If you take the time to read Blue Chip Kids
you will be way ahead of most kids your age.
Consider these interesting facts.
The evidence is crystal clear: financial education is critical to our country’s future and America’s kids need to learn a lot more about money, investing and the stock market if they want to get ahead. Here are some interesting facts.
Blue Chip Factoid # 1
What do China, Belgium, Estonia, Australia, New Zealand, the Czech Republic, Poland, Latvia and Italy have in common? Answer: 15 years olds in those countries recently placed ahead of 15 year olds in the United States in a financial literacy survey. Source: Organization for Economic Cooperation and Development, Program for International Student Assessment 2012.
Conclusion: This is embarrassing and bad for our economy. We need to do a much better job of educating our kids about money matters so that they can compete in an increasingly competitive world.
Blue Chip Factoid # 2
Students who like to learn and like to think about how to solve problems do better on financial literacy questions than those who are not inspired to learn or who find learning boring and uninteresting. Source: Organization for Economic Cooperation and Development, Program for International Student Assessment 2012.
Conclusion: We need to present financial information to our kids in a simple format that they will like to read. That was the whole point behind “Blue Chip Kids.” If the material is boring or too sophisticated, they will not read it and will tune out the whole subject matter.
Blue Chip Factoid # 3
In 2015 the average retired worker will receive $1,328 a month or $15,936 per year in Social Security benefits. Source: Social Security Administration.
Conclusion: It is tough to live on what Social Security pays. We need to make sure that when our kids grow up they are “money smart” and have enough money put away to supplement what Social Security may pay them if it is still around to send them checks. To accomplish this goal financial literacy must become a national priority.
Blue Chip Factoid # 4
51% of America’s workforce has no private pension and must rely upon Social Security benefits to live. Among elderly Social Security recipients, 52% of married couples and 74% of unmarried recipients receive 50% or more of their income from Social Security. Source: Social Security Administration.
Conclusion: Think about it. If the average payout from Social Security is less than $16,000 per year and the majority of elderly recipients get half (or more) of their annual income from that source it is extremely difficult for them to make ends meet. Would better money management skills when they were younger have made life easier for them later in life? Probably.
Blue Chip Factoid # 5
706,000 households headed by people 65 or over are holding unpaid student debt of $18 billion and 27% of those loans are in default. Source: U.S. Government Accounting Office.
Conclusion: No one wants their “golden years” burdened with student debt from 40 years ago. Had those borrowers had a better understanding of how to make money, manage debt and invest their money during their working years the debt they continue to carry today could have been paid off before retirement.
Blue Chip Factoid # 6
Debt from student loans among people of all ages jumped from $241 billion to $1.1 trillion in the past 11 years. Source: John Burns Real Estate Consulting.
Conclusion: If this trend keeps up, student debt will eventually exceed our GDP. When so much money goes to debt service it is not available to buy things that will help grow our economy and a stagnant economy hurts all of us.
Blue Chip Factoid # 7
The average amount of outstanding student debt jumped from $15,000 to $27,000 per student from 2004 – 2014; an increase of 74%. The increasing debt burden among young people is inhibiting household formation and curtailing their ability to buy a home. Source: New York Federal Reserve blog post in February, 2015.
Conclusion: The explosion of student debt cannot continue if we want a healthy economy with reasonable growth in GDP. Housing is one of the big drivers of our economy and if housing is not growing as it should the economy will not grow at a reasonable pace either. We need creative solutions to the student debt problem that could include a greater emphasis on low-cost colleges and universities, federal assistance with loan repayments under defined circumstances and possibly even a way to refinance student debt into a home mortgage.
Blue Chip Factoid # 8
29 million millennials (ages 20-39) or 1 in 3 of everyone in that age group have outstanding student debt that they are having to make payments on each month. Source: John Burns Real Estate Consulting.
Conclusion: A reasonable amount of student debt is OK but if gets to the point where it is 2X or 3X a young person’s starting salary that is a problem.
Blue Chip Factoid # 9
One-third of the U.S. (77 million people) has debt in collection and owes an average of $5,200. Source: Urban Institute.
Conclusion: Here’s the cold hard truth: we are a debtor society both individually and as a nation. We spend more than we should and we need to do a better job of making and investing our money. It will not magically happen. We have to work at it and we have to give our young people the financial skills they will need to save and invest their money wisely.
Blue Chip Factoid # 10
A child born in 2013 will cost a middle-income American family an average of $245,340 until he or she reaches the age of 18 and this does not include the cost of college or graduate school. Source: U.S. Department of Agriculture.
Conclusion: If you assume the “average” child goes to one of our expensive colleges or universities ($250,000 for 4 years) and then attends graduate school for 3 years (another $200,000) one can easily make the case that the real cost of raising just one child is $700,000 or more. (At a 30% tax rate, one has to earn $1 million to have $700,000 after taxes in order to have enough money to raise just one child.)
Blue Chip Factoid # 11
The public pension funding gap is currently estimated at $2 trillion. Source: Moodys.
Conclusion: Any young person who thinks that he or she will one day retire with a comfortable public pension should think again. The funds are simply not there to pay the promised retirement benefits and it will be up to the individual to save and invest their own money to cover the future shortfall.
Blue Chip Factoid # 12
College freshmen who took a financial education program in high school were significantly more responsible in nearly every aspect of planned financial behavior, loan behavior, banking behavior and credit behavior. Source: EverFi 2014 survey of 65,000 college students.
Conclusion: This proves the obvious: “money smart” kids will do a better job with all aspects of their money in the future. We need to present financial information to every school-aged child in all formats (in-class teaching, parental discussions, web initiatives and old fashioned books) so that the information is accessible, interesting and informative. Financial education does indeed make a difference and the EverFi study supports that.
Blue Chip Factoid # 13
Half the families in the United States live on less than $50,000 per year. Source: Census Bureau.
Conclusion: There are many families within that group that make much less than $50,000. It is impossible to save money for one’s retirement when everything you make has to be spent to make ends meet. Like a broken record: “money smart” kids can earn more, invest smarter and have a more financially secure future.
Blue Chip Factoid # 14
From 2009 – 2012 the net worth of the wealthiest 1% of Americans surged 31% while the net worth of everyone else increased just .04%. Source: Economist Emmanuel Saez, University of California at Berkeley.
Conclusion: “Money smart” people are out there and they are using their financials skills to grow their wealth every day. Everyone can improve their financial skills and do a better job of earning money and investing what they accumulate. The question is: do we care enough to make sure our kids learn these skills or are we content with just hoping that they may learn the skills some day?
Blue Chip Factoid # 15
The wealth gap is getting bigger all the time. There are now 1,645 billionaires in the world; an increase of 268 newly minted billionaires in the past 12 months alone. Source: Forbes.
Conclusion: It takes money to make money. An increase in savings coupled with the power of compounding and knowing how to invest one’s money can and will increase the financial security of America’s families. The wealthiest people in the world know this and they know how to utilize their financial skills. For everyone else, even a modest increase in financial literacy can make a difference in terms of savings and financial security.
Blue Chip Factoid # 16
Read this twice to make sure you really get it. By 2016 the richest 1% will own half of the global wealth and have a net worth equal to the net worth of the other 99% combined. At this moment, the 80 richest people in the world have the same wealth as the poorest 3.5 billion people. A staggering statistic. Source: Oxfam report, January 2015.
Conclusion: Knowing how to make money is a learned skill and some have learned the art of wealth generation better than others. By teaching our kids the basics of money management and wealth creation they will have a better shot at earning more in the future.
Blue Chip Factoid # 17
American families have nearly $12 Trillion of household debt as of 2014. Source: N.Y. Federal Reserve (November, 2014).
Conclusion: “All things in moderation.” Having some debt is fine if you can afford to service it and still grow the family’s net worth. Knowing how much is too much, however, is the trick and paying down debt is never a bad idea.
Blue Chip Factoid # 18
The U.S. savings rate in November, 2014 was 4.4%. In other words, Americans were saving 4.4% of their “disposable income” which is defined as the money they have left over after taxes are paid. In January, 1959 when this statistic was first recorded, the U.S. savings rate was 11.2%. Source: U.S. Bureau of Economic Analysis.
Conclusion: Over the years the cost of living has gone up and the amount of money Americans save as a percentage of their income has gone down. It is a trend that needs to be reversed. To save more money most people need to earn more and become more efficient with how they manage what they accumulate. That’s where “money smart” comes in.
Blue Chip Factoid # 19
As we try to imagine where the jobs will be for our children in the future, it is a safe bet that the government and large cap companies will employ fewer people than they do today. Technology is displacing workers every day and those jobs are never coming back. To be ready for the “working world” in the years to come, America’s kids will need to become more self-sufficient, more entrepreneurial and more skilled in knowing how to make money and invest the money that they earn.
Conclusion: Gone are the days when a 4 year college degree would assure our young people a solid middle class lifestyle. To compete and thrive today, “20 somethings” need skills that their parents did not have and knowing how to make money, invest money and make it grow over time will be more important than ever. The time to start that education is now and “Blue Chip Kids” can be the first step on that educational journey.
Blue Chip Factoid # 20
The “average” U.S. worker had a 2% growth in earnings from 1999 - 2009. It was 22% from 1979 – 1999. Source: Pew Charitable Trusts report, January 29, 2015.
Conclusion: Everyone, from the hourly wage worker to the white collar executive, can benefit from the additional income that can only come from understanding how to make prudent investments that will grow one’s net worth over time.
Blue Chip Factoid # 21
The majority of American households can replace less than one month of their income from liquid savings. “This study reveals a striking level of financial fragility …. This reality must begin to change if the American Dream is to remain alive and well for future generations.” Source: Pew Charitable Trusts report, January 29, 2015.
Conclusion: A majority of American households; not a small minority, not even a minority but a majority of American households have hardly any cash in the bank. Too many American families live paycheck to paycheck and the more they can learn about how to save money, invest money and supplement their paychecks the better they will be and the better our economy will be.
Blue Chip Factoid # 22
This from the Federal Reserve Bank of New York: Across the board, the bulk of earnings growth happens during the first decade of one’s working life and the trajectory of those earnings increases will set the bar for how much you earn over your lifetime. Workers who are projected to earn the median income in the U.S. will see their earnings grow by 38% from the time they are 25 until they are 55; those projected to be in the top 5% of income earners will see their income rise over the same period of time by 230% and those projected to be in the top 1% will see their income rise 1,450% over that time period. In other words, successful people will not only earn more money over time but their earnings will increase at a faster rate than everyone else.
Source: Federal Reserve Bank of New York report, February 6, 2015.
Conclusion: This report just reinforces what we already know: the better-prepared one is early in life to earn and manage money, the more financially successful one will be over the long-haul. It is never too early to get kids prepared for the road ahead.
Blue Chip Factoid # 23
“The time to hustle is when you’re young, because unless you’re a fantastic anomaly, you’ll probably see your last big raise well before you celebrate your 40th birthday.”
Source: Bloomberg.com article of February 6, 2015 commenting on the Federal Reserve Bank of New York report of the same date.
Conclusion: more of the same. Load the rocket fuel early and give your kids every advantage that you can so that they blast off as soon as school is over.
Blue Chip Factoid # 24
Since 2007 only 5 of 50 countries surveyed had paid down some of their national debt. Which countries were they? Egypt, Israel, Saudi Arabia, Argentina and Romania. The remaining 45 countries saw their debt burden increase over that time period. Source: McKinsey Global Institute.
Conclusion: Debt at all levels is an increasing problem: from student loans, to overall household debt, to our national debt, to global debt the world is borrowing money at an unsustainable pace. We must break our addiction to debt or sooner or later it will derail economic growth and cause an ever-increasing number of defaults.
Blue Chip Factoid # 25
The average retirement account for a working woman is $78,000. The average retirement account for a man is closer to $121,000.
Conclusion: The disparity in the balances can be explained by a number of things such as the fact that women often make less than men and women are often out of the work force for a longer period of time than men but that is not the point here. The point of concern here is that as a nation we have a long way to go to insure that retirees will have enough money to live on when they stop working. Taxes must be paid on funds withdrawn from a 401(k) so the buying power of America’s retirement accounts is even less than the amounts referenced in the Vanguard survey. Saving more, spending less and getting a good financial education early in life can all be part of the solution to more money in retirement.