As a senior financial planner with Baltimore money manager T. Rowe Price, Stuart Ritter spends much of his time on the job — and off — educating people about personal finance.
April is Financial Literacy Month, and as many surveys show — including one by Price — we have a long way to go before we're a money-savvy nation. That means Ritter has his work cut out for him.
Ritter took some time to answer questions about personal finance as it relates to parents and their children.
T. Rowe's recent survey found half of parents don't regularly save for retirement, nearly one out of five expect to financially lean on children in old age and parents are more likely to save for a vacation than a child's college education. What does that say about parents and finances today?
Like our time, our money is pulled in a lot of directions — and sometimes we get so caught up in handling the short term that we end up neglecting the long term.
Focus on what's important by sitting down and listing your financial goals — what you want to buy, when you want to buy it, and how much it will cost when you do. Everyone's list is different, but they always end up with more stuff we want than money we have. And that leads to the critical next step in the process: prioritizing. What's more important to you and what's less? Really. If saving for college is more important than a vacation, it should be higher on the list — and your spending should reflect that. It doesn't necessarily mean no vacation; it may just mean a smaller vacation so you can set money aside for college. All this can make you more confident you'll get the stuff you want most.
Surveys for years have shown that teens flunk tests on personal finance basics and that some traditional methods parents use to teach children about money matters — unconditional allowances and buying stock for children — don't improve financial literacy, either. So, how can youngsters learn to be financially savvy — and how can those lessons be made to stick?
First, to teach kids to be good drivers, we don't start by explaining transmission gear ratios. We teach them the basics about how a car works and the rules of the road. So in teaching them to make good decisions about money, we should do the same thing. Start with the basics: how to set financial goals, prioritize, and save and spend wisely. When you get to investing, focus on the fundamentals like asset allocation and diversification.
Second, the best way to make it stick is to bring it into everyday conversations, whether at the grocery store or paying bills online, as well as put it all in a fun game so kids will want to learn. That's part of why T. Rowe Price collaborated with Walt Disney Imagineers to create The Great Piggy Bank Adventure, a free online board game. You can find it at moneyconfidentkids.com.
You have three small children, ages 8, 6 and 3. How have you gone about teaching them about money?
Like most other things we teach our kids about — safety, playing nicely, eating well — we use everyday teachable moments. When we're at the ATM, we explain how the money got into the bank. When we put money away for their college education, we mention that we're doing so. When they're complaining about being too cramped in the back seat of Dad's car, I point out that we could buy a bigger car so they have more room ("Yea!"), but that would mean using all our vacation money, so no trip to the beach — for three years ("We'll be good!").
I started when my children were 5 — about the time they realized money could buy things. At 6, my oldest asked for her own credit card! She pointed out that when I go in a store, I just show them my card and can get whatever I want. Talk about a teachable moment!
Many parents are overwhelmed by saving for retirement and paying for college. How can parents juggle funding these two big items — or will they or their children have to be disappointed?
This is the single biggest financial challenge that many people face. Here's one way to think about it: When they do the security briefing on airlines, if you're traveling with a small child, they always tell you to put your own mask on first. So it's not about disappointing someone, it's about knowing the best way to help.
When it comes to your goals, your own retirement should be highest on the list. There are lots of ways to fund college, but only three for retirement … Social Security benefits, continuing to work and personal savings. There are no "retirement loans" available, no Top 10 Retiree scholarships, no Pentagon programs for 82-year-old recruits. So to avoid becoming a burden on our kids in our later years, we need to save 15 percent for retirement. Then save what we can/want for college in a 529 plan. Then focus on our other priorities.
You obviously love your job. If you couldn't be a financial planner, what would you be?
I'm very fortunate to work for a company that values educating people about personal finance as a way to help them achieve their financial goals. If I couldn't be part of the educational effort here, I'd continue it through other venues. I've been lucky enough to teach personal finance at Howard Community College and at Johns Hopkins (stopped when baby No. 3 was born. Priorities!). I now volunteer to work with prospective parents, with college students and with K-12 teachers. I'd find a way to continue that.
Stuart L. Ritter