Your child’s financial education should begin at an early age. If your teen doesn’t yet understand credit card interest, bank fees and the need for retirement income, now is the time to learn. The two main problems with waiting until your child is older and working full time are that (a) habits are much easier to develop earlier in life, and (b) your child will very likely make poor choices with actual money if she doesn’t have a plan for the funds before they’re in hand. This can’t be helped — financial intelligence doesn’t come by magic.
Junior Achievement’s 2013 teens and personal finance survey is not encouraging, and it is easy to understand why. National economic sluggishness mixed with inexperience and plain incomprehension can produce only one result: insecurity.
Junior Achievement (JA) is a nonprofit organization that teaches financial literacy, among other things, to young people. JA asks how teens how they view the basic economics of individual spending, saving and budgeting, and how well the teens think they’re doing. For the year now ending, it seems that teens are more upbeat and hopeful now than in past years about their financial future, albeit with some significant reservations.
Significantly, more of them predict that they will remain dependent on their parents for longer periods of time.
Teens lack confidence about money
While the percentage of teens who are confident of being financially independent by the time they hit the 25 to 27 age range has doubled since about 2011 (12 percent versus 25 percent), their slightly younger cohort is much less optimistic. The 18- to 24-year-old group’s hopefulness fell 16 points in 2011, from 75 percent to 59 percent today. Moreover, the percentage of teens who either don’t know or are unsure if they will be better off than their parents rocketed from a modest 4 percent to 28 percent. Uncertainty and doubt concerning the future is widespread and growing.
What don’t teens know?
A major contributor to teen insecurity about entering the adult world, independent of their parents, is simply an inability to budget for room and board, clothing, transportation and utilities as well as understand the workings of a credit card. And that’s in addition to complicating factors like savings and investments, health insurance, auto insurance, maintenance and repairs. JA found that:
23 percent of teens are “somewhat” or “extremely” unsure about their ability to budget successfully
20 percent of our under-20s are “somewhat” or “extremely” unsure about their ability to use credit cards
34 percent of teens are “somewhat” or “extremely” unsure about their ability to invest money. Aggravating the struggle parents face in helping their children to become financially self-sufficient is a lack of comprehension among teens about the importance of planning to pay for college.
Only 9 percent of teens have saving for college. But they are fully conscious of the pitfalls: a majority (52 percent) believe that college students are too indebted with college loans, and nearly two-thirds (64 percent) have discussed the topic with their parents. Yet nearly half of teens in the survey indicate they either don’t know or are unsure about how much they will need to borrow to pay for tuition, books, room and board.
Such lack of awareness does and will damage students’ future financial health, as the current delinquency rate on student loans has proven. Outstanding student loans have doubled since 2007. As of 2010, an eye-popping 40 percent of households headed by an American under 35 have an outstanding student loan balance. And the numbers are expected to rise.
The solution for your teen
The conclusions are largely self-evident. The findings of Junior Achievement’s 2013 Teens and Personal Finance Survey demonstrate that teens need the resources and knowledge to help them achieve an independent future. The secondary school system and, most of all, parents must teach financial literacy and entrepreneurship through real-world activities and practice.
Key points to cover with your teen include:
Save 10 percent now
What compounded growth looks like
A company 401(k) match is free money
That it’s very hard to establish good savings habits later in life
That poor credit leads to very expensive financing
The actual cost of credit card purchases paid off slowly
What a student loan payment looks like in relation to actual take-home pay
That starting salary does not correlate to a university’s price tag
What inflation does to the buying power of a dollar
That good money management is not only for the wealthy. On the contrary, the less you have, the more critical to manage it expertly.
If you don’t consider yourself a money management expert, reach out to your own bank, credit union or brokerage for free workshops and other educational material. Check with the National Foundation for Credit Counseling website for online and in person financial education programs. Click here for “Start Smart” from the FDIC.
Young people must be empowered with the knowledge and the confidence that they can reach out and own their personal economic success. Make it a goal in 2014 to help your child practice good saving, investing and purchasing habits.
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