A MESSAGE TO PARENTS
The complexities of personal finance have grown exponentially over the years and some of us have had a hard time keeping up. Years ago, people had a checking account, savings account and a retirement plan. A Christmas Club demonstrated great planning for the future and ensured that the necessary cash would be available when it came time to buy presents. And, yesteryear, most people paid cash for their purchases. Today, there are savings accounts, money market accounts, money market funds, certificates of deposit, 401Ks, IRAs, Roth IRAs, ATM cards, debit cards, smart cards, annuities, treasury securities, stocks, bonds, mutual funds, value funds, large cap funds, mid cap funds, small cap funds, high yield bonds, penny stocks, REITs, 529 college savings plans, ad infinitum, and of course, there are credit cards.
If we’re confused, you can imagine what our children are facing. Basic financial literacy has become an American’s essential survival skill. It’s imperative that we equip our kids with the knowledge they need so that they can lead productive, financially comfortable, successful and meaningful lives. And, although great strides are being made in the area of offering personal financial education in our schools, more progress is needed.
In its most recent results from the biennial Survey of the States 2009, (“The State of Economic, Financial and Entrepreneurship Education in our Nation’s Schools”) the Council for Economic Education reports, “ … a continued and growing commitment – among policymakers, administrators and educators – to the teaching of economics and personal finance in our nation’s schools.” The number of states requiring students to take a personal finance course as a high school graduation requirement (some include personal finance in an economics class) has increased from seven in 2007 to thirteen in 2009. They also report that now there are 34 states that require personal finance content standards to be implemented in their curriculum which is an increase from 28 states in 2007. You can learn more about the Council on Economic Education at www.councilforeconed.org/. It appears that a little education goes a long way. Research by the National Endowment for Financial Education has shown that just 10 hours of financial education has a positive impact on young adult saving and spending habits.
Although it is true that many of our children are exposed to some type of financial learning (much more than we every received when we were kids), apparently it’s not enough. The Jump$tart Coalition for Financial Literacy is a national coalition of individuals and organizations dedicated to improving the financial literacy of America’s youth. In 1997, they began testing high school students on basic personal financial management, assessing four categories: income, money management, savings, and spending. They assessed students again in 2000, 2002, 2004, 2006, and 2008. Their original testing included 4,000 students spread across 33 states. Their most recent assessment included 6,856 students and included 40 states. Test results are listed below:
Jump$tart Coalition’s Biennial Survey
Year Average Test Score
Although none of the average test scores are desirable, the most recent results reveal that at least half of the youth tested do not understand the basics. To learn more about the high school testing and Jump$tart, go to: www.jumpstart.org/.
Besides quoting the old adages, “money doesn’t grow on trees” and “a penny saved is a penny earned,” what can a parent do? According to the professionals, they can do plenty. First of all, experts agree that our children learn most about financial management from their families so it’s important to teach them well … and to start early. Teach savings to the young child with a simple piggy bank. Money collected on holidays and birthdays can be deposited into a bank’s savings account. School fundraising events are a great way to teach kids how to raise money. These activities also provide a perfect setting to teach math, budgeting, business skills and charitable giving. An allowance can be a great learning tool especially when budgeting is taught as it relates to that allowance. When a child earns money outside the home, encourage them to save part of their income for a rainy day.
One of the best ways to learn about managing money is by doing, so help an older child open a checking account. Teach them how to write a check, and assist them with reconciling their account each month. They should know that the savvy customer avoids overdraft fees and other unnecessary and expensive bank charges. After teaching your teen the mechanics of checking, you might want to expose them to plastic. Some parents start with a debit card which has a MasterCard or Visa logo. The child can make withdrawals at an ATM or use the card as a credit card.
A prepaid credit card is also an option. Examples are Visa Buxx and the Citi Cash Card. These cards are preloaded with your money and can be used wherever the payment card is accepted, including the Internet. A parent can set spending limits and monitor their teen’s spending via Internet accounts or monthly statements. A stored value card is another alternative that can be used like a credit card. One difference between a prepaid credit card and a stored value card is that prepaid cards are typically issued in the name of an account holder while stored value cards are typically nameless, or anonymous.
Other parents teach their adolescents about credit by adding their teenager as an authorized user on their credit card. This provides a controlled environment in which to teach responsible spending habits. Be aware, however, if your credit is not optimal, you will adversely affect your child’s burgeoning credit history. Also, teens tend to lose things and you are exposing yourself to potential fraudulent charges on an account if your teen’s card is lost or stolen. Because of these and other concerns, some parents opt to co-sign for their child’s first low-limit credit card. Because you are a co-signer, you will be able to see how your teen is spending money and managing their account.
Reports suggest that younger kids spend their money on things they want (not need) such as ice cream, video games, or items that are trendy. Help them make wise decisions about spending. It’s vital that kids learn that there’s a big difference between what is wanted and what is needed. Understanding the distinction between wants and needs is an important lesson learned early in life, especially before a teen or young adult gets that first credit card. As we all know, spending is made easy with plastic so these internal controls should be in place well before the big moment.
The Internet is replete with information about personal financial literacy and teaching our kids about money. Following are some interesting articles on this topic: