The Most Important Money Lessons for the Youth

Some of my random browsing during the weekend brought me to this story about 1st Federal Credit Union opening a branch in Susquehanna Township High School . The article narrates how this will teach the students of the high school valuable lessons about personal finance. The spokesperson of the credit union claims the branch is not a moneymaker, but will be good for everyone in the society. I am a big proponent for teaching the younger generation about money as early as possible. But still, I couldn’t help but wonder, will the credit union branch really teach the high school students their most necessary money lessons?

I have only my experience to base my skepticism on. Before arriving to the US, I have had a bank account for about 6 years. Four of them were as an undergrad student and two while I was full-time employed. While I was not an accounting whiz by any stretch of imagination, I understood the basic concepts of money management, in relation to banking, fairly well. I even understood the value of savings, since it was the savings that ultimately bought me the ticket to the US (literally!). And yet, within a couple of years of being in the US, we had raked in a debt of around $42,500. So what went wrong?

I think the main problem is that banks and credit unions teach you lessons about managing your own money. In today’s world where credit comes knocking on your door, this is no longer enough. It is more important to teach the younger generation how to handle money, that is not their own. We need to make sure the younger generation understands the implications of borrowing and living life large from their credit cards. We need to make sure that when the young adults move out of the house, from the constant guidance of their parents, they are capable of distinguishing between "income" and "credit".

So, while in no doubt opening credit union branches in the schools is a good first step, measures beyond these which provide a healthy understanding of credit are needed as well. The best place to probably teach these lessons is home. Parents can start teaching their children the inner workings of a credit cards, by adding their children as additional users on one of their cards, before the children move out of the house. By making the children pay their statements each month in full using their allowance, they can educate them that credit is not "free money" and comes with strings attached. Also, by making sure that the card is paid off in full each month, the good habits of managing credit cards correctly can be ingrained in them right from young age. Heck, maybe they should even let them slip a couple of times, let the finance charges accumulate a little and make them pay it off by doing chores around the house and garden :) Nothing like tough love (and pesky household chores) to teach young teens a lesson they will remember forever :)

Seriously though, parents should make sure that the children know from a relatively young age (high school?) that the power of credit is a double edged sword; if harnessed well, it can bring life long freedom and flexibility, and if misused, it can bury you to the eyeballs in misery. They should make sure that the children know when and how to wield this double edged sword. Because, once they are out of the house and on their own, they will be courted and crooned by credit card companies on every corner they turn. Booths on campus that offer freebie T-Shirts for signing up, mail arriving at their door steps that offer free movie tickets or a CD in exchange for filling an app, and all the friends around who always have better clothes/shoes/cell phones/computer games/etc. They only have what they have already learnt to rely on, to save them from an abyss of bad financial decisions. As one of the ads on TV says "Talk to them. A part of them will always listen to their mother".

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Andre Sugai said...

I remember when my parents first talked to me about credit cards. For me it was around 15 or 16 (just as I got my driver’s license), but with kids getting access to accounts at earlier ages these days, you have to wonder how hard it would be for a parent to explain to a young child how a credit card actually works.

I read your post about the Credit Union moving into the high school and I thought you might be interested in seeing this.

Although it’s not aimed at kids, but more of a traveling-sports enthusiast community, there’s a pretty cool flash video about how using a credit card for a purchase works. Here’s the link Even simple things like this can always be a good conversation starter for parents.

If you are interested, check it out! And feel free to link to it if you’d like.

Bernard Ng said...

One of the problem of having the parents to teach their kid money lessons is that they themselves sometimes do not have the necessary financial knowldge themselves. How are the children suppose to learn about the correct use of credit cards when their parents themselves are in credit card debts?

ispf said...

Bernard: You raise a good point! I think we can consider three types of parents here:
a) Those that are on financially on very sound grounds. Like the rich dad you mention on your blog. In this case, they will find ways to teach their kids about properly handling credit anyway.
b) Those that are financially illiterate. Like a poor dad. In this case, you are right, it is hard to educate the kids about good financial practices when they themselves dont know much :(
c) Finally the reformed one. Which seems to be a big bulk of the PF blogosphere. The ones that made mistakes with credit, but realize their mistakes now and are on the way to recovery. I guess this article was a message to such people to say, "Its great that you are making an effort to get out of debt and establish good financial practises, but dont forget to inculcate these habits in your kids while they are still young so they dont make the same mistakes as us".