Were you taught about money and personal finance when you were in school? I wasn’t. Even today personal finance is not taught in most schools or considered a curriculum requirement for college students. How do we expect today’s youth to stop the vicious cycle of debt if we don’t teach them how?
The latest report from the Federal Reserve shows that consumers are still using their credit cards in a big way; revolving credit, which is made up primarily of credit card debt rose to $801.0 billion. It’s obvious the cycle continues as millions of Americans rack up debt and make financial mistakes.
Achieving financial success is a goal for many of us, but unlike learning to do fractions, geography, and English literature we aren’t given the tools necessary for success in school. Instead, we are forced to learn from our mistakes and often after it is too late. Since most of us never received a formal personal financial education and (coincidently) most of us have experienced financial troubles at some point in our lives, our education begins instead when we hit rock bottom and are forced to seek debt help and take a crash course in personal finance.
Trial & Error
A subject I am very passionate about is teaching our future generations the importance of personal finance education. By making good financial choices early on in our adult lives our preparedness for our future will be so much greater and rock bottom won’t ever become an issue.
If you are like me you earned your financial grades from trial and error. By making financial mistakes in early adulthood, I learned that there was a better way to purchase a coveted item (NOT with a credit card), a better way to budget (spend less than you earn) and a better way to save for my future (actually saving moneyJ ).
Think back to your high school graduation and subsequent college years. You most likely started working a part-time job, didn’t save a penny, and maybe even opened up your first credit card. (I did all three.) When your small income wasn’t enough to put gas in the car, pay for books, pizza and get that new outfit, you opted to charge it—not realizing the consequences. The bill came, you couldn’t pay it, so the credit card company added a fee and raised your interest rate. That innocent outfit went from costing you $50 to $350 and so it begins—the vicious cycle of debt. Without having the necessary financial education you made some bad choices, choices that may still be affecting your finances today.
Early Intervention
If only we would have known the basics of personal finance from the beginning. Our schools do a pretty good job of letting students know the dangers of drugs and teen sex, but not the dangers of debt. Imagine if you were warned about the evils of credit card misuse or the consequences of not establishing a budget? Do you think you may have thought twice before taking out a car loan, or opening a credit card? Do you think you would have rented the chic apartment that was $300 more a month than you could really afford?
For some spending money is like a drug—it gives you a rush a feeling of power; I can buy this my friends will be jealous, I don’t have to wait I can have it now. If we teach our children about some of the emotions associated with spending perhaps we could prevent the early money mistakes they make when they venture out on their own.
No one tells students the dangers of debt and how it can affect your entire life. The debate rages on as to whether or not it’s the schools job to provide financial education to our younger generations but the good news is that in some states the battle is being won.
In the meantime as parents, grandparents, aunts, uncles and friends we can do our future generation a favor and share personal financial lessons that will last a lifetime.
Personal Financial Education 101
While we wait for someone to make a change to financial education in schools we can take a few minutes to teach our future generations some basic financial principles. These 7 tips will help you get the conversation started. Be sure to add your own personal experiences with each tip.
- Determine your goals. Have them ask the question, “What do you really want to do and how much money do you think you need to do it.”
- Set up a realistic budget. After you have them determine their goals help them figure out what they will need to achieve them. Be sure to have them budget for everyday, monthly and annual expenses. To help you show how to set up a budget check out this resource guide.
- Set up your emergency fund. Stress the importance of having at least six months of bills set aside; every little bit helps and having this fund can help prevent a total financial disaster.
- Pay off debt. Pay off credit cards and other high interest debt asap. Hopefully you can instill the importance of using credit wisely and not relying on credit.
- Check your credit. Have them find out where they stand with the credit reporting agencies. Many young people are shocked to find they are turned down for a loan and don’t understand how credit scores are calculated—a valuable lesson of cause and effect.
- Saving is a financial cornerstone. Teach savings strategies early and often, Use automation, a piggy bank whatever makes them comfortable.
- Foster an entrepreneurial spirit. With unemployment stats today, relying solely on your employer for income can be a devastating financial mistake for today’s youth. Teach that starting a business or getting a side job, can keep you afloat in times of unemployment. Not to mention bolster your savings!
We may have made mistakes, we may still be making them out of habit, but our younger generations don’t have to. Make a commitment to share your personal finance knowledge with someone—make a difference!
What is the greatest financial lesson you ever taught?
Great post Suzanne.
The greatest financial lesson I ever taught was coordinating and leading over 500 people through Financial Peace University (FPU) at Eaglebrook Church in MN. That was truly an amazing experience. $10 million dollars in debt and by the end of 8 weeks $2 million was paid off!
Jackie.
@Jackie Wow, that is AMAZING!! A truly inspirational story–and a huge undertaking. Thank you for sharing 🙂
As all my friends and I stumble through our thirties, we try to share the lessons we learn so our pals can learn them with less pain.
And the lesson that I teach is : Marry a woman that makes a ton of money!
@bax Lol… that was the lesson I tried to live by (gender reversed) but money didn’t by me happiness 🙁 So now it is up to me to control my financial destiny!
Three cheers for early intervention! Let’s accelerate the trial and error process and turn your excellent conversation points into hands-on learning experiences. There are a growing number of tools that leverage online technology to do just that. Here’s a list of online “virtual family banks” that make it easy for parents to teach their kids good money habits through steady practice:
http://list.ly/list/oD-online-piggy-banks-allowancechore-trackers-virtual-family-banks
@Bill Thank you for sharing this great resource and helping to educate the next generation!
You’re most welcome! Each has offering different strengths, but parents/kids can benefit from any one of the solutions listed. They’re all great ways to fill that big multi-year gap between the piggy bank and that first checking account. The automation helps give parents a ready-to-go money mentoring framework (don’t have to be a personal finance expert) and helps them follow-through consistently. The kids like the online access and the sense of ownership over real spending/saving/giving decisions. Practice makes perfect – or at least better!
Unfortunately it isn’t taught in schools here in Australia either. We have just started to teach our eldest son, 12, about budgeting for all his expenses. We give him $50 a fortnight pocket money and we set up a budget on his computer with all his expenses, he now has to pay for scouts, lawn bowls, phone credit, clothing and presents. We went to the bank and opened his own account with a card and also an online high interest account for his long term savings. I would rather he makes mistakes now with a small amount rather than when he has a job that pays a lot more. Mind you my sons are scrooges and hate to part with their money, my daughter on the other hand….. well she has time to learn.
@Debra F So Americans aren’t the only ones with a lack of education in schools about the ever important topic of personal finance 🙂 I love that you are instilling good personal finance values in your son and are taking the steps to help him learn from his mistakes. Just like learning to ride a bike it is importnat to learn from trial and error and you are giving him just that opportunity! Good for you!
At eight in the morning, while still sleeping, I opened my first credit card with Discover. I bought clothes, paid for tickets to shows that friends gave me cash for (which I used instead of paying off the debt), and school stuff. By the end of the year, I had three cards and a few thousand dollars of debt. Now 12 years later, I’ve paid off the debt, but I still have a huge student loan bill in the 6-figures. I teach civics in high school and any way I can, I try to teach my students about the consequences of these types of financial choices.
@Rachel I am so happy to hear that you are sharing your experience with our future generation. Sometimes hearing the reality of the dangers of credit cards and debt is enough to stop young adults from getting in over their heads. Thank you for sharing!!
I learned how checking accounts work in Middle School, but that was about it. We were each given a fake checkbook and were taught how to balance a checkbook and avoid an overdraft.
@Eric I remember that lesson as well–it was taught in our Home Economics class. If only they could devote a whole course to be taught…
In 2009, I opened a Discover card at 0% balance transfer rate for 18 months to pay off hospital bills. A few months later, when that credit card was maxed and I had more hospital bills to pay, I found out that the hospital was willing to put together the two accounts and put me on an interest free payment plan for 12 months. Now I know not to use credit cards to pay medical bills until I’ve asked for a payment plan from the medical facility.
@Lauren Sainz I am quite familiar with medical bills…I have had my fair share over the years. I had also paid several bills with a credit card until I realized payment plans were available. It is also possible to negotiate medical bills down–I have had a lot of success asking to pay less; the only caveat is that you must pay that amount on the spot. Hopefully we can share the message with others so they don’t make the mistakes we did 🙂