February 27, 2018

Why Financial Planning and Financial Literacy Are Important

By Donna Jackson

Attorneys draft wills, trusts, and powers of attorney as part of an estate plan. However, there is more to helping clients than drafting a piece of paper. The paper protects clients from guardianships and probates. Counseling is a major part of an estate planner’s role.

The first question I ask my clients when they meet with me is “What are you really afraid of?” In other words, why is the client in my office, talking about wills and estate planning? Attorneys and CPAs assume the answer is death and taxes. When I was a kid, my dad told me that it was important to have a good banker and financial planner, a good insurance agent, and a good lawyer and CPA and tax person. A financial planner should be involved to review the client’s investments, annuities, and life insurance to determine the client’s financial needs.

Financial planning is assumed to be important to adults and people wanting to retirement; however, everyone from kids to adults needs to understand financial planning. Financial literacy is being taught in schools today. The American Institute of Certified Public Accountants started a program called 360 Degrees of Financial Literacy. It is a free website with information tailored to the life stages of a person.

Parents need to discuss with their kids the value of saving money. They need to start smart financial habits, and a weekly allowance is a learning tool about money, savings, and budgeting. It is easy for an adult to give in to the wants of children rather than teaching them about earning and saving money.

High school and college students need to set financial goals for education. They all want cars, but it is better to teach them about saving money, debt, and borrowing money. It is common for kids when they graduate to be saddled with credit card debt and student loan debt. It is important to emphasize the need for emergency money and not to rely on credit card debt to pay for day-to-day expenses. It is important for students to sign a durable power of attorney for financial and healthcare decisions they turn 18. When a child turns 18 years old, the parent no longer has the right to make medical decisions for that child.

When students graduate from high school and college, they should consult with a financial planner to be educated about their financial future. The following issues should be reviewed:

  • Budget
  • Savings for emergency
  • Saving for retirement-funding IRAs and 401(k)
  • Filing tax returns
  • Use of debt and the types of debt (credit card as well as auto, home, and student loans)
  • Use of life insurance, health insurance, and long-term-care insurance.
  • Investments (savings, certificates of deposit, mutual funds, bonds, and stocks)  

When clients get married, they need to discuss with each other their financial goals. One of the major causes of divorce is money and debt. Love does not last long when a couple must work overtime to pay bills and credit card debt. In addition, if the couple has children, it causes more financial stress. The couple needs to have an estate plan done and name a guardian for the children.

Most people do not want to address the issues of growing older, but these issues need to be discussed when the client is younger and without medical conditions that prevent the underwriting of long-term care insurance. A financial planner is a good resource for the client to discuss annuities and long-term care insurance.

Donna Jackson

Donna J. Jackson, CPA, JD, LLM, is the principal at Donna J. Jackson & Associates in Oklahoma City. Her practice focuses on estate planning and tax law, and she has a deep experience with estate planning, including trusts, wills, and business succession planning