piling up credit card debt and making bad mortgage decisions."

Indeed, at his day job Glazer sees how big spenders are often the worst offenders.

"Even high-net-worth investors fail to appreciate the fact that in any given month they are spending more than they are earning," says Glazer. "We still see people graduating from college with huge debt and then taking on jumbo mortgages without even thinking that they actually have to pay it all back someday. They have so much over-confidence in their earning ability, and when the music stops they have a tough time fixing it."

Glazer says the new credit-card regulations that went into effect in February are a good step because they provide more transparency, giving consumers who want to act responsibly a fighting chance. Likewise, he says that some sort of overall financial regulation is inevitable. "Our financial structure is so complex," he notes, "and the system we have has not been working."

That's why Glazer always goes back to keeping it simple, even when it comes to asset allocation.

"I have twin two-and-a-half-year-olds," he says, "and every night when I come home I give them the coins in my pocket. They have three piggy banks labeled 'Save,' 'Spend' and 'Give,' and they have to feed all three."