Many American households struggle on a daily basis to make sound financial decisions. A large number of them fail and end up on the fringes of financial disaster. At this rate, future generations are very likely to face similar struggles meaning a lot of work has to be done if this gloomy forecast is to be averted. April, being National Financial Literacy Month, is a good time to assess if we are making any strides towards making sure that our young people will not need rescuing from poverty in their old age.
I believe that the level of financial literacy is necessary for today’s uncertain financial environment. Learning the ABCs of personal finance, the benchmarks by which financial literacy is measured, can go a long way in helping the majority of millennials avoid financial missteps while making important financial decisions such as taking on student loans and making retirement plans. While financial knowledge may not guarantee success in life, ignorance about money management, budgeting, and other financial concepts often carries a high price.
Financial skills are undoubtedly critical life skills. They should be taught from an early age and honed throughout one’s life. The concern, however, is, who should be responsible for giving our young ones the much-needed financial education? Should high schools and colleges provide mandatory personal courses or should it be the responsibility of parents to educate their children on financial matters?
Students Loans and Personal Finance courses in School
The default rate on student loans in the country is staggering. This is a good example of what happens when young people with little to no financial knowledge make high-impact financial decisions. Most college students take on student loans without having a payment plan. They only become aware of their inability to pay when they are neck deep in interests and penalties. It makes little sense that the education that these loans are supposed to pay for does not include a course on how to manage such debt.
Getting a student loan is just one of the important financial decisions your children will have to make in their lives. Others include saving for retirement, making investments, taking mortgages, buying property and managing family finances all which become increasingly impossible when they are saddled with student debt and other bad debts throughout their life.
Teaching young people to manage money early enough can help them avoid such pitfalls. I’m positive that if educators impacted their students with proper financial education, all the way from elementary school to high school, they would be able to make sound financial decisions starting with a choice of college funding.
It is of concern however, that financial courses in school do not necessarily enable students to make the sound financial decisions that society currently demands. This is because they basically teach about the various financial products but fail to give students the context to evaluate them. For example, learning about various insurance products does not help a student determine which the most suitable choice is. This requires practice in the real world.
Since there are no “practice loans” young people can only learn from other people's experiences and this is where parental education comes in.
Financial Education from Parents
It is hard for most parents to have conversations about money with their children. This is mainly because they have their own issues with finances and feel that their financial literacy is wanting. What good would their financial knowledge do for their kids if they too lack confidence in their ability to make good financial decisions?
A large number of American families, especially young ones, struggle to pay bills. Most find it a challenge to cope with a household budget squeeze. According to a Federal Reserve Survey of Consumer Finances, adults today are in more debt than they were in 10 years ago during the recession. The average retirement savings among American households in 2016 was only $95,000, a skewed figure considering that 14% of these families hold most of the savings. This is mainly attributed to limited financial education in these households.
Children raised in such households have little chance of achieving financial freedom unless their parents set them on the path mainly by example. Financial education should be an exercise for the entire family. There is a lot of educational material, which you can use to educate yourself on financial management and gain tips on how you can make it easy and fun for your children to learn the same.
As parents, you are responsible for family finance decisions. Experts suggest that the most effective financial education for children is to involve them in making financial decisions for the family. Involve them when making the budget for the household, shopping and even planning family vacations. As they grow, you can move on to advanced topics such as credit, borrowing, and insurance. Strive to demonstrate good examples for your kids since such practical lessons will stay with them longer than classroom courses.
What do you think are the best ways to engage kids and teens on the topic of money?
Brian is a dad, husband, and an IT professional by trade. A Personal Finance Blogger since 2013 who, with his family, has successfully paid off over $100K worth of consumer debt. Now that Brian is debt-free, his mission is to help his three children prepare for their financial lives and educate others to achieved financial success. He blogs at Debt Discipline.