Mutual Fund Industry Wants Kids Hooked on Investing

Education high school
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When he worked as a financial advisor at Edward Jones' office in Connersville, Ind., Jim Weddle taught classes at the local high school about the importance of investing, at the request of the school's business and economics teacher, a former client.

The fund industry is no longer waiting for a personal invitation to crack open the financial textbook. Weddle, now a managing partner at Edward Jones, is part of a movement to make financial literacy a required part of the high school curriculum.

There is a paradox at the heart of this effort. Time in the market is more important than timing, and time is a huge resource when a person is younger. Yet the benefit of sustained investing is at odds with the fact that the young typically have little to invest.

Nevertheless, "that's why starting early and being systematic are so important for long-term success," Weedle said. "It would be helpful if financial literacy was a required course in high school or college, so we could get young people to understand the need and personal benefit of starting early."

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Financial literacy should be a fundamental educational issue, according to William Glavin, Oppenheimer Funds' chief. "You can't start too soon in teaching young kids about saving, starting with what to do with the money they made at their lemon stand," he said.

Michael Falcon, retirement head at J.P. Morgan Asset Management, also advocates early education in personal finance.

"We need to reach young people early on to encourage a culture of saving," he said. "It exists in Japan and in European countries, and it used to exist at the school level here in home economic classes," he said. "We need to think about financial literacy differently than we do now, including adding national standards for teaching it in school."

As a start, the ICI Education Foundation, an affiliate of the Investment Company Institute, sponsors Junior Achievement of Greater Washington, which partners with the Fairfax County school system to offer a mandatory, six-week classroom program in money management for all eighth-graders. They work on simulations dealing with managing budgets, saving and investing in a place called "Finance Park."

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"We put together innovative spaces for kids to learn about mutual fund investing," said Paul Schott Stevens, president and CEO of ICI. "People who have the best prospects to save are the ones who are the youngest with the longest horizons, and we need to encourage them to do so for longest possible time," he said.

The ICI also sponsors the Maryland Education Department's teacher training programs in financial education.

"In our schools, we don't even teach people how to balance a checkbook let alone build an investment portfolio," said Alan Reid, president and CEO of Forward, a fund company. "If we are going to have people retire at age 70 and live for 20 more years, they will need to be educated and have investment solutions and options ... that let them retire and not become a burden to the state," he said.

Fear is always a powerful impetus.

Elizabeth Corley, Global CEO of Allianz Global Investors, said that because the baby boomers approaching retirement have undersaved and are over-indebted, they're working longer. She is hopeful that the next generation, seeing their parents' struggles, will learn a lesson about saving, investing and getting into markets much earlier than their parents did.

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Not all fund executives are convinced that the laudable idea of mandatory financial education can be translated into reality, at least in the near term.

Steve Utkus, director of Vanguard Group's Vanguard Center for Retirement Research, doesn't have high hopes that a national financial literacy standard will become the norm anytime soon.

Utkus pointed out that most public high schools are already underfunded and have difficulty finding resources for existing mandates. He also questioned if intoning the fund industry's mantra—that saving early is key to a secure retirement—to teenagers would actually stick.

"It's too early and irrelevant to them," Utkus said.

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Vanguard's view is that the best time to reach people on the importance of saving and investing is when they start working. On the other hand, Utkus is a proponent of instructing kids on the best ways to manage the debt they may face in paying for college.

The Council for Economic Education has developed a National Standards for Financial Literacy program that provides a framework for teaching personal finance to school children from kindergarten through 12th grade.

Nan Morrison, the council's president and CEO, said that what is most vital is helping teachers instruct children in how to evaluate options and make sound decisions—the things investment professionals do every day. The CEE provides teachers with the tools they need to give students instruction in the fundamentals about earning, saving, investing and risk.

Though financial know-how has a rightful place beside the piggy bank, it may be some time before the crowd smoking in the restroom or planning the pep rally is chatting about value versus growth.