We Know about Reading, Writing, and Arithmetic, but Where’s the Financial Readiness?
By Gerald Rome, Colorado Securities Commissioner ~
It’s “Back to School” time, and no doubt your grandkids are busily (and perhaps with some measure of dread) preparing to return to the books for another year of learning. Even though the basics – reading, writing, and arithmetic — are important, something that our society overlooks to our own detriment is financial literacy education. This fall, as kids, teens, and young adults get back in the learning mindset, here are a few tips for introducing the concept of financial literacy.
For elementary and middle school kids, the message is “save, save, save.” Teaching kids about the value of paying themselves first when they receive an allowance or payment for a task will instill in them the idea that patience pays off in the end. This age is also a great time to introduce the concept of compound interest. My grandfather would always say “a penny saved is a penny earned,” but imagine the impact if he had shown me that a penny saved might have been multiple pennies earned in the long term!
Once kids get to high school, they may be working at a part-time job and are hopefully putting some money aside for things like a car, college, or renting an apartment once they graduate. The most dangerous time financially for a teenager is turning eighteen, when the lure of credit cards can override better impulses to spend wisely and avoid debt. Therefore, before that credit card ever enters a young adult’s wallet the message should be “there’s no such thing as free money!” Learning the importance of building good credit for future purchases and of paying down debt quickly in order to avoid lofty interest payments, defaults, and risky loans is essential during this time.
Finally, even kids and grandkids that are technically adults can benefit from the older generation’s knowledge and wisdom when it comes to finances. The message for these college students and young professionals is that saving and planning for retirement starts today, even if they are still in their twenties and working to establish a career path. We know that in the future it will become more and more important for Americans to take charge of their own retirement. Pensions and employer-sponsored plans are shifting, and the younger generations may not have the same safety nets in place that those who are currently retired have had to supplement their savings. When money is tight and the future is uncertain it’s tough to make the case with a young person that he or she needs to be putting money aside for the golden years, but stress that no amount is too small, as long as it’s something.
These conversations can be intimidating to start with young folks, but because most states lack specific requirements for financial literacy education in schools, it’s up to older family members, friends, and mentors to stress the importance of learning these lessons early, and of brushing up on financial knowledge often. If you need some ideas for how to convey these messages further, visit our new webpage on the www.askDORA.colorado.gov website for Colorado consumers. The “Money” page will give you tools, resources, and ideas for engaging kids, teens, and young adults in these financial conversations. Plus you may learn a thing or two yourself!