What do your kids need to know about money?
Posted by Donna Freedman on Oct 13, 2010 | 19 commentsPersonal finance is not a mandatory subject in U.S. schools. We have to take gym, but not learn the basics of how to handle money. Why does PE trump PF?
Since graduating from high school I have never played crab-ball. But knowing about compound interest sure would have helped.
What kind of money behaviors have you talked about with your kids, and which strategies have you modeled? That’s the topic of “8 crucial money lessons for teens,” my current Living With Less column at MSN Money.
It’s scary out there: 74% of American teens don’t know how credit-card fees work, and 76% don’t know whether a check-cashing service is a good or bad idea.
We don’t know what we don’t know
The experts I interviewed had plenty of ideas about what kids should know, but varying ways of teaching them. For example, one suggested that you let your kids pay the bills each month: Show them what comes in and what goes out and let them see the account balance fall as they pay the mortgage/rent, the utilities and so on.
Jean Chatzky, who wrote the recently released “Not Your Parents’ Money Book: Making, Spending, and Saving Your Own Money,” has her teens’ allowances electronically transferred each week. It’s up to them to pay for the little extras in life, such as snacks with their friends or gasoline when they borrow the car. This helps them learn to prioritize: A movie and a burger with friends, or that really cute shirt that’s on sale?
(One of my upcoming Friday giveaways will be a copy of Chatzky’s book. Stay tuned.)
Laura Rowley of Yahoo! Finance was gung-ho on early savings. A person who invests $2,000 a year between the ages of 21 and 31 and then stops saving will still have a bigger nest egg upon retirement that someone who saves the same amount between the ages of 31 and 65. That’s our new best friend, compound interest, at work.
You don’t know what you don’t know. Those who are taught money management skills early in life have a distinct advantage over those who learn it the hard way — or not at all.
If you have kids, or are in a position to influence kids (grandparent, teacher, scout leader, auntie or uncle, mentor), I urge you to start talking money matters. Because money does matter.
What do you wish someone had taught you? How did you learn it? Do you still struggle with money management?
Those of you who were taught about personal finance: Can you share any techniques or resources with those who are bringing up kids right now?
I learned financial responsibility from my Dad–especially to never, ever accrue credit card debt. While my parents didn’t teach me all the ins and outs of personal finance, I did learn about earning, saving and spending on my own due to the fact that despite my family’s relative affluence, they didn’t give us everything. No car when we turned 16, no “Here’s a credit card, have fun at the mall!” All of our basic needs (and then some) were covered, but if we wanted to buy a new CD or new pair of jeans, we had to earn the money and pay for it ourselves.
By contrast, one of my friend’s kids grew up thinking money was easily attainable–just go to an ATM! I fear for her financial future.
As for PE, totally agree on the uselessness of dodge ball and physical fitness tests that involved climbing up a rope (when will I ever need to climb up a rope or dodge a ball?). Kids would be much better off learning health, nutrition and fitness skills like yoga, walking, free weights, etc. than how to dribble a basketball or serve a volleyball (I never could master the latter…).
I have a partly written post on this that will probably go up months from now…
but kids don’t get personal finance even when they’re taught it. When kids are required to take personal finance course, they do no better on personal finance outcomes than kids who aren’t required.
When people *want* to take personal finance and they’re given a class, they tend to do a better than folks who wanted but didn’t get a class, but when any group of people is forced to take personal finance classes (teenagers, the poor etc.), outcomes only go up a little or not at all. Mandatory personal finance classes just aren’t cost-effective.
PF is required in high school in some states. There are a number of good papers on this topic that are all very disappointing.
We wish we knew how to teach people financial literacy and personal finance and it’s a really active area of research, but so far only mixed results. My personal thought is that we do better with nudges and heuristics getting people to do what’s in their best interest without making them think about it. Because most people just want to do what’s right without having to actually THINK about money.
Unfortunately that leads to bad financial planners with conflicting interests doing most of the guiding. That’s what really needs to change.
@Nicole: I don’t know about your “kids don’t get it” statement. Not every kid will get it personal finance, just as not every kid “gets” Venn diagrams or the subjunctive tense. We still require that they take a certain amount of math and language classes.
I can give you a couple of examples of kids who did get it, both from the Smart Spending message board:
A woman heard a high school counselor tell her son to take student loans because “it’s free money.” Free? It has to be paid back with interest! She suggested her son do the math. He added up what an apartment would cost, what a car payment would run and how much student loans would be on top of that — and decided NOT to go to the pricey school but to follow in his brother’s footsteps of two years at community college (living at home and taking the bus) followed by two years at state school, and a job all four years. Older bro is about to graduate debt-free. Little bro made the smart choice, not the choice that his counselor wanted. She’s paid to get kids into “name” colleges so the school can boast about it — but when it’s time to pay back those loans, where will she be?
A man whose son actually took a PF class in high school back in 1994 said one assignment was to make a budget of what it would cost to live on his own. The teen figured out that if he wanted to live the way he was living in his parents’ home he’d need to earn $40,000 a year, or about $20 an hour. At that time he earned $3.75 an hour at a fast food restaurant. Dad asked how long it would take to get up to $20 an hour. “Forever!” the boy replied.
“This exercise gave him a whole new perspective on how expensive live really can be. Today he is one of the most frugal people you’ll ever meet,” his father concluded.
While researching a different column I interviewed a young woman who got her first paycheck at 14 — and went right to the check-cashing place. No one she knew had a bank account. It simply didn’t occur to her that she would be able to get one either. Fortunately, a small credit union partnered with her high school and got students involved. Now the young woman actually works for the credit union while attending college, and has for the past few years been schooling her friends on why they, too, should quit giving up a chunk of each check when they could cash it free at the CU. She also talks about saving for a house and paying for college as she goes.
She got it. Not everyone will. A lot of kids don’t get archery or badminton, but they make them try it anyway — and even if they don’t excel, they’re getting the exposure. I think it’s the same with PF education: You may not become the next Bill Gates, but maybe you’ll learn to balance a checkbook or understand the sneaky games banks play with regard to fees.
Thanks for reading, and for leaving a comment.
The plural of anecdote is not data. But I take your point!
@Maggie: I thought the plural of anecdote is “anecdata.” It isn’t?
Good post, Donna. Still looking for you to write a book…
Donna– She probably would have also got it in the absence of classes.
In controlled studies, the pf classes don’t do any better or not much better than no classes. The kids who are going to get it seem to pick it up on their own, maybe in their algebra classes (where I learned compound interest). Mandatory high school personal finance courses are a very expensive way to not teach very many kids personal finance. We don’t WANT this to be true, but it is. (And high school personal finance courses ARE mandatory in many states already! Health courses are mandatory in most states. PE, not so much anymore.)
Maybe there’s a specific way to teach personal finance that will capture the hearts and minds of teenagers, but if there is, we haven’t found it yet.
Actually, that’s not quite true… there’s been some very promising research on a couple of personal finance video games, NOT in the mandated school environment, that seem to be having much larger effects. They’re cheaper too.
@Nicole: What I read was that PF is required in 13 states (although it may be offered in a couple of others). The girl with whom I spoke might never have gotten it on her own, because everyone in her family and impoverished neighborhood used the check-cashing place. She almost certainly would have continued to do it herself if not for the credit union coming to her school. It was a revelation to her.
In the article about the unbanked, several people said the same thing: It never occurred to them to use a bank because no one in their families did. They didn’t know anything about saving for retirement or how to get a house. So they go on living hand to mouth, often in debt to a relative (or, worse, a payday loan place), because they don’t know anything about money management.
Of course, a lack of understanding isn’t limited to the poor. Years ago I interviewed a high-school PF teacher who told me that well-off kids in his class were shocked to find out that credit card companies charge interest if you don’t pay in full. They’d seen their parents use the plastic and figured this was just the way people live: by charging everything. He also put them in pairs and assigned them identities (DINKS, single moms, blue-collar couples) and made them figure out budgets (a sometimes scary assignment because Anchorage is not a cheap place to live). Some of them got a real eyeful, and I’ll bet some of what they found flew in the face of prevailing social attitudes such as “Why don’t people on food stamps just get real jobs?”
I think we’ll have to agree to disagree on this one. But I appreciate your input.
Sorry, I have to go with the people saying that common sense is there or it isn’t. My parents lived hand to mouth, I certainly never had a PF class or any role modeling, but I’ve always been frugal and certainly modeled responsible behavior to my children. One is responsible with his money, and one has no sense of financial responsibility. I can’t think of anything else that could have been done in his case. He choses not to get it.
@Bagel Girl: I disagree, although I acknowledge that some people willfully abuse credit. Your saying that “common sense is there or it isn’t” is like saying, “Well, some of the people who grow up in abusive households don’t hit their kids, so there’s no such thing as a cycle of abuse.”
Some people decide, on their own, that there must be a better way to handle money (or to raise their kids). If they’re lucky they’ll know how to seek information to help them. But a lot of people continue to flounder, not knowing there’s any other way to live and/or so overwhelmed by what it takes simply to survive that they have no opportunity to seek this information.
This is especially true of people on the economic margins. If your paycheck barely covers the bills and your spouse gets sick or your kid breaks his glasses, what do you do? If you’re lucky, a friend or relative will loan you the money. If there’s no one to help, you might wind up taking the dreaded payday loan because your spouse is running a 103 fever or your kid can’t see to walk without the specs. But now you’re in debt. How do you get out of debt? Figure it out, loser. No one’s problem but yours.
We live in a very individualistic culture: Sink or swim! Pull yourself up by your own bootstraps! Dig your own way out of this mess! Sometimes that’s possible due to hard work and/or luck. Often, it isn’t.
We wouldn’t expect our kids to learn to read and write on their own, yet we balk at teaching them how to manage money. I think that’s a big ol’ disconnect.
Thanks for reading, and for leaving a comment.
I was raised in a none of your business house, and had the money problems as a young adult as a result. I tried to teach my own children more than I was taught, but they were of an age when all they thought was, “Mom is so lame.” They’ve made their own decisions, some good, some bad. I wish I would have gone into a lot more detail for them. Luckily they are learning at a much faster rate than I did and are now working to correct any mistakes they made when they first started out.
I don’t know what financial responsibility has to do with
“abusive households” and clearly this is a sore point with you. But throwing in more and more examples that seem to support your view doesn’t change the basic nature of this argument. People who want information, personal finance or Venn diagramming, will find a way to it. People who wait until there is a huge financial meltdown in their family and then run to Payday Loan places were not, for the most part, interested in looking ahead when there was breathing room.
Seriously, how much personal responsibility is teachable? Some, of course. But you have to acknowledge the same amount of people that you know just chose to make bad decisions.
I’m not saying a personal finance class would be a waste of time. I think it’s a fantastic thing that should be required. I’m just saying it is not the cure for the worlds ills that you present it to be.
I don’t think I presented the PF class as a “cure for the world’s ills.” But it would be a huge help, even if young people graduate and bumble into assorted monetary foul-ups.
For one thing, it would help inspire some of them (e.g., the young woman I interviewed) to take charge early on and never get into trouble in the first place. And the rest? Naturally some will continue to screw up. But some of the others may eventually begin to draw on those early lessons. (A member of my family has done just that and is now debt-free.)
The notion that “people who want information/an education/a job/a home will get it” is part and parcel of that bootstraps mentality so popular in this country. The problem is that it assumes everyone has the same advantages and that the playing field is level. And that is hogwash. It’s hogwash that makes the majority feel comfortable: There must be something wrong with those people or they’d succeed the way we do. But it’s hogwash nonetheless.
I suggest you check out the book “Lives on the Boundary” by Mike Rose, a formerly underprivileged kid who grew up to be a scholar — and stepped away from it to teach night-school English. Another good one is “Privilege, Power and Difference” by Allan Johnson, which shows the ways our culture creates and perpetuates classism. Both books are difficult to read (sad, disturbing) but also exhilarating. You learn to think critically about the things everyone “knows,” and you learn ways to question the sociocultural myths that inform every moment of our lives as U.S. citizens.
Or they’ll just piss you off — because they’ll mess with your idea of the way things are right now. They’ll definitely piss you off if you’re one of those people who is privileged and never realized it. “Privileged” doesn’t necessarily mean “rich,” by the way.
Thanks for reading, and for leaving comments.
You clearly relate to being part of an oppressed set of people and that everyone who disagrees with you has swallowed “sociocultural myths” that you were smart enough to avoid. While I wouldn’t possiby want to read anything outside my comfort zone because it would “mess with my idea of the way things are right now.”
It must be nice to be one of the few people who actually know THE TRUTH. Your bitterness about your life is overshadowing any logic in the original premise here. You sound like a child stamping her feet and complaining she was not rewarded for all her work the way she was promised she would be.
You DID make choices many years ago about your life, although it is certainly convenient to blame society.
Gosh, Bagel Girl: Where did you find “bitterness” and “complaining”? I love my life. I feel blessed to be living it. (See “If life is the currency, I’m already rich.”)
As for sociocultural myths: Nope, I wasn’t “smart enough to avoid them.” I simply accepted them, the way most of us do, until I took university classes that required critical thinking and the reading of books like the ones I mentioned previously. That’s when I started asking questions. I keep asking them, both person-to-person and in my writing.
Far from making me bitter: It’s made me more compassionate.
Thanks for reading.
I have to say that it just makes sense to me to have kids learn as much as possible about personal finance when they’re younger, as opposed to when they’re out working and have no idea what to do. Really, as young as 5 or 6 years old seems just right.
Think about it: if you want to reach your kid to become a good tennis player, it’s best to start young vs when he or she is older. If you want your kid to become good at math, you start with a strong foundation when they’re young (adding/subtracting), then build up from there.
Practice and repetition helps. Not in a rote way, necessarily, but also in giving kids real life examples on how money can/should be managed to improve one’s current life and long-term security. If investing time and energy helps with other areas of life, why not with personal finance?
I learned most of these types of lessons at home, but I have to think that if these home learnings were supplemented by good classroom education, it could only help.
I was raised by a divorced, working-class mom who told me next to nothing about money or how to handle it. The main lesson I learned from her was to live within a budget and have a savings account. That was the extent of it and I found out a few years after I left home and was laid off from a good-paying job that it was really inadequate info! When I had to take a lower-paying job, I began relying on credit cards just to get through the month.
I’m embarrassed to admit that I didn’t begin to get serious about money until my thirties when my twice-divorced, unemployed, partially disabled mom told me that she’d run out of savings and I needed to help her out until she could collect social security in a few months. Around the same time, I read a magazine article about credit cards. I learned that someone in my income bracket shouldn’t have nearly the percentage of CC debt I had at the time. I realized that if I lost my job/became disabled, I was screwed because there was no one to help me out! I began reading every article on personal finance I could find. I also began paying more than the mininum on my cards.When I got access to the internet about ten years ago, I really accelerated my overdue financial education. Incidentally, when mom died a few years ago, she left me around $5000 in our mutual bank accounts. I used roughly $3000 to pay off the cards. Thanks Mom!
@Catseye: That’s pretty much what I learned growing up, too — pay bills and save whatever’s left. Good for you for taking control of your finances. Stories like yours give hope to people who wonder if they’ll ever get out of debt.
I remember a brief experience in high school where we learned how to write checks and make a budget, and the thing that stuck out to me was that the budget booklet was presented by Visa or Mastercard, I don’t remember which, and it suggested that 20% of your income should go to “consumer debt repayment.”
It stuck out at me as a teenager that this was ridiculous and I balked in the class about the credit card companies influencing students to think that debt was okay. Guess I was ahead of the curve on the anti-debt bandwagon. As a parent, I would complain loudly about credit card companies having the only voice in financial education in the public school, but my parents weren’t all that involved in my education.
I think basic life management skills (like personal finance, budgeting, staying out of debt, and some home ec, like cooking simple meals, fixing a running toilet, mending clothes) would be a benefit to all high school students.