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Your Kids Are Doomed to Financial Ruin

Kids these days ...

They can skip the library and Google Shakespeare, cart around entire CD collections in the back pockets of their low-rise, vintage-wash jeans, surreptitiously watch South Park on their iPhones during study hall, and pretty much get corporate America to cater to their every whim.

Consider the long-term results of kid-catering companies such as Abercrombie & Fitch (NYSE: ANF  ) , Urban Outfitters (Nasdaq: URBN  ) , Pacific Sunwear (Nasdaq: PSUN  ) , and American Eagle (NYSE: AEO  ) -- each has delivered solid returns over the last 10 years. Or look at how aggressively Microsoft (Nasdaq: MSFT  ) and News Corp. (NYSE: NWS  ) went after online teen hangouts Facebook and MySpace, respectively.

There's big money in that market -- kids these days are more tuned in, tricked out, and economically influential than any generation before them. And on top of all that, they have the one thing that we all long for: the opportunities of youth.

We've all seen the examples -- and cursed our lack of 20/20 hindsight -- of what could have been, had we only been on the ball. But the simple truth is that when it comes to investing, the earlier you start, the better. For example, a 25-year-old's $10,000 will grow to $217,245 upon retirement at 65, assuming an 8% annual return. A 40-year-old's would grow only to $68,485 (minus whatever she spent on Botox for those retirement-savings worry wrinkles).

Age of innocence? Hogwash
Despite having the world at their fingertips, today's young people face financial disaster at every turn.

Frankly, kids these days don't know how bad they have it.

Those who aren't trotting off to college with credit cards they've had since turning legal will find Visa and MasterCard applications conveniently stuffed inside their student union shopping bags. By the time they graduate, the average co-ed has $3,000 in credit card debt and will owe Sallie Mae and her ilk more than three times that in student loans. The under-25 crowd has the fastest-growing rate of bankruptcy in America.

But here's the real kicker: When handed the 401(k) paperwork at their first jobs, fewer than 20% of workers age 21 to 24 choose to sock away even one dime in their work retirement plans -- even when their employers offer to match their contributions. (Exactly what part of "free money" doesn't compute?)

Surprised? We shouldn't be. When the National Council of Economic Education quizzed high school students on their knowledge of personal finance, the average score was a 53.

Role models and financial ruin
How is it that a generation savvy in so many ways is so bad with money? Easy: Kids these days are just chips off us old blocks, and why shouldn't they be?

Like us, they get no formal schooling in financial basics. If we were lucky, we got a few pointers from mom and pop at home about budgeting, balancing a checkbook, and maybe even saving for a rainy day. But it wasn't the norm in most households, nor is it today. Only half of high school students have been taught economics in school, and even then, the lessons don't come until 12th grade.

So how's that model working out for the rest of us? Let's see:

  • As a nation, we're borrowing money at a record clip to pay for a lifestyle well beyond our means. According to the Federal Reserve, two out of five families spend more than they earn.
  • Twenty percent of credit cards are maxed out, and the average household pays approximately $1,000 in interest every year. In 2006, more than 1 million Americans filed for bankruptcy.
  • Forty-two percent of workers cash out their 401(k)s rather than transfer (or "roll over") the assets to an IRA or a new employer's retirement plan.
  • The Commerce Department reports that our personal savings rate is a wafer-thin 1.8%.

This cycle is destined to continue. Yet another generation of young people enters the real world without being prepared to make the most basic financial decisions -- unless we rewrite the ending.

And that's exactly what we're trying to do at The Motley Fool. Our 2007 Foolanthropy drive is solely focused on financial literacy. Our mission is pretty bold: We want every young person in the world to get a basic financial education.

Surviving temptation island
Face it, the forces of financial evil aren't going to back down. In fact, they'll probably gain more force. Credit cards aren't going away. Incessant commercial wooing won't stop any time soon. College costs won't suddenly be halved, and a fix for Social Security ain't on the horizon.

Lenders, service providers, and salespeople are going to continue to bank on kids not questioning costs or calling them out on their flimsy sales pitches. "Buy now, pay later? Sure! Why not?"

While they're under our roofs, we can shield them from some bad elements. But just that doesn't teach them how to make savvy financial decisions when they face temptation out on their own.

Fight financial illiteracy starting right now
Your role in eradicating financial illiteracy is an important one. (Hey, we can't do this all alone!) Please take a moment to check out the five choice charities we've partnered with, selected with care from the dozens of nominations from our Foolish community (yup, that's you!): Corporation for Enterprise Development, JA Worldwide, Mercy Corps' Silent Disasters Program, Operation HOPE's Banking on Our Future Program, and Share Our Strength's Operation Frontline Program.

All share our mission of educating, amusing, and enriching, and are dedicated to making sure that every young person has the formal financial education they need to be financially savvier than any generation before them. We hope you'll be as inspired as we are to pitch in what you can.

Kids these days don't know how good they could have it, so let's show them.

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“With an innovative, deserving partner in Thurgood, we’re focusing our efforts where Fools can make a real difference,” says Motley Fool Co-founder and CEO Tom Gardner. This holiday season, help The Motley Fool give disadvantaged students a superior education.

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