Let’s be frank: Clients are often financially ignorant. Advisors devote a lot of time to explaining the most elementary principles. When a client’s family gets involved, that learning curve can get even more complicated; different generations have differing degrees of comfort with money.
Some advisors are working to improve the situation. By contributing to financial literacy programs, they hope to alleviate the knowledge gaps and add value to their clients and their communities. Should you join them? Here’s a look at how different practices are tackling the issue.
The Scope Of The Knowledge Gap
“You would be amazed how much time is spent on the basics of personal finance for even the wealthiest of clients,” said Tom Henske, a financial advisor at The Affluent Insurance Advisor in New York City and founder of Total Cents, a program that teaches parents how to talk to their kids about money.
Henske, author of It Makes Total Cents, said money was a taboo topic for many people when they were growing up. As a result, they never learned to invest or budget wisely. “The reluctance to talk about money in the home has led to some very bad habits,” he said. “Our industry has a chance, maybe even an obligation, to be the difference-maker. For advisors, it’s about future-proofing their practices.”
Misinformation
Andrew Crowell, financial advisor and vice chairman of wealth management at D.A. Davidson & Co. in Los Angeles, agreed. “One alarming concern we have experienced more and more is clients believing they have complete information simply because they’ve listened to a soundbite or a podcast with an ‘expert,’” he said. “They may have only seen a brief news notification, but they believe they’ve read a thorough dissertation on the topic.”
To Crowell, the only thing worse than being ignorant is thinking you’re well-informed when you’re really not. “In a nutshell,” he said, “having access to more information does not equate to having more reliable knowledge.”
Educating Your Clients
How can advisors help set clients straight? “It is important for advisors to educate clients on all wealth management topics as they relate to [clients’] financial situation,” said Ashley Sullivan, a private wealth advisor at LVW Advisors in Pittsford, N.Y.
But beyond that, she said, “weaving educational content, rules of thumb, [and] statistics into every meeting is beneficial. Periodically hosting events that are educational in nature also can be useful for clients.”
In addition, Sullivan has participated in a program called “Money Matters: Make It Count,” a partnership between the Charles Schwab Foundation and the Boys and Girls Clubs of America, to mentor teens and help develop their financial skills.
It Starts With Kids
Educating young people about money seems to be an essential and much needed foundation. In a 2022 survey, the Council for Economic Education found that just 23 states require students to take a course in personal finance. “High-income schools were three times as likely to require enrollment in a personal finance course than their low-income peers,” noted Sullivan.
Kossandra McDuffie, a senior associate at Homrich Berg in Atlanta, concurs. The educational deficit is worse in “underserved communities,” she said. No single solution “will fix the problem,” she added, though spreading awareness that the problem exists is a necessary first step.
The repercussions of early education can be profound. “Providing a base level of financial management knowledge and education in high school is absolutely critical,” said Dan Eck, managing director of group learning for EY Personal Finance, a unit of Ernst & Young, in Columbus, Ohio. “Financial decisions individuals make as young adults have an impact that lasts decades, positively or negatively.”