Financial Literacy for Youth
Youth today face many challenges in terms of financial management, decision making and the use of credit, which may either lead them to or prevent them from, achieving financial success. Student loan debt, estimated at over $1 trillion is just one example of how young people today begin their adult lives in a less than ideal financial position. Credit scores and wise use of credit also play a role in the success or lack of success of today’s youth. The need for improved financial knowledge and behaviors is increasingly important and as adults, it is our responsibility to pass on information about budgeting, credit cards and student loans to today’s youth.
So what options do parents and educators have as they venture into this world of financial education? You are only limited by your own imagination. Financial decision making can begin at a very young age. A six year old with an allowance can begin making decisions regarding saving, spending and giving. How many young people began their careers with lemonade stands or selling rocks to the neighbors? Teaching budgeting, projections, inventory control and intense credit management becomes the foundation of financial decision making for our youth and eventually the leaders of tomorrow. As parents when and where do we start?
During the elementary years, children are more than able to understand financial concepts. Saving is the most concrete experience they can have. Use a clear jar so your children can watch their money actually increase in size, as well as value. Loose change around the house or small amounts earned for going above and beyond the usual chores add up rapidly when deposited in the jar. If you want to go digital, there are lids for jars that tally the amount deposited in the jar so your child can have a visual total as money is saved. Parents who make a big deal about increased savings have a great impact on the “saving” attitudes of their children. Which leads me to the next level of “setting an example”. Maybe parents too should besaving visually in a glass jar. Vocalizing spending decisions is one other way to increase financial awareness. “Should we eat out tonight for $30 or make pizza at home for $7?”
Spending decision making skills can also be enhanced by actually taking money out of the jar for an expenditure. It is pretty easy for a parent to write a check for an item included with purchases, but the impact is greater when money is actually removed and spent by the child. Their money is physically gone when they hand it to the cashier.
As children mature, they become more able to make choices, weigh the consequences and also to earn their own money. They are past the point of instant gratification and can save for something important to them. Teenagers are very capable of managing a simple checking account by making deposits and balancing their checkbook. A debit card also becomes a perfect educational tool as they learn that using their plastic relates to their checking account balance. They are also at an age to learn about the importance of giving. The importance of giving some of their money to those in need can be introduced at this age. A teen can save a certain amount of earnings or allowance for a cause that is important to them. This is a great lesson in building compassion.
What about credit? Does it have a place in the learning curve for our youth? Definitely! All young adults should become “credit savvy”. One idea is to actually sign your child up for a credit card. Make sure it has a manageable spending limit, perhaps $500. Managing credit begins with developing healthy spending patterns and habits. This should probably occur before your child graduates from high school. Having a credit card provides the opportunity to discuss purchase and spending decisions. It lends itself to planning for larger purchases, tracking their spending habits and learning about interest. A child who learns to pay the credit card every month reaps the benefits of a better credit score, paying less interest, and not relying on credit to live. If your teen finds themselves with a balance that they are carrying from month to month, encourage them to work hard to pay it off and not to use it again until it is paid off.
What about loans for youth? Should my child be in debt before finishing high school? The answer depends on the situation. Youth involved in agriculture have some unique opportunities to borrow money for specific projects through 4-H and FFA. The Farm Service Agency Rural Youth Loans offer opportunities for youth under the careful guidance of a parent, leader or advisor. Youth ages 10-20 may borrow up to $5000 to finance agricultural related, income-producing projects. The Montana Department of Agriculture also offers the Montana Junior Agriculture Loan Program which was developed to encourage members of youth organizations ages 9 to 21 to take on agricultural projects. These projects could be crop or livestock production, custom farming, marketing/distribution or other feasible projects. These structured loan programs give a firsthand look at borrowing money, calculating interest and repayment plans. In most cases, youth need to present a budget, a management plan and a repayment plan as part of the learning process in securing the loan.
Teaching financial responsibility is not an easy task. As parents, you can present the information and provide guidance and experiences. However, when your child mis-spends, the lesson becomes more vivid. The good news is that at a young age, under your supervision the mistakes are not insurmountable, but the lessons can be huge and help develop good money habits for life.