When it comes to finances, young people in this country just don’t get it! When asked about basic financial concepts, high school seniors correctly answered only 48 percent of the questions, down from 52 percent in 2006, according to the Jump$tart Coalition’s recent survey on financial literacy. And college students didn’t fare much better, with seniors scoring just 65 percent on their survey.
Financial illiteracy starts in the home, says consumer financial services company, Bankrate. Most parents don’t talk to their kids about money management and the basic fundamentals , assuming they already know or their children’s schools will cover it. Unfortunately, that’s just not true! Boost their financial knowledge before they’re old enough to start opening credit cards, signing loans, and well, getting in over their head.
Here are 5 lessons teens should learn before age 18:
1. How to balance a checkbook. It seems like common knowledge, but only 45 percent of high school seniors have a checking account, and 25 percent don’t have any type of bank account at all. So how do they learn how to write checks and balance a checkbook? If they leave home and set up an account on their own, they are likely to make mistakes if they don’t know what they’re doing. In face, 30 percent of college students admitted to bouncing a check, according to Bankrate. Open a checking account for your teen as soon as they have a job; teach them how to write checks, balance the book, and understand their finances!
2. How to budget. Over one third of college students surveyed had paid a credit card bill late! Some said they simply forget to pay it, but others put off paying it because they didn’t have the money. It’s so important for kids to learn to budget at a young age, or else they run the risk of running up credit card debt and getting in over their head.
Bankrate suggests: “Before they go away to school, have them set up a budget for expenses. It will increase their awareness about money flows, ingoing and outgoing. After graduation, show your children how to make a household budget. Using the starting salary of their chosen profession as a guide, have them calculate their after-tax income and then figure out how much they can actually afford to pay for the basics, such as rent, food, utilities, insurance and transportation, as well as vacations and entertainment.”
3. How to establish credit. Two-thirds of college students have one or more credit cards and 83 percent got their first one by the end of their freshman year, and while that can be good for establishing credit, it can also be disastrous for falling into debt. College graduates will already owe thousands in student loans as it is. Tell your son or daughter to avoid applying for all those credit cards available on campus, and help them apply for a card that offers lower interest rates and benefits. Now is the time to start building credit, as credit card companies are willing to give credit to students regardless of proof of income or credit history. Just make sure they are aware of the consequences of not paying the bill in full each month.
4. How to pay off debt. One third of college students surveyed have an outstanding balance of $1,000 or more on their credit cards, and half carry a balance some or all of the time. Paying the minimum each month may seem like the easy way out, but a $3,000 balance can turn into $4,100 and will take nearly 22 years to pay off if they only pay the minimum. It’s necessary that your kids understand 100 percent how credit cards work and what the different consequences are.
5. How to pay taxes. Only one third of the college students surveyed do their own taxes, and it’s a safe bet that most don’t do them after graduating either. When it’s time to file, don’t do it for them, but teach them how to do it! They’ll probably wish you’d just do it for them, but it’s for the best – for everyone.
