Advice and the Advisor

Planning ahead: Give the baby a bottle and a bank account

Sheryl Garrett, Special to
Jose Antonio Santiso FernA!ndez | E+ | Getty Images

Consider this: The average 40-year-old American has less than $10,000 saved—for anything. The median balance in any type of retirement plan was only about $27,000 at the end of 2012. Americans' savings rates have dropped in the last generation, while our consumer debt has skyrocketed. In 1980, the statistics were much more favorable. So what's happening?

For one, fewer people now have defined benefit pension plans. Quite simply, the burden and risk of investing has been transferred from the employer to the individual. Our parents or grandparents may have received a pension. They didn't have to figure out how much to save, how to invest or which withdrawal strategy to use to make certain their retirement funds would last a lifetime. They received a monthly pension check, very much as when they were employed. They also received Social Security retirement income. Those two income sources alone may have covered their costs of living. 

They may have also held some blue-chip stocks, CDs and perhaps some bonds or mutual funds. However, they likely didn't learn how to invest from their parents or through any type of formal education. Their investing approach was simple: It was what was available through their neighborhood bank, insurance agent or broker. 

(Read more: Don't go it alone with a 401(k) plan)

Today, we have a very different landscape. We ourselves are responsible for saving and investing to accumulate enough money to, someday, not have to work for a living. And deregulation, innovation and profits have led to a much more complex financial services industry. The burden is now on the individual, and the options are more vast and complex, yet no one still has any formal training. 

The financial services industry's attempt to fill this educational void is to provide written disclosure documents, but these are often indecipherable—even by a lawyer with a dual major in accounting and economics. Information is not wisdom, and information overload leads to immobilization. We need a better way.

Formal financial education remains virtually nonexistent for anyone other than those particularly interested in the subject. Many argue that improving financial education is the solution, and I agree that more education is needed. However, most financial literacy initiatives have not yet provided the desired results

(Read more: Financial literacy education not making the grade)

Professor Richard Thaler of the University of Chicago's Booth School of Business authored a great article, "Financial Literacy, Beyond the Classroom," in The New York Times recently. In the article, Thaler illustrated a very simple, three-question quiz, utilized in a survey of Americans over age 50 that was conducted by researchers Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania. Only one-third of those surveyed could correctly answer all three questions regarding their basic understanding of compound interest, inflation and diversification.

So, what can we do? One area of research that is showing great promise is referred to as "just-in-time education." The idea is that if people are empowered with the specific information needed to make a given financial decision at a particular time, they will take advantage of that learning opportunity. For instance, high school students exploring their college options would be prime candidates to receive just-in-time education about financial aid and student loans. Or, a family considering purchasing a new home would do well to seek out information about the mortgage options available to them, along with objective guidance as to what would be most appropriate given their personal situation.

Many financial advisors successfully employ just-in-time education in their work with clients. There are also a host of resources available on the Web that provide guidelines and very targeted information about specific financial-life issues. But just-in-time education is not something that should be thought of only for high school graduates or working adults. 

(Read more: It's never too early to save for retirement)

The most successful approach has financial education beginning as early—say, from age 4—as possible. Young children should be included in conversations about money. Allow them to participate in selecting purchases and handling funds. Make it fun and keep it real. Empower them to make financial decisions and learn from their mistakes. This must become not only a regular part of our interactions with family members but also a natural part of a formal education. 

Some may argue there's not enough flexibility in school curriculums to add any more courses. I don't think we need to add courses; rather, we need to change lesson plans to include personal economic teaching points. For example, since money played at least some role in nearly every major event studied in history classes, let's discuss how it applied.

One excellent online resource for parents, teachers and children from prekindergarten through 12th grade is It's a free program, complete with everything teachers or interested parents need to immerse children in fun, high-quality financial education.

We don't all need to be interested in the study of finance and capital markets, but it's imperative for the future of our society to empower the next generation with a basic, personal economic education that will help them thrive in the modern world. In doing so, parents and teachers will also learn invaluable lessons. 

By Sheryl Garrett, special to Garrett is a certified financial planner and CEO and chief compliance officer of Garrett Investment Advisors. Since 2000, she has also headed up the Garrett Planning Network, a nationwide network of more than 300 hourly based financial advisors.