They’ve run the gauntlet to learn history, mathematics and science and more, but less than half of high school graduates are financially literate. And no matter which career they chose, the key to financial success all comes down to smart money management.
Research from the groundbreaking Jump$Start Coalition in 2008 gave us some of best insight into what high school and college graduates know about money. According to the most-recent Jump$Start Survey of Financial Literacy, 51 percent of young adults know how to write a check, yet only 34 percent understand how to balance a checkbook. A dismal 26 percent of teens know how credit card fees work, and only 20 percent of college students consider themselves “very well prepared” to manage their money in college.
Kids Can’t Learn What We Don’t Teach
Why are so few college-bound millennials prepared to manage their financial life? Simple: They’re not learning financial literacy at school or home.
The majority of U.S. high schools don’t require students to take a personal finance course before graduating. This could be changing, however. According to a University of Wisconsin-Madison study, 89 percent of K-12 teachers agree that students should either take a financial education course or pass a competency test for high school graduation.
Most college-bound millennials are picking up mixed messages about financial literacy from their parents, too, compounding the confusion. DoughMain’s 2012 survey of parents revealed that 81 percent of parents feel it’s their responsibility to teach their kids about money and savings, but only 63 percent of their children under the age of 18 have savings accounts. And while 51 percent of parents in the study give their children an allowance, only 4 percent of them require them to deposit that money into a bank account.
Opening an ECCU account with your kids is a hands-on way to teach financial literacy at home and illustrate the benefits of credit union membership. We offer a variety of checking and savings accounts that are easy to monitor through our mobile banking app. Right now, you can help your children make their first step towards financial literacy at no cost. For a limited time, ECCU is paying membership fees for all new members.
Give Them Something to Bank On
It’s never too late to become financially literate. While you’re considering ways to celebrate the favorite graduate in your life this year, passing along tips about smart money management may be the best gift you can give.
Here are four things every graduate must learn about personal finance before going to college or starting a career:
How to Budget.
Financial Literacy 101 starts here. Unfortunately, the word “budget” has earned a bad rap. It’s not difficult to learn how to do, but it does take discipline to follow. You could help young adults master financial literacy by letting them know that budgeting is simply about creating a plan for their money and sticking to it.
In “Budgets for People who Avoid Budgeting,” we offered personal finance columnist Liz Weston’s three steps to build a better budget:
• Figure out where your money is going now – This should include things like how to pay for day-to-day living, college courses, housing and related expenses. Grasping the basics of a checking account comes into practice, too, as well as how to use ATM and debit cards responsibly.
• Decide where you want it to go in the future – Ask the graduate to think of future expenses, such as study abroad programs or buying a vehicle. Here’s where lessons about savings and auto loans enter the conversation.
• Monitor your spending – Everyone, graduates included, should review their budgets monthly, if not weekly, to make sure they’re on track with their goals.
How to Live Below Your Means.
This lesson is closely related to budgeting, but reaches farther. It encompasses not only practical steps but also a commitment to stewardship. The years following high school and college are probably the first when young adults earn their own money and decide how to spend it. It’s tempting to live a lifestyle that consumes every dollar coming in. After all, we live in a society that celebrates spending and measures success by the amount of stuff owned – even though more and more research shows that valuing time rather than pursuing money is linked to greater happiness. Help graduates develop the grit to live below their means now.
How to Build Net Worth through Compounding Interest.
Once graduates are budgeting and living below their means, they’ll likely have money to stock away, and that means learning to invest early. Many employers will offer a 401(k) matching retirement, but there’s no reason young adults need to wait for a job-based plan. Help them make their money work harder for them by advising graduates to open Individual Retirement Accounts. Traditional IRAs may provide for tax deductions on contributions while Roth IRAs provide tax-free withdrawals during retirement. In either case, growth in their savings is tax-deferred. Graduates – or anyone looking to save for retirement – can lock in high yields through an IRA certificate or maintain liquidity with an IRA money market. Plus, at ECCU, they can open the account with as little as $1,000.
Credit Cards Aren’t Free Money – But Building a Good Credit Score Is Invaluable.
It’s tempting to take up credit card companies on their offers for “free money.” After all, what graduate wouldn’t want to buy new clothes, furnish their dorm rooms and live like they’re well beyond the ramen-and-coupon years? One of the best gifts you can give graduates is to caution them against racking up credit card debt. If they do, they’ll be ahead of most Americans. Earlier this month, The Wall Street Journal reported that U.S. credit-card balances are on track to hit $1 trillion this year, a sum that could come close to the all-time peak of $1.02 trillion set in July 2008 – just before the financial crisis intensified. However, graduates can learn a thing or two from the responsible use of credit, including how to understand interest rates, fees and penalties for late payments or how to use cash back bonuses to steward resources.