Debt among 18-24 year olds has risen 104 percent since 1992, and this age group spends almost 30 percent of its income on debt payments, according to a recent study by Demos, titled Generation Broke. The study also points out that credit card companies are aggressively marketing college students with offers of free pizza, T-shirts or other incentives, and that students are clearly lured by this technique.
Consider the following statistics:
- 11 percent of teens ages 12-19 have their own credit cards, and an additional 10 percent have access to a parent's credit card. (Teenage Research Unlimited)
- In 2003, teens spent $175 billion, averaging about $103 per week. (Teenage Research Unlimited)
- 55 percent of college students acquire their first credit card during the first year of college, 83 percent of college students have at least one credit card and 45 percent of college students have an average credit card debt of over $3,000. (Senator Akaka, Credit Card Minimum Payment Warning Act)
- A $3,389 charge on a credit card (the 2004 average for back-to-school costs) would take 39.5 years to pay off and cost an additional $9,098 in interest payments if making the minimum monthly payments (using an 18-percent interest rate and a monthly minimum payment of 2 percent). (Myvesta Organization)
"Financial literacy is a basic survival skill in today's financially complex world. If you provide tools to students, you're equipping them to make good financial choices -- choices that have an enormous effect on the quality of their lives" says Stacy S. Augustine, senior vice president at the Washington Credit Union League, which has sponsored and supported legislation in Washington state to require financial literacy education in schools.
Experts agree that teens and young adults gain most of their knowledge about financial management from their family. If they don't learn good habits early, they learn by personal experience, often amassing debt and making errors that can impact them for many years.
"One of our primary concerns is that most teens are not being educated about how to manage credit," says Jeff Southard, president of the Washington Jump$tart Coalition for Personal Financial Literacy. Southard says parents need to deliberately teach their kids about finances, including the difference between credit and debit, how to balance an account, and that the ATM might not give an accurate balance.
If teens are asking for a credit card, Southard says parents need to discuss why they want the card. "Do they want to build credit or create a lifestyle they can't afford?" he asks.
"It seems to help if kids understand how they fit into the family finances and understand how what they do affects the family," adds Southard, who says kids notice when parents spend a lot of money but don't talk about other aspects of the budget, like what they are saving for, or how many work hours actually went into a large purchase.
"We helped our kids look at what the needs were, not just the wants," says Evelyn Larsen of Bellevue, the mother of a 17-year-old daughter and 19-year-old son in college. "By not purchasing a new car just when we wanted to, we taught them 'let's get as much out of this car as we can and use our money in other ways.' We teach them you do not have to satisfy every whim."
Larsen also says they chose to equip their son with a debit card with money from his part-time job when he started driving. "We showed him how it works down. When it gets to zero, they won't let you purchase. We taught him we don't want him to have an outstanding loan because it is easy to get in a financial hole that is hard to get out of."
Augustine recommends parents use real-life examples when teaching their teens about finances; for instance, learning about how quickly they can afford a dream car is more exciting than a basic lesson on compound interest.
Shorecrest High School in Shoreline is one of a handful of schools in Washington that require a course on financial literacy. The class, called Senior Consumer Economics, was founded in 1991 with funding from a large grant.
"The course includes everything you need to know about finances in order to be successful outside of high school," says Leslie Baker, who teaches the course at Shorecrest and was recently featured on ABC-TV's World News for a segment on identity theft. "We start out by talking about goals and values and how that relates to consumerism," she says, noting that the class covers a wide range of topics including consumer resources, comparison-shopping, consumer rights, budgeting, credit, investing, buying a car, the landlord/tenant act, insurance, checking a credit report and the various aspects of moving out.
According to Baker, at least four to five students in a class of 30 already have a credit card. "I know some who have already maxed out a $5,000 credit card and don't see a problem with that. They don't fathom how things like carrying a balance and finance charges really impact things," she says.
A little education goes a long way, too. Research by the National Endowment for Financial Education has shown that just 10 hours of financial education has a positive impact on young adult saving and spending habits.
That's why the Washington Credit Union League and other groups will continue to press for mandatory financial education requirements in Washington state high schools. Bills introduced during the last several legislative sessions have died due to a lack of state funding, but Augustine underscores the importance of the topic in school curriculum. "Good financial skills aren't always taught at home. Teaching financial literacy in schools equips students to survive in an increasingly complex financial world. Without basic survival skills -- whether they're taught at home or in school -- students are unprepared and unarmed."
Augustine also encourages parents to talk to their child's teachers and PTA to create "a groundswell of support for financial literacy training." She also points out that "many Washington credit unions offer free financial literacy training to their local schools; they just need to be invited into the classroom."
Jolene Gensheimer is a Bellevue-based freelance writer and mother of two.
- www.consumerjungle.org "Helps turn high schools students into savvy consumers without putting them to sleep." Financial tips and games for teens as well as material for parents and teachers.
- www.bankrate.com A comprehensive site for help in choosing a credit card.
- www.mymoney.gov The federal government's Web site dedicated to helping Americans manage money. It offers a free "My Money" tool kit.
- www.consumer.gov The federal government's site for consumer education. Click the Money icon at the top of the home page or scroll down to look at current articles.
- www.irs.gov/app/understandingTaxes/jsp/student.jsp The Internal Revenue Service's guide for students has interactive activities teaching students about taxes and an opportunity to balance the national budget.
- www.atg.wa.gov/teenconsumer/ Teen Consumer Scrapbook -- sponsored by the Washington State attorney general's office and created by students at Ellensburg High School, this site has helpful activities and links regarding finances and consumerism.
- www.practicalmoneyskills.com Has resources for home and school, and the site offers a free downloadable student budget workbook.
- www.msgen.com, Money Savvy Generation develops and sells innovative products to aid in financial education.
- Real World Math: Money and Other Numbers in Your Life, by Donna Guthrie. Geared for teens, this book with illustrations covers the money basics.
- Credit Card Nation: The Consequences of America's Addiction to Credit, by Robert Manning. A comprehensive book about debt from a university professor with a specialty in college students and debt.
- The Millionaire Next Door, by Thomas J. Stanley and William D. Danko. Based on numerous interviews, the authors have come up with seven principles underlying modern millionaires.
- The ABCs of Personal Finance: An Essential Money Management Guide, by John C. Pool and Robert L. Frick. A money-management guide to taking control of your finances.
- Wall Street Journal Guide to Understanding Personal Finance, by Kenneth M. Morris and Virginia B. Morris. An easy-to-understand primer on finances, including everything from banking to investing.