Editorial - Financial literacy starts at young age

Talk about it

Rising credit card debt. Foreclosures. Plummeting credit scores. Bankruptcies.

The news is chock full of financial calamities these days – all against a backdrop of an ever-growing national debt and a looming crisis in health care and Social Security.

Recent research indicates that half of all Americans are living from paycheck to paycheck and 40 percent are living beyond their means.

Maybe, just maybe, the country, and the individuals that comprise it, could have avoided some of these financial messes if everyone would have practiced common banking sense from the beginning.

Parents can do a better job of instilling the simple message that saving now and spending later makes a heck of a lot more sense than spending now and paying for it later.

One simple way parents can help their children get on the right financial track is to open up a savings account for them. They can explain how the interest earned will make their money grow and they can review the account statements with their children when they get them in the mail.

Some other tips provided by the national bank rating and research firm, Bauer Financial, to help teach children to save include:

•Bring your child to the bank to see how things work; you can even ask the manager to see the vault.

•By opening a savings account for your child, he or she will learn how compounding of interest adds up.

•If you are able to match funds, whether partially or dollar for dollar, it will help make your child’s goals more attainable while still giving them the sense of accomplishment.

•Don’t just take your child shopping with you – also discuss how much things cost.

•Teach your child how to budget his or her allowance. The American Bankers Association suggests teaching your child to put some money away for the long-term. It suggests keeping long-term savings in an investment fund; short-term savings in a bank; and spending money in a jar, piggy bank or wallet.

•Encourage children to save part of their spending money for charity.

Teaching young people the importance of saving money and budgeting is no easy task. In a national personal finance survey of 4,000 students taken recently, 68 percent failed.

There are also deeply ingrained spending habits to try to rein in. According to the Children’s Financial Network, spending in the U.S. by teens topped $175 billion in 2001 – which is equal to Mexico’s exports. These young people spend 98 percent of money they receive as gifts, allowance and earnings.

The network also notes that teens entering college are offered an average of eight credit cards during the first week of school and most continue to carry three of them throughout their student years. Of current students, 45 percent are in credit card debt. They graduate from their undergraduate programs with an average of $28,000 of debt (loans and credit cards). And as sadly reported by the Children’s Financial Network, some university administrators say they lose more students to credit card debt than to academic failure.

The good news: Financial education helps. Research has shown as little as 10 hours of instruction positively impacts students’ spending and saving habits.

So parents, spend a little extra time to teach your children how to save and manage their money. Start today. It’s an investment that could pay big dividends the rest of their lives.

Tags: opinion, editorials, finances, money