Teach Your Kids About Money

[Before I begin, I invite you to consider forwarding this article to any young people or parents you know -- simply click the "Email this Page" link on the right.]

In a perfect world, we might all be gainfully employed, living happily among family and friends, and enjoying the slow but sure appreciation of our hefty stock portfolios. Perhaps these portfolios would be laden with stocks such as Harley-Davidson (NYSE: HDI  ) , Wal-Mart (NYSE: WMT  ) , Pfizer (NYSE: PFE  ) , PepsiCo (NYSE: PEP  ) , and eBay (Nasdaq: EBAY  ) , stocks we bought long ago, in our youth.

But this is not a perfect world, though it certainly does have much to recommend it, such as penguins and reruns of "Northern Exposure." The sad truth is that way too many of us receive our financial wake-up call much later than we should -- and too many never seem to receive it at all.

I read an article recently that made some great points about how valuable financial education aimed at young people can be. It noted the belief of many experts that far fewer adults would be struggling financially today if they'd gotten some fiscal smarts while they were still young. Teaching kids and teens about money has long been something The Motley Fool has fervently advocated -- which is why we developed an online area for teens and published a book for teens, too.

Permit me to list some of the good news and bad news about young people and money, gleaned from that article and elsewhere.

First, the bad news
Many young people are not learning sound money management skills from their parents. In 2002, fully a million Americans filed for bankruptcy. (And the fastest-growing group of bankruptcy declarers are those under 25.)

  • The average household with credit cards now owes almost $9,000 in credit card debt -- that's a lot to dig out from, and it's only the average amount.

  • Our national saving rate isn't impressive. People, on average, aren't saving nearly enough for their retirement. (Read some of these shocking statistics...)

  • A whopping 68% of graduating high school seniors surveyed by the Jump$tart Coalition for Personal Financial Literacy failed a personal finance test in 2002, compared with 44% who failed in 1997.

  • Senator Chris Dodd (D-CT) pointed out in a speech last year that, "Nearly 50% of college students carry four or more credit cards. According to the Department of Education, the average balance carried by these students is more than $3,000." This is a terrible way to start out in life -- in a deepening hole.

Dan Iannicola Jr., deputy assistant secretary for financial education at the Treasury department, recently testified before the House Subcommittee on Education Reform, "The downstream, adult problems of rising bankruptcy rates, low savings rates and frequent misuse of credit can all be traced upstream to how our schools fail to adequately prepare children for their financial futures."

Want some proof of that? Well, in 1997 Stanford economists found a positive correlation between states with financial education programs in schools and high levels of net worth and savings. Meanwhile, researchers at the Federal Reserve found that people who received financial education in school are more apt to save for retirement.

Finally, the good news
Now that you see the problem and a solution, rest assured that steps are being taken to move us all in the right direction:

  • The White House seems to believe in the importance of financial literacy, having called for an improvement in it in its "No Child Left Behind Act."

  • There is mobilization afoot. The Jump$tart Coalition for Personal Financial Literacy serves as a vital clearinghouse of financial education resources, as well as financial literacy news and information.

  • There's also the National Council on Economic Education, which seeks to promote economic education in schools.

So there's much to be hopeful about regarding our children's futures. Still, there are always more things that you can do to best position your young ones for success in life.

Help your child live well -- and maybe win $1,000, too!
You can save your children (or any children you know) from many years of financial stress and hardship if you'll take some time now to:

  • Talk to them about money. Be as open as you can be about your own finances and how much things like electricity and mortgages cost. Show them how you manage your money. Interest them in the power of saving and investing.

  • Get them started saving and investing. You can help move the process along by matching some or all of their savings and investments, and perhaps even by opening a custodial brokerage account for them.

  • Point them to resources that will engage and inform them -- might we suggest our online area for teens and our book? A stroll through your favorite bookstore will turn up other resources, too. Another resource is The Mint, which addresses kids, teachers and parents.

Finally, invite your child to compete for $1,000 that we'll be giving away soon. We're running a contest for the next few years offering $1,000 annually for the most eloquent and effective advice from a teen about personal finance, investing, or business. Learn more about 2002's winner and the contest. The deadline is less than two months away -- on New Year's Eve.

Selena Maranjian wishes she learned a lot of financial things well before her 30th birthday. She owns a few shares of eBay and Pfizer.For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.

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Selena Maranjian

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter...

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