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Financial literacy important for future.

Knowledge is the key to economic strength for each of us individually, as well as for the United States and the world. America enjoys the most vibrant economy in the world because of the entrepreneurial and educational spirit of its citizens. In order to maintain our momentum, we must continue to emphasize the importance of education. Beyond our educational needs, each of us bears a personal responsibility for ourselves and our families. Our personal responsibility will be enhanced and our society will benefit if we can each build a sound financial future.

Managing finances and investing for retirement requires planning. In years past, we lived by the time honored value of "save now and buy later." This philosophy has now been replaced by a modern one: "buy now and pay later." This trend seems to be accelerating, with the number of bankruptcies, family breakups, and a growing welfare load indicating that a large portion of our population is focused on present desires rather than planning for the future. According to the Bureau of Economic Analysis, the annual savings rate of Americans at the end of last year was 1.3 percent versus 8 percent in the 1950s. Household debt represents about 18 to 20 percent of household disposable income. Debt absorbs one dollar of every five dollars Americans earn. This trend is negative for our society and our economy. So, what is the answer?

Clearly, we must improve the financial knowledge of individuals and governments, beginning with the financial education of young adults. This training should begin in our high schools and be emphasized in our colleges and universities. In 1985, D.A. Davidson & Co, introduced a student investment course in the business school at Montana State University aimed at increasing the quality of investment education at the college level, and we deposited $50,000 into an account for students to use over the course of a year in creating an investment portfolio. This unique concept has now grown to 20 schools in the Northwest and Rocky Mountain region benefiting hundreds of students each year. Each portfolio is charged execution costs, earns interest on cash and dividends on securities, and earns each school one-half of the earnings on returns 5 percent or greater. Now in its 21st year, the program has provided more than $303,000 to participating schools.

For the academic year ending August 2006, Boise State University posted the best results with a return of 15.39 percent, followed by the University of Washington, University of Idaho, University of Oregon, and the University of Utah. Seven schools earned a cash bonus. It's encouraging to see the results year-over-year; in 2005, Gonzaga I was the top school with a 39.54 percent return. It's even more impressive when you realize that the average for all the schools in 2005 was 14.1 percent, compared to the Dow Jones at 5.39 percent and the S & P 500 at 12.55 percent. And the winning schools vary widely--over the past several years the best returns have rotated among colleges and universities located in Colorado, Idaho, Montana, Oregon, Utah, Washington, and Wyoming.

"The rewards of teaching come as I watch the students take ownership of the portfolio and have intelligent discussions among themselves about what should and shouldn't be in the portfolio," said Timothy Kato, vice president of Financial Consulting at D.A. Davidson & Co. and adjunct professor at The University of Montana, School of Business Administration. "They show that they have grasped the concepts and ideas of portfolio development and are thinking like portfolio managers. Several of my past students have entered into the financial services industry and will send an e-mail once in a while letting me know how they are doing. Past students still send email to me asking how the portfolio is doing and saying this was one of the best courses they had in preparing themselves for the future."

The Student Investment Program is a perfect example of hands-on, real-world experience in the classroom. However, it's just one component of financial literacy. And it's clear that Americans need this kind of financial knowledge. While we will continue to expand and support our own program, we encourage others, including educators, private businesses, and organizations, as well as our state and federal governments to support the cause for financial literacy.

Editor's Note: The following guest column is written by Ian B. Davidson, chairman of Davidson Companies, the financial services holding company that owns D.A. Davidson & Co., Davidson Trust Co., Davidson Investment Advisors, Kirkpatrick Pettis, and Davidson Travel.
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Author:Davidson, Ian B.
Publication:Montana Business Quarterly
Geographic Code:1U8MT
Date:Sep 22, 2006
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