Listen up: Financial awareness starts at home
Growing up with a financial services icon for a father surely gave Carrie Schwab-Pomerantz an inside advantage in learning about money.
After all, she got to constantly “talk to Chuck,” as the longtime advertising slogan for Charles Schwab & Co. urges. The real Chuck, Charles R. Schwab: company founder and chairman, pioneer in the discount brokerage business, and Dad.
The funny thing is, though, he didn’t discuss money with her much at all or even give her an allowance, his nonetheless-admiring daughter recalls.
“He should have talked more,” says Schwab-Pomerantz, a senior vice president at Schwab and prominent advocate for financial literacy.
Schwab did instill in her the importance of saving and having a strong work ethic. Those are both part of the foundation of financial awareness she says is essential to achieving a secure retirement.
“People should be well-informed about money so they can ask the right questions and make good decisions,” says Schwab-Pomerantz, president of the Charles Schwab Foundation, which aims to help individuals and families achieve financial well-being.
A certified financial planner in her own right, Schwab-Pomerantz serves on the President’s Advisory Council on Financial Capability and, with her father, co-authored the book “It Pays to Talk: How to Have the Essential Conversations With Your Family About Money and Investing.” She and her husband, author Gary Pomerantz, have three children and live in the San Francisco Bay area.
She shared her thoughts on how Americans can maintain financial fitness, as she calls it, from childhood through retirement in a recent interview with the Associated Press in conjunction with National Financial Literacy Month. Here are edited excerpts:
Q: Everyone seems to agree that financial literacy in this country is lagging. What can be done about it?
A: I wish Congress would simplify all the choices people face for saving for retirement. One thing the president’s council is looking at is having one IRA from birth that would be your savings account for retirement for the rest of your life. That promotes being involved with your money, and saving, and getting interested and knowledgeable about it.
In the meantime, we have to educate ourselves. Unfortunately, financial principles aren’t taught in schools.
Q: So how do parents educate their kids about money?
A: I’m a big believer in starting to teach your kids when they’re young. Give them an allowance, get them to save at an early age and have them get jobs when they’re a little older. Kids who work are much more likely to be stellar savers. And start talking to them about retirement, even though it’s “boring.”
I also think it’s a good idea to get them a credit card when they’re about 16 and have them practice paying it off on a monthly basis. I call it a credit card on training wheels. Credit cards definitely have a place in our lives, and they’re important. But it’s like with a car – it can be dangerous if you don’t know how to drive it safely.
Q: What did you do with your own children (now 23, 20 and 15)?
A: I made them all get jobs. We’re such a wealthy society that we spoil our kids. One of my kids’ friends’ parents didn’t want him to get a job if it was menial. Meanwhile, my son was a bagger at a grocery store. He was humiliated, but my dad was like … We were so proud of him. It’s about responsbility, it’s about customer service – there’s so much to be learned from that.
Q: How else did you educate them about money?
A: I opened custodial accounts for them when they were 13. I brought each of them to the Schwab office, sat them down and had them fill out the paperwork. They saved birthday gifts and money from their jobs. And when the two boys got their first jobs, at 16, I highly encouraged them to open up Roth IRAs, and they did.
They’ve gotten really invested in investing. I’ve been teaching them the virtues of diversification and long-term investing. I think I have them bought into it!
Q: What about adults – how do you recommend they become more financially savvy?
A: It’s really important for families to talk about money and investing. And it’s particularly important for baby boomers and all those over 50. The economic downturn, I believe, had a lot to do with the lack of financial literacy in our country. A lot of people got themselves in trouble because they didn’t have a baseline education to make good decisions.
Q: What are the biggest mistakes in retirement planning?
A: Not being well-informed and starting to save too late. What people don’t realize is the longer you wait to save, the harder it is – the more you have to save to build enough of a nest egg to have a secure retirement.
If you start when you’re in your 20s, you need to save roughly 10 percent of your income. If you start in your 30s it’s about 15 to 20 percent, and in your 40s it’s 25 percent. A quarter of your income to the future – that’s hard for anybody. So, better to start early. The earlier you start, the easier it is to build that nest egg.