Wharton’s Olivia S. Mitchell offers tips for raising a generation of smart spenders and savers.
2 min. read
Twenty-five states now require high school students to take a personal finance course before graduating, yet financial literacy remains low in the United States. About half of American adults cannot correctly answer three multiple-choice questions designed to test basic money knowledge.
Economist Olivia S. Mitchell wants to change that. As a professor in the Department of Business Economics and Public Policy at the Wharton School, Mitchell has spent her career studying spending and saving. She said a major reason why Americans aren’t saving nearly enough for a comfortable retirement is that they fail to budget. They spend too much money on overdraft fees, credit card interest, and luxury items.
Low financial literacy costs Americans an estimated $390 billion a year, Mitchell says, and people with poor budgeting skills are seven times more likely to spend over 20 hours a week dealing with personal finance issues.
“Moreover, if you don’t save when you’re young, you forego all the beauty of interest compounding that will make you a happier retiree,” she says.
Mitchell, who serves as executive director of the Pension Research Council, says parents should lead by example and really talk to their kids about money. This could look like involving children in household decisions around money, such as where to go shopping and ways the family is trying to save. When her own daughters were young, Mitchell played Monopoly to introduce financial concepts such as managing risk. Later, she helped them sell Girl Scout cookies, set up a lemonade stand, and hold a car wash.
“I always tried to talk to my children about living within their means. Don’t spend it all. Try to spend less than you can,” she says. “It’s also important to teach them that time is a scarce resource. If you waste it, that’s going to have a negative effect on not only your spending, but what you’re able to do later.”
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