How To Make Sure Your Clients’ Financial Literacy Is Above Par

How To Make Sure Your Clients’ Financial Literacy Is Above Par

Regardless of the generation, it never hurts to help boost your clients’ (and their families’) financial IQ with these helpful pointers.

We came across an interesting study by LendEDU about how millennials -- those who came of age in the early 2000s -- view credit cards. While many understood the benefit of using a card to build a credit history (close to 70 percent), and more than half paid off their balance in-full each month (52 percent), there were also some odd discrepancies.

For example, 6 percent thought their credit score would go up if they made a late payment, while 17 percent thought it would have no effect. Close to half (44 percent) didn’t know the current interest rate on their credit card, and 68 percent thought there was nothing they could do if their credit card company increased their interest rate.


It’s Not Just The Young

It’s easy to shake your head at some of these findings and dismiss it as youthful ignorance. But how many of your fully grown adult clients may have the same problems with financial literacy? While they may know the basics of credits cards, do they know anything about Trusts? Are they tempted by late-night commercials regarding reverse mortgages or Life Insurance for extremely low premiums (that will “never change regardless of age or health”)? Do they understand what happens when their retirement accounts, which they haven’t been able to touch for decades, become available to them?

As a professional who manages money for a living, this is all very obvious to you. But, sometimes, the problem in being an expert is not realizing others don’t possess your wisdom. Because of this, a client might feel ill equipped, or even embarrassed, to admit they have no idea what any of this financial mumbo jumbo means. This is where you, the very patient expert, assures them that there are no stupid questions.

You may have to take the time to help a client unlearn years of bad habits. Perhaps these were lessons passed down to them when they were kids by an adult they respected -- like it was wise to stash cash around the house (it’s not) or open as many credits cards as possible (more than three is often too many). It’s hard to know what ingrained habits are misguided, so you’re doing them a great service by addressing and correcting their misconceptions and putting them on the right path.


Assessing Your Clients’ Financial Literacy

Since it’s unlikely a client would take the initiative to discuss the following topics on their own, it’s best for you to start the conversation. It also shouldn’t be all at once, but rather an ongoing series of meetings, or curriculum, that doesn’t overwhelm them. Ideally, you’d also be able to get their kids involved, which is a good way to educate the entire family in a non-threatening manner. While you’re focusing on keeping the interest of a pre-teen or teenager, you know the parents will be listening just as intently. Perhaps even chiming in with stories of their own.


The Topics

Borrowing: Statistics surround debt are truly astounding. According to 2015 Pew Charitable Trusts study, 80 percent of Americans have debt, with mortgages being the most common liability. Another study by Comet back up these claims with 78 percent of Baby Boomers having credit card debt (followed closely by Gen Xers with 74 percent), while 58 percent of millennials have student loan debt.

With numbers this staggarging and across all generations, here are some questions you may want to ask to assess your clients’ borrowing IQ, as well as educate them on healthy practices:

  • What’s the difference between a secured and unsecured loan?
  • How do loans differ based on what they’re borrowing to purchase (home, car, student, etc…)?
  • What are the costs associated with taking out a loan and how can you get the most favorable rates?
  • What’s the difference between installment vs. rent-to-own services?
  • What are the best ways to guard against predatory lending practices and loans?


Spending Plans: The best way to defeat debt is with a plan. Think of yourself as a fitness instructor working to get your client on a road to wellness after a life of sedentary behavior. Those first few sessions aren’t easy.

Perhaps tracking spending habits, preparing monthly budgets, offering tips on decreasing spending, and identifying tools to help manage money is already something inherent to your firm. But maybe it’s something that falls by the wayside during busier times of year, which may be when a client needs your guidance the most.

You can also find far more serious issues that may be lurking under the surface, such as a shopping or gambling problem that might require help beyond your expertise. Perhaps you could recommend a specialist and become the reason your client seeks help. Not only will this foster goodwill in your professional relationship, but it’ll also make you feel good for going above and beyond to help someone in need.


Saving Goals: This is where your skills really shine since your primary purpose in a client’s life is to manage wealth and make it grow.

For your clients, it might all still be a mystery. They see quarterly reports and their eyes glaze over. Our society leans more towards speed and instant gratification, and saving takes time and patience. It’s best to instill this knowledge in children before they pick up any bad habits, and important for adults to understand the goals their trying to achieve. Feel free to speak plainly about investment options and share ways they can save for large purchases or much needed home renovations.

For all you know, a client could have a bank account with tens of thousands of dollars they’re afraid to invest in fear of losing it. You can offer a low-risk strategy to make sure that money is working to benefit more than .02% return in a standard savings account.


Safety Measures: According to a study reported by CNBC, identity theft and fraud cost consumers more than $16 billion in 2016. You can teach your clients to be smarter about their digital security, which may include having them institute a password manager and two-step verification on all major accounts. They should also routinely monitor credit card and banking activity to make sure nothing is out of the ordinary.

Insurance is another form of security you can help them better understand. Perhaps a client has a Life Insurance policy, but it’s only through their employer. If they lose their job they lose coverage so they may want to obtain a standalone policy. There’s also disability insurance if they suffer an accident or illness, and long-term care insurance to help manage escalating medical costs in their golden years. Find out what products they may need, and then do you best to help them obtain whatever insurance they may be lacking.


Home Sweet Home: You can split this part up by focusing on those planning to buy a home and current homeowners.

For the house hunters you can discuss renting vs. owning, requirements they need to know about when buying a home, the ins and outs of a mortgage, and how interest rates, property taxes, and insurance can affect the monthly payment

Homeowners will most likely be interested in learning more about borrowing against a home, what to do if they fall behind on payments, refinancing options, and the benefits and drawbacks of reverse mortgages.


Give Some Credit: We began this article with a study about millennials’ knowledge regarding credit cards, and it’s a good place to end. Teaching good credit practices at a young age, or reinforcing it to those who may have lost their way, can make all the difference. Print out their credit reports and go over it with your clients, explain the implications of good/bad credit, and help them repair a damaged history or correct errors. See if you can help them consolidate debt or get a better rate on a different card. If you manage to help one client fix their credit, imagine the positive things they’ll say about you to all their friends and family.


Final Thoughts

This is where your years of expertise can help humanize all of these financial issues and make them relatable. You want clients to feel comfortable enough to come to you with any financial question they may have and know you’ll provide a straight answer. By doing this you’ll be able to make a connection that reverberates throughout their entire family.