5 reasons why kids need financial education
By Scott Biggs
Part of my job is to promote financial education for kids. As a parent, this need really hit home last January. I opened the family's cell phone bill and I owed Sprint $350 for a single month. This was triple our typical monthly bill. The culprit? My 15-year-old's texting habits. She exceeded her monthly limit by 650 texts.
650 TEXTS! In. One. Month! Six. Hundred. And Fifty!!!
It was a revelation to both us. I was clearly out of touch. I could not comprehend why anyone would need to send that many text messages to anybody. It takes me 20 minutes to send one text message, and they look like telegrams from Tarzan ("meet u library front 3 pm - dad").
But as little as I know about texting, my daughter knows less about money. She had no idea that her texting cost me cash. To be fair, Katie is a bright, funny, kind daughter, and a much better student than I ever was. Like most of our kids, she is smart in almost every way. But she doesn't know much about how money works.
To her chagrin, I shook her awake at 11 p.m. that January night to give her an impromptu financial lesson on the cost of texting. It was a struggle to keep my composure. And we agreed that she would pay me five bucks each month to cover unlimited texting. Since then, I have taken time to teach her everything I can about money. She is about to start driving next month, and will enter a world that wants to take her money. I want to prepare her to keep it... or at least spend it wisely.
Our kids are smart, but the fact is: They do not know enough about money. And no one is teaching them about it. So, it comes down to us, even if we don't know much ourselves. I compiled this list for all the parents out there. You can find help throughout the rest of this site.
Here are my 5 reasons why our kids need financial education:
1. We are going to need our kids when we retire
Just as we are paying for our own parents' Social Security, we will need our own kids to do the same. As CBS MoneyWatch says:
Donâ€™t let your children grow up to be as dumb about money as we all have been. The schools arenâ€™t teaching financial basics, so you should. And start early... We need the next generation to be hugely productive (the better to earn enough to pay Social Security benefits), we need them to save a lot more than we did, and we need them to stay the heck out of debt (no more subprime and credit-card crises). Unfortunately, theyâ€™re not learning much of this at school. The average 12th-grader last year scored a sorry 48 percent on the annual JumpStart Coalition for Personal Financial Literacy test. In 1997, the average score was 57 percent. Thatâ€™s the wrong direction.
So if we aren't going to teach kids about personal finances for their own sake, we need to do it for our own boorish, selfish, greedy reasons. These are the people who are going to grow up and run our country's government, small businesses and global corporations. We should be so lucky as to live a long time, and at some point our children may need to help us with our own money.
Consider this: Junior might be chairing the Federal Reserve someday. Let's instill responsible money habits in him now. Wouldn't it be nice if Little Susie is elected Governor and walks into the Statehouse prepared with a lifetime of financial knowledge? Teach her now. Maybe she'll thank you in her acceptance speech.
Selfish? Sure. But necessary.
2. Credit card companies are already targeting our kids
Financial providers are savvy about their marketing, and are targeting teens and college students online through the sites they use most. According to Bankrate.com, credit card issuers want a piece of what teens spend:
Many teens don't know enough about borrowing to use a credit card, but issuers know a lot about them, and they want their business. Credit card companies, which keep a hawk's eye on demographics, are swooping down on young consumers.
Teens must be prepared with the knowledge of how credit cards and debt works so they can make smart decisions. Financial providers spend millions to place ads on Facebook, YouTube, and other teen favorites. Kids ages 13 to 19 spent over billions of dollars online last year, and they can't use cash on the Internet. Credit card companies know this very well. We MUST arm our children with knowledge to make good decisions about credit.
This is not to say that teens shouldn't use credit cards. In today's plastic economy, it is almost a necessity. But they need to know the right ways -- and the wrong ways -- to use credit.
3. Our kids are downright dumb about money
Billy might be a straight-A student, but he doesn't know jack when it comes to personal finance. He has the intelligence, but no one is teaching him about money. So while he is acing History, Algebra, and English, he is failing Finances, and that could handicap even the most brilliant kids..
Jump$tart, a nonprofit organization in Washington, D.C., surveys more than 6,800 high school seniors every other year, asking multiple-choice questions about money, taxes and retirement savings. In 2008, these students answered less than half (47.5%) of the questions correctly. These are kids who for will probably be living on their own in a few months, making important financial decisions that could profoundly affect their futures.
But that's not the worst news. In the previous Jump$tart survey in 2006, the high school seniors answered 52.4% of the questions correctly. Students are actually getting WORSE at this! In fact, the 2008 results were the lowest grade in a decade!
Kids are smart. But when it comes to one of the most important courses in life, we are failing them miserably.
4. Our kids are earning - and spending - more money than ever
Blame it on TV and the Internet. Blame it on the immersion of marketing into every aspect of our lives. Blame it on their habits and attitudes. Whatever the reasons are, we know one thing: kids and teens are spending far more money than any previous generation did at their age.
As Bankrate.com notes, "The number of teenagers is growing and they're spending more money." Don't believe it? Head to any mall and look around. And then think about all the kids who are at home buying on the Web, too.
Teen Research Unlimited reports that about 11% of the U.S. population are teens. That's 31 million kids ages 13 to 18, and that percentage is expected to continue to grow. In addition, more teens are working full- or part-time jobs. In 2006, teens spent $195 billion of their own money. That's a big leap from 1999, when they spent $94 billion, according to a Harris Group survey. We couldn't find accurate numbers for 2009 or 2010, but it is safe to say the numbers are even bigger. And you already know they are spending your money, too!
5. Money is changing quickly, and they need to be prepared
Think about how you used money when you were a kid. I had a daily paper route. When I needed some cash for a Whopper and the arcade, I'd collect the monthly charges from one of the old ladies on my route who were home during the day and head out with friends for an afternoon of fun. My only concern was to collect less than I needed to pay the newspaper publisher at the end of the month. Looking back, it was a solid financial lesson. (I came up short only once and had to mow a street's worth of lawns to make up the balance.)
Credit cards were not something kids used in the 1980s. Debit cards didn't even exist and if anybody thought about an "Internet", it was in a science fiction novel.
Now think about how kids use, earn, access, and spend money today. And consider how much will change by the time they are your age. We must not only prepare them for today's financial reality, we need to instill basic financial habits that will apply to the unthinkable technological and financial changes that will occur over the next 5, 10, and 50 years.
Because while the ways and means will change, the basics will not. In fact, the basics have not changed since cavemen started trading shells and beads. It starts with a few simple rules: Don't spend more than you make. Save for a rainy day. Know the difference between needs and wants.
Once those basic values are instilled, we can teach kids about careful use of borrowing and credit and responsible charitable giving.
Our children need our time. There simply is no substitute. Let's dedicate some of that quality time to teach them lessons about money. They are going to need them.