Personal finance savvy is a critical make-or-break issue when teens graduate from high school and enter their first steps of the independent phase of life, away from the cushion of parents and family for the first time, whether away at college or learning to work and maintain their own living space. Unfortunately, for many the jump into the adult world is a rude awakening in money matters and many crash before they learn to manage their money instead of letting it manage them. A recent survey from the Center for Financial Literacy (CFL) at Champlain College revealed that public education is doing little to stem the tide of financial illiteracy in most U.S. states.
A U.S. Bank report indicates that at least 65 percent of the students ages 18 to 30 years old feel insecure and ill-prepared by their formal education, whether in high school or college, to competently navigate the world of personal finance. USA Today proposes better education in financial matters as one solution to the problem. While some teens pick up some knowledge and know-how through parent instruction or example, not every parent is providing this life skill during the critical training years when children can make affordable mistakes and learn in a safe environment without the catastrophic consequences that adults experience when they do not manage their money well. Popular, but faulty assumptions about credit and debt, lead many down a destructive path of financial ruin just because “that’s the way it’s done” without stopping to consider healthier alternatives.
The Champlain College study graded each state on its high school financial literacy education requirements and half rated from mediocre to abject failure to provide any grounding in personal finance skills. Only a handful rated an A and of those only Utah had a clear plan of accountability and assessment to be sure that students were actually learning, retaining and applying these skills to their own lives, which is the entire point of education in money management to begin with.
CFL’s director John Pelletier explains that effective financial education is not a one shot course in high school or college but rather a cumulative effort that should start early and be integrated into the education system at all levels. Young children can learn that the things they want cost money for instance by taking money out of their piggy banks for that dearly desired toy and placing it in the hand of the cashier themselves, suggests well-known financial expert Dave Ramsey. As they mature and master the early basics, they can begin to learn how to manage a bank account, earn their own money and budget.
Classroom work can give them a grounding in the realities behind borrowing, whether for a car, a house or student loans. Financial education should point out the fallacies and dangers of a lifetime habit of borrowing, credit and credit cards, as opposed to learning patience and delayed gratification skills that make it possible to save up and pay cash for the things they want, even big-ticket items.
They can also run some calculations and see how a little saving and investing over a lifetime can reap big benefits to provide for retirement. It teaches them to think and plan ahead so that they do not dig themselves into a financial hole or come to retirement with nothing to retire on. The earlier children and teens learn the realities of how money works, the sooner they can start planning to “tell their money where to go instead of wondering where it went,” as Ramsey likes to say.
The important thing is to lay a strong foundation in personal finance know-how so they can build on it for the future and be successful, rather than faltering at the gate. Philly.com reports that Principal John Chargois of Union High School in Tulsa, OK and business teacher Sandra Deiseroth from Horseheads, N.Y. both endorse the FoolProof financial education program as a rigorous and standards-based program that meets the requirements of Common Core. Dave Ramsey offers Foundations in Personal Finance as a comprehensive way of instilling the necessary financial skills in young people so that they thrive in the adult world and avoid the pitfalls that get so many into trouble.
No matter which curriculum is used, the bottom line is that parents and schools need to work together to strengthen and build up the personal finance savvy of teens before they are launched into independence. To send them out without a plan is dooming them to fail unnecessarily and repeat the mistakes they have seen others make because it seems like “the thing to do.” No one wants the heartache that comes at the end of that road and the best way to up the odds of a lifetime habit of successful financial management is to weave a correct understanding of money and how it works into their worldview from the beginning.
By Elinore Ruth Van Donge