WASHINGTON -- A renewed federal emphasis on financial literacy education could have an ancillary payoff for the financial planning profession: more new planners.
Federal officials are developing new tools that could help advisors -- and their clients -- get a better sense of the true costs of various schools and navigate their options for funding tuition over the top of 529 savings plans and other vehicles. But some experts say the new financial literacy efforts could help attract more young people to the profession.
At a meeting this week of the Financial Literacy and Education Commission, an interagency panel organized under the Treasury Department, top administration officials cited the ballooning cost of college -- with average tuition at public, four-year schools up some 250% in 30 years, and student loan debt now exceeding $1 trillion -- as a major policy concern.
"As important as higher education is, the cost of it has never been greater," said Treasury Secretary Jacob Lew.
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With costs dramatically outpacing average income growth, Education Secretary Arne Duncan acknowledged that, for many households, conventional savings mechanisms are no longer sufficient to fund their children's post-secondary education.
Against that reality, advisors could find themselves counseling even mass affluent clients about financial aid options for their college-age kids. The federal government each year contributes more than $150 billion in loans, grants and work-study funds to help families shoulder the cost of post-secondary education. However, Duncan said that those expenditures to date have ignored important factors he describes as "outputs" -- such as job placement rates for schools' graduates and the ability of borrowers to repay their loans.
RATING SYSTEM, AID COMPARISONS
To address that deficiency, the Education Department is developing a rating system that could provide the government -- as well as families and their investment advisors -- with an important tool for measuring and comparing the return on investment of various schools. Duncan said that his department is aiming to deliver to the president a set of recommendations for a proposed rating system next fall, with the ultimate goal of tying federal financial aid to student outcome.
In a parallel effort, the Department of Education has been working with the Consumer Financial Protection Bureau to develop another tool that advisors can share with clients: a financial aid shopping worksheet. The tool, which has been adopted by roughly 1,600 colleges and universities, can provide clients with a side-by-side comparison of costs and aid opportunities.
Yet the CFPB is also approaching the challenge of college affordability on another front -- one that could yield tangible benefits for the health of the investment advisory profession. The bureau has called for a greater emphasis on financial literacy in primary and secondary schools so that students are better equipped to make decisions about taking on debt to pay for college, credit cards and other aspects of personal finance.
"We want to see financial education topics integrated into school curricula. We believe this education should begin at a young age and continue through graduation," CFPB director Richard Cordray said.
EDUCATING POTENTIAL PLANNERS
Certainly the first aim of financial literacy instruction would be to create better-informed consumers. But for the investment advisory profession, which is facing an anticipated surge in demand as baby boomers head into retirement, financial literacy programs in schools could be one way to address the challenge of replenishing the next generation of planners.
University faculty members at schools that offer financial planning courses note the difficulty of recruiting students into those programs, a challenge that traces in part to the simple fact that many students aren't aware of planning as a distinct profession. Some program directors will focus their recruiting efforts on still-undeclared freshmen and sophomores.
Yet others would like to see the recruiting start earlier, and view high school programs on financial literacy as an ideal venue to introduce students to financial planning. Texas Tech University, home to one of the largest and most respected financial planning programs in the country, has tapped members of its alumni board now working in the industry to fan out to high schools where financial literacy is part of the curriculum and talk to students about the advisory profession.
"Those are the kinds of things that we need to do," says Deena Katz, an associate professor at Texas Tech. "I don't think they understand what planners do. I don't think they understand the profession itself, and I don't think the profession is doing enough to make people want to be a part of it."
The CFPB's Cordray acknowledged the linkage between financial education in high school and students who go on to study related fields in college. The financial literacy committee recently held a field hearing in Madison, Wis., where Cordray said he met a student who had been inspired by a hands-on banking class he had taken in high school. "The student's now in college studying finance, and we would like to hear those kind of stories that he told us more often," Cordray said.
"From an industry standpoint, we need as many people as we can signed up for these financial planning courses," said Caleb Brown, a partner at New Planner Recruiting, a firm that specializes in recruiting early-career planners. "We don't have enough as it is."
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