Encouraging Children to Invent Ways to Learn About Investing

Perhaps the least-discussed cause of today's financial crisis is financial illiteracy: the inability of consumers to understand finance and effectively manage their investments, financial products and risks. NYSE Euronext is taking a more active role on this issue, which I think is incumbent on us given our leadership role in financial markets, and it fits our commitment to contribute to the global community in which we operate.

Let me share a couple of developments on this front.

First is that our NYSE Foundation is partnering with By Kids for Kids and K12 Inc. on the "NYSE Financial Future Challenge," a competition "challenging kids to come up with new ways to teach their peers about finance, money management and investing in the stock market. Entries may include games, books, websites, videos, and other media that would help illuminate the fundamentals of the stock market, enhance financial literacy, and make it easy for young people to learn and even participate in the markets." The winner will receive $2,500 "to jump-start their own portfolio," and participate in a celebration at NYSE.

I like this idea. Whatever the world has done historically to increase financial literacy obviously has not gotten the job done. Why not let young people contribute their ideas to the task? Today's kids are self-publishers on the Web (via their Facebook and MySpace pages), good online social networkers, have a facility for technological opportunity, and are growing up in a media-saturated world. The financial crisis undoubtedly has raised their awareness of money issues to a level far beyond that of kids back in my day, in the previous millennium. Plus, young people, in my experience, have a natural proclivity to think about what should be, not what is.

The competition concludes on 31 August, and I can't wait to see the results. I hope you'll encourage the young people in your life to consider participating.

The other development I want to mention, which got me thinking more about this issue in the first place, took place at NYSE several weeks ago, and I've been meaning to write about it. On April 27 -- during Financial Literacy Month -- we hosted an event to focus more attention on financial literacy, particularly in minority communities. SEC Commissioner Luis Aguilar gave a keynote address, Rep. Sheila Jackson Lee (D-Texas) and others were on a roundtable moderated by John Hope Bryant, and of course, a number of the participants rang the NYSE bell.

Some key takeaways:

In his keynote, Commissioner Aguilar outlined the extent of the problem:

Studies indicate that the need for financial education is most acute in communities of color. Research has shown that despite the significant contribution of minority communities to the national economy, these communities are less likely to participate in mainstream financial services. According to a Financial Literacy and Education Commission report, in 2006 53% of Mexican immigrants and 37% of other Latin American immigrants did not have bank accounts. Similarly, 20% of Asian immigrants did not have bank accounts.

Not just recent immigrants have lower rates of participation. While roughly the same percentage of African-Americans are estimated to have at least one bank account as the general population, African Americans have lower rates of participation for different kinds of financial services. According to a 2008 report, only 54% of African-Americans have IRAs or 401(k) plans, compared to 72% of the general population (and just 32% of the Hispanic population). Both groups have similarly low percentages that own stocks, bonds or shares of mutual funds (33% of African-Americans and 18% of Hispanics, as compared to 60% of the general population). The reasons for this low rate of participation in financial services are many. They certainly include language and cultural differences, but often these communities also have a suspicious attitude toward banks. Access can also be a barrier to participation. In some communities, such as Native American reservations and ethnically concentrated neighborhoods, there may not be an abundance of financial institutions.

Recently, when speaking at Atlanta's historically black Morehouse College in Atlanta, Fed Chairman Ben Bernanke was asked about the wealth gap between white and minority populations. He responded that "the difference between minority and white wealth is very significant, and part of that is related to income levels where whites have a higher average income." He went on to point out, however, that "even if you control for income level, you find minorities have gathered less wealth." Part of the cause, Bernanke said, is a lack of "financial education."

Commissioner Aguilar went on to outline the SEC's recently increased educational outreach to minority communities. He also called on both the public and private sectors to diversify themselves, reasoning that doing so would naturally result in a greater focus on financial education and other issues impacting minorities.

Black Enterprise reported on the remarks of two of the other key participants in the event. Rep. Sheila Jackson Lee is the sponsor of a bill that would require colleges and universities to provide at least four hours of financial counseling to students. "Americans never understood the language of the financial markets,” Rep. Jackson Lee said. “Let us make financial literacy the language of America.” John Hope Bryant, vice chairman of the President’s Advisory Council on Financial Literacy, added: “In the last 20 years we made dumb sexy. We have to create a whole new generation of young people who have a different culture.”

Other roundtable representatives cited other issues for minorities. Native Americans face inferior basic schooling, let alone financial education, one said. Asian Americans ironically face a stereotype that they are all wealthy and educated, which leads financial-service companies to sometimes assume they don't need much information or financial guidance, said another. In addition: many women are playing catch-up after years of deferring finances to the men of their households. Financial illiteracy is pervasive and many-faceted.

What else is NYSE Euronext doing about this problem beyond the programs described above? As I was working on publicizing the financial-Literacy event, I asked the same question of my colleague Steven Wheeler, director of the NYSE Foundation. Here's what he gave me:

Financial literacy is a funding priority for the NYSE Foundation, NYSE Euronext’s private philanthropic foundation. The Foundation supports initiatives that educate the public about the fundamentals of economics, personal finance and investing, with an emphasis on providing individuals with information and practical tools that promote sound financial decision-making and economic independence, with special attention placed on long-term investment. Preference is given to programs that reach a broad and diverse audience, with a special focus on underserved populations.

Financial-literacy education continued to be a significant area of the Foundation’s grant making in 2008. A $150,000 leadership grant to the Foundation for Investor Education provided sustaining support for The Stock Market Game, a popular program that teaches young people the fundamentals of securities investing. The Foundation concluded its four-year planned grant totaling $340,000 to BetterInvesting for its Building Wealth investment education program for high school students. Additionally, the Foundation continued its support of the financial education programs of the Museum of American Finance, Junior Achievement of New York and Operation Hope’s Banking on Our Future program, among others. In addition to the Foundation's work, the NYSE Community Volunteers program works with Operation Hope and Junior Achievement to educate students about financial and economic issues. Further, the NYSE’s education programs provide information to university classrooms and educators about NYSE Euronext markets and the financial marketplace.

There's more, about other issues, on our Corporate Citizenship Page. And none of it is to say that we're done, problem solved, or that it's enough.

I think Commissioner Aguilar was exactly right: we are all on the hook to do more about increasing financial literacy. I'd love to hear more about what other organizations are doing. Have a great week, my friends.