Credit scores. Income taxes. Subsidized loans. 401(k)s. What do they have in common?
For teenagers, these topics are just a few of the many personal finance issues that they know very little about.
EverFi recently commissioned a survey of high school students between the ages of 13 and 18 about their knowledge and feelings toward personal finance. Nearly half of students responded that they do not know how to establish good credit. On average, most believe a good credit score is about 500, and a third of the students surveyed believe that a good credit score is 300 or less. More than a quarter of students agreed that they will be unprepared to manage their finances upon high school graduation.
While it may be no surprise to most people that high school students have little, if any, experience in managing their finances, it remains critical that teenagers get a better handle on these issues before entering the "real world" - a fact illustrated by recent student loan default rates. Consider the high-risk borrowing practices that led to the recent recession. Had those consumers been better educated about lending and planning, the impact may have been much less devastating. What's more, it's likely that several of those struggling consumers were not far removed from high school.
The day a student applies for a credit card cannot be the day that they learn about interest rates. We need to become more proactive about teaching students early on about managing their finances, so they can properly prepare for their future and avoid making the same poor choices that have plagued past generations.
For example, in a recent survey of college students, 31 percent believe it's better to have something now and pay for it later, and 60 percent think it's okay to incur a bank overdraft fee if they plan to have funds that make up for it in the future. This is the kind of thinking that will continue to threaten our country's economic stability.
How have we let students find themselves in such a financial fog?
Answering this question is not easy. To start, we must take a look at the bigger picture: nationally, only four states mandate at least a one-semester course devoted to the subject of personal finance in K12 schools, and less than half of states require personal finance education to be integrated into other subject matter. Despite financial literacy's relative absence in the traditional school curriculum, 83 percent of students surveyed believe financial education should be taught in school.
Limited resources and increased spending cuts on K12 school districts are also perpetuating the problem, but despite the obstacles, financial education should be made a priority. Parents, let's make personal finance a conversation topic at the dinner table. Start with the basics: What type of savings account should you open now? What can you expect from student loans? What is a 401(k)?
There are several free resources made available online and from financial institutions that teachers can integrate into their classrooms, but this is a bigger issue that needs to be addressed by school boards and elected officials. For students to thoroughly understand personal finance concepts, it should be part of a complete curriculum and delivered through the methods and technology they use. At EverFi, we have found that students are successful when they learn about personal finance in a digital learning environment that is both compelling and entertaining, personalized for the individual, and allows them to move at their own pace.
Students are ready and willing to learn. We, as parents and educators, and even policy makers and financial institutions, need to step up to help them succeed. Though Financial Literacy Month has come to an end, we must continue the conversation because poor financial decisions follow us forever. Our national attention to the issue should not waver.