What Today's Youths Desperately Need to Know

If you're reading this article, you already have a huge leg up on millions of Americans. Even if you take your knowledge of investments and personal finance for granted, a lack of financial savvy threatens to hold millions of people back for the rest of their lives. And the children in your life could end up among them -- unless you start sharing your money knowledge with them. As this year's Financial Literacy Month comes to a close, it's important to look at how you can make a difference in making today's youths more fit to face the financial problems that abound right now.

The huge effect of financial illiteracy
Even among adults, few of us do everything possible to manage our money as well as we could. A quick look at the 2012 Consumer Financial Literacy Survey (link opens PDF file) reveals some alarming facts:

One-third of adults don't pay all their bills on time.

Almost 40% carry credit card balances from month to month, in most cases incurring sizable finance charges.

Fewer than half of adults use a budget, and more than 1 in 5 don't have any firm idea on how much they spend for basic items like food and shelter as well as more discretionary purchases like entertainment.

Most adults learned about personal finance from parents or other family members, yet 80% of survey respondents say they could use outside advice from financial professionals.

That last point illustrates the importance of learning about financial issues as early as possible. Like it or not, children and young adults face financial challenges at early ages, and they need the tools to stand up to those challenges and avoid the pitfalls that so many people fall into.

For instance, figures compiled by Edutopia show that spending by teenagers exceeded $75 billion in 2011, making the segment a key target for retailers and other businesses. More than 1 out of 3 high school seniors has a credit card that they use, and many of those go on to adopt some questionable money management practices in young adulthood. Half of undergraduate students have four or more credit cards, even though a substantial percentage of those don't know how much they pay in interest on their debt. Meanwhile, more than 10% of those ages 18 to 24 have incurred enough debt that it takes more than 40% of their income to pay it off.

What you can do
By contrast, teaching about financial literacy early on can make a huge difference. Early lessons about what money is and how the choices we make to save or spend money affect what we can do in the future can give children a solid foundation in putting their financial experiences in context. Later on, details about earning money at a job, understanding advertising, and choosing payment methods become increasingly important as teens move toward greater levels of financial autonomy. And by the time high school students are ready to graduate, knowing about taxes, budgeting, and investing can help them through young adulthood and beyond.

One obstacle is finding skilled teaching professionals. One study showed that fewer than 20% of teachers believe they have the skills to teach personal finance, making it all the more important that children learn about money from other sources. But along with resources from a host of nonprofit organizations, financial firms are doing their part. Wells Fargo's (NYSE: WFC  ) Hands on Banking program is aimed at teaching basics to kids, while US Bancorp (NYSE: USB  ) marked its 16th annual "Teach Children to Save Day" yesterday. Schwab (NYSE: SCHW  ) also plays a role in fostering financial literacy, with senior vice president and founder's daughter Carrie Schwab-Pomerantz advocating strongly for greater money awareness after noting that her own upbringing wasn't as thorough on the subject as you might expect.

Skeptics will question the motives of banks that earn a significant portion of their income from charges such as overdraft fees that stem from customers making mistakes with their money. But mortgage-lending banks could have saved billions in losses had their borrowers never gotten themselves over their heads in debt in the first place. Moreover, Schwab and other brokerage companies see greater savings as a win-win scenario for brokers and customers alike, as the broker earns fee income while helping customers buy the investments they need to reach their financial goals.

Don't give up
A long recession and sluggish recovery have made many people bitter and hopeless about money. But it's never too late to provide more knowledge to those who so desperately need it. Supporting financial literacy is the most valuable gift you can give to younger generations, and the effect it will have will last a lifetime.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter here.

Fool contributor Dan Caplinger thanks his parents and the University of Chicago for his financial knowledge. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo and Charles Schwab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy helps you know where you stand.


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  • Report this Comment On April 26, 2012, at 10:32 AM, rossirina wrote:

    I found Plan And Act website with a bundle of meaningful relevant financial information (in the info center and all over) and I also run their financial assessment that was valuable (it's free and took 5 minutes only). Here is a link to their site – www.planandact.com

  • Report this Comment On April 27, 2012, at 4:12 PM, ibuildthings wrote:

    Financial literacy is the way to hold onto money once earned. But first, they must earn it. We are not encouraged to put down the bong and video games and study difficult material in school, because for the last 20 years or so, it hasn't been trendy.

    A huge number of our population are below the poverty line. Do you really think this is because a few rich people conspired to put them there?

    Some percentage of the below-poverty population are wounded vets, or people who took sick, or people who planned their lives well but get hit with severe misfortune. They deserve help.

    But a larger percentage are there because of continued bad choices. Too many drugs, too many beers, too many hookups and no long-term planning for self-sufficiency. I can't justify paying the clueless the same amound of our limited safety-net money as we pay the helpless.

    If you want to improve the lives of the next generation, teach them that their best chance comes from more math and science, not more fashion, drama, partying and sports. Even the handful of actors, models and basketball players who actually make it need doctors, lawyers and the scientists who create the things that make our daily lives easier.

  • Report this Comment On April 27, 2012, at 4:59 PM, DJDynamicNC wrote:

    ^^^ Your beliefs are yours and you may have them as you wish, but please recognize you are making a moral argument, not an economic one.

    You are saying that skills such as art or fashion are not worth more than the market will bear, and that therefore the people who pursue art or fashion are making bad choices, even if that is where their passion lies.

    You are also saying explicitly that we should punish those people by denying them the resources they need to live because you don't feel their skills provide sufficient value to society.

    You are, in other words, saying they aren't worth as much as other people who make decisions more in line with the decisions you think they should make, and should be allowed to suffer and die or give up their passions and choose industries more amenable to your own interests because the market says so.

    You can believe that if you like, but I think it's important to make clear that that is what you are saying. It is very much a moral value judgment cloaked in economic arguments. You are arguing that human beings might fritter their lives away doing such economically useless things as having fun and pursuing their passions. We certainly can't have that. It might anger The Market, our implacable god who requires constant human sacrifice.

    I believe differently.

    I believe the market is not some inevitable and unstoppable thing, nor are human beings its servants or slaves who must bow to its whims and its values. And if you truly believe that art is worth no more than the market will pay for it, please recall that the market had no interest in some of the greatest artists until it realized the genius it had lost upon their deaths.

    The market is not infallible. And it is not our master.

  • Report this Comment On April 28, 2012, at 12:22 PM, Panther007 wrote:

    I employed young people in my business for over 14 years. There was a wave of drinkers in 2005 - 2007 that always made me wonder where they would end up in life. Now, most of them are not much farther in life. There is too much of a "I'll do it later" type of mentality in general with them and "the later" time never happened.

    I tried to set them up on simple iras but no one appreciated it. They just wanted more money in their paychecks - didn't care that i matched their payments 3%.

    I tried to tell them about money issues, but you can't if you are their boss. I used to encourage them to take their cash tip money and go pay their electric bill in cash or they'd blow it.

    I hope that some of my words helped, but you never know........

    The sooner young people understand money, earn money, and save money for their future - the better off their lives will be in the future.

  • Report this Comment On April 28, 2012, at 3:03 PM, crca99 wrote:

    I believe young people are in trouble because of their spend everything mentality, but I can't prove it. I've seen as many spenders end up well off as I've seen reap the consequences later in life.

  • Report this Comment On April 29, 2012, at 2:30 PM, Darwood11 wrote:

    I wish it were as simple as "financial awareness." It isn't. It's about being responsible for one's actions, instead of instant gratification and the assumption that this is all about "free money."

    Just before Y2K there were a few people who went on buying splurges because they assumed that with the impending melt down of technology, that they would never have to pay for that stuff. The computers would fail!

    A few years ago, there was an outcry about the "evil" credit card companies. Laws were enacted and during that outcrying, there was an article in one of the colorful magazines, perhaps Business Week or Newsweek. The centerpiece photo of the article was a PhD candidate with her attorney who, as I recall, had accumulated $25K or so in credit card debt. It was her position that "I thought it was free money."

    Then we had zero down home loans, ARMs and other financial vehicles coupled with a red hot real estate market which for a time gave us "free homes."

    There is a common thread here, and it isn't about awareness. It's about a widely held belief that these loans are "free money" and that when the time comes, I will be able to escape my debt. I'll have more than enough money to deal with it, and if not, there is always that 1-800 number with the bankruptcy info tapes.

    What is necessary is an education that says "You are making serious, life determining decisions. You really are accountable for the consequences. That means, your college education is your one and only opportunity to figure out how to make enough money to live for the next 60 years. You will be responsible for your well-being and you will be accountable for your finances, which includes these loans. You can go bankrupt or whatever, but it will have significant and real impact on your financial well being. But don't pretend there will be no consequence, because the only person on the planet you are deluding is yourself. The time for childish games is over. You can make these decisions so you are accountable for them."

    There is now a populist move to forgive college debt, which was one of the centerpieces of the "Occupy" movement. There is legislation under way to change bankruptcy laws, again, so some student loans can be forgiven.

    How bad is it, really? College loans now value more than revolving credit card debt, and exceed $1 trillion.

    All I can say is, we have a lot of credit junkies out there.

    Stories such as recent ones at the WSJ have prompted me to suggest that not everyone should go to college.

    Is it time to rethink fundamental economics and such schooling? It's obvious that these people are bright enough to go to college, but aren't bright enough to make good financial decisions. We're not talking a few; we're talking millions.

    Why doesn't Sen. Durbin press for overhaul of requirements for these loans? How about mandatory education on the financial consequences of bad financial decisions?

    These people have no skin in the game. I suspect they have no skin in their lives, either. It seems that the thinking is "Time is endless and I will live forever, or long enough to handle all of this."

    The future has a habit of becoming the present at the most inopportune times.

    So I guess these loan junkies who are disguised as hapless college students and graduates are saying "I'm really pretty clueless about simple finances, but you can trust me to know what I'm doing as a business manager, financial gal, your doctor, or your lawyer."

    It's too bad so many don't understand that you can't just "do it." Taking on a college education requires capital. It is a commitment. It is not a free ride and it may involve "mortgaging one's future."

    It's too bad some apparently believed "it's free money." Or put off repayment of school loans and have discovered the wonders of compounding the hard way. They now face loans up to $200K and have discovered this now crimps their current lifestyle. They have to forego new cars and vacations and a large house and other luxuries; in some cases, they postpone marriage.

    Simple, really. Any online mortgage calculate can figure it out. Borrow $100K and with interest that means paying back about $10K a year for 15 years. Or delay and you'll be paying at the age of 57 and then complaining that "I should be retiring but now....it's enslaving."

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