Background on Financial Education

The global financial crisis has been called many things: Warren Buffet dubbed it an "economic Pearl Harbor", Alan Greenspan said it’s a "once-in-a-century credit tsunami”, and George Soros commented that it’s "a true atomic bomb." Whatever you want to call it, its effects have been far-reaching, resulting in the highest unemployment rate in sixteen years, thousands of foreclosed homes, and a plummeting stock market.

A deep, and rather sobering, lesson we can all learn from this is: The majority of Americans are ill-equipped and ill-prepared to participate in this global economy because they lack basic financial skills. Sadly, youth fall into this category as well.

Just the facts ma’am

A recent Financial Literacy survey performed by Jump$tart found that while 80% of parents believed that school provided classes on money management and budgeting, in fact, only 10% of youth are graduating from high school with any kind of instruction on personal finance. Currently, only three states require at least a one-semester course devoted to personal finance, and seventeen states require personal finance instruction incorporated into other subject matter.

While 87% of college students and 90% of high school students rely on their parents for financial guidance, almost half of all parents say they don’t set a good example when it comes to handling their own money and are not capable of properly teaching their children…and it shows. The deficiency is carrying over into college and adulthood, and often adds up to a pile of debt.

College students are doubling their average credit card debt – and tripling the number of credit cards in their wallets – from the time they arrive on campus until graduation.

According to an analysis of the credit records of 3 million twentysomethings that Experian, the credit-reporting agency, did for USA TODAY, nearly 2/3 carry some debt and almost 50% have stopped paying a debt, forcing lenders to “charge off” the debt and sell it to a collection agency, or had cars repossessed or sought bankruptcy protection. Actually, the fastest growing group declaring bankruptcy is young adults ages 20 to 24.

What to do…

Helping youth to understand the world of work and basic concepts for managing their money can avoid the financial problems and stresses that affect many adults.

A number of public and private organizations are making an effort to address this issue, including JP Morgan Chase and Wells Fargo. Despite the increased efforts to teach youth about personal finance in schools, they still learn about money first and foremost at home.

Here are some tips to take your financial future into your hands:

• Speak to your parents about money. Keep in mind that your parents may have grown up in households where it was considered improper or impolite to discuss money matters, but times have changed. Be frank: tell them you need their help.
• Ask your parents to make their lessons hands-on. Ask them to give you an allowance and to make you responsible for paying for certain items (e.g. school supplies) so you can learn about budgeting and saving.
• Ask your parents to open a savings account in your name and to make deposits in it so you can watch your money grow.
• Use the internet to school yourself (and maybe even your parents). The net offers countless sites for learning about money. Try the National Endowment for Financial Education, which is designed for youth. Jump$tart hosts an information clearinghouse that can be searched by topic and grade level.
• Encourage your school to introduce personal finance. Inform them that it’s never too early to teach money education and that such a curriculum helps give young people a foundation that may allow them to avoid financial pitfalls later in life. Even better, they can find a surplus of money management lesson plans on-line.

Sources:

Jump$tart

Christian Science Monitor

MSNBC

National Endowment for Financial Education

Dollars and Sense

Young Money

Practical Money Skills