Aldous Huxley predicted test-tube babies, mind-altering drugs, and other scientific marvels in his Brave New World. Many of his predictions have already come true. But he didn't include the changes that have taken place in the world when it comes to money matters.
The world is a different place today than it was just a decade ago (let alone when Huxley was writing in 1932). Things we might have taken for granted previously are no longer the rule. In the not-too-distant past, a kid grew up and chose a career path or took a job at adulthood. He stayed there for his working years and, if lucky, lived to see retirement. A company pension and Social Security ensured his financial well-being until his death. Even if he was lucky enough to live to retirement, he didn't expect to have many years in that status.
Today, things are radically different, and these changes have an effect on money matters. For example, kids start to plan early for their futures. Many begin thinking about college and careers before they've even entered high school. And there's good reason for doing so:
- College costs can be staggering. Planning to meet the high cost of college is beginning increasingly earlier.
- The jobscape is changing. Manufacturing jobs are disappearing, and new Information Age jobs are being created every day.
- People don't stay at one job for their entire working career. Instead, they can expect to have multiple jobs and even multiple careers during the course of their life.
- Retirement years can last as long as one's working years. It takes money to live in retirement and meet the high cost of health care that can accompany advancing age.
- Company pensions and Social Security cannot always provide a secure retirement income. Personal savings for many becomes the primary source of retirement income.
It's time to realize that your kids are up against new realities when it comes to money. With that comes new ways to learn about money.
Planning for the Future Now
The changing realities of demographics, technology, and the workplace all affect money. Your child must learn about money within the context of these new realities. You probably didn't learn these concepts as a child; most likely, you learned them as an adult. But your child needs to recognize the new money facts of life. Here are just some new facts of life that require new thinking about money matters.
Financial Building Blocks
According to the U.S. Census Bureau, a person born at the start of the last millennium had a life expectancy of only about 46 years. Today that life expectancy has nearly doubled. A child born today can expect to live to 79 (even older for women, while slightly less for men). A division of the National Institutes of Health projects life expectancy to increase by the year 2040 to 86 for men and 91.5 for women.
- Life expectancy means that kids must take a longer view of life than ever before. They must recognize that their working years may go on for half a century. In that time, they may have several different careers. They'll need to think about things such as expensive long-term care and other concepts that we parents never did at their age.
- Taxes have a bigger impact on financial decisions. Taxes today influence the type of investments that people make, such as deciding when to buy and sell. They also affect the type of retirement savings vehicle people use (for example, a tax-advantaged plan such as a company 401(k) plan or a personal IRA). Kids may expect to earn more money than we do, but they'll also pay more of it into Social Security and Medicare. When I started working full-time back in 1970, the top amount that any worker paid into the system was less than $300 a year. Today, high-earners pay more than $5,000, and there's no ceiling on annual contributions for Medicare.
- Insurance is something that a person really can't (or shouldn't) live without today. Decisions about taking or switching jobs are greatly influenced by the availability of health care. People know that through middle age, there's a greater likelihood today of becoming disabled than dying, and they want to protect their livelihood in such an event. People today also have a greater need to protect themselves from lawsuits and must insure against many different types of possible liabilities.
- Computer technology is part of the work and investment landscape. It's essential to be computer-literate Because computers are used on or in connection with just about every job today—even many artists and musicians wouldn't be without them. Computers also allow people to make and monitor their investments online.