As you get older, the list of things you wish someone had told you grows longer and longer – why didn’t anyone tell you how tempting that emergency credit card would be, or how much you’d really need for a house deposit, and why did no one tell you just how much money it would cost you to travel in your gap year?
We all wish we knew how to manage money better.
However, the example set by parents is not the only reason that children should receive a formal education in money management, and while the parental example is a powerful reason, there are a number of other reasons schools should look at teaching money management classes.
1 – Parents’ money management skills.
For most children the strongest influences in learning will come from their home environment, and with most families spending more than they earn, having a large mortgage and a small savings account, a good example isn’t being set in the home for children to learn positive money management skills and habits.
A ‘do as I say, not as I do’ approach isn’t always going to be enough either, because as a national survey of US high school seniors in 2008 found, only 48% knew that not paying off your credit card balance in full each month would lead to higher interest charges. These students are a product of their environment, where:
• The median number of bank cards for families is two. In a Federal Reserve survey of consumer finances in 2009, families were shown to have a median of two bank type cards, and they had seen an increase of 21.4% in their credit limit, to $18,000.
• Credit cards are there to be used. Approximately 14% of Americans use up to 50% or more of the available credit on their credit cards.
• Don’t mention the money. In a money management survey, finances were the second least talked about subject in the family home, after sex and drugs.
• Parents are not qualified. In the same money management survey, only 4% of parents believed they had a high level of money management expertise, and 49% said they new little about the topic. At 57%, more than half of the parents don’t teach their children money management skills because they simply believe they’re not qualified.
2 – Celebrity role models.
Another poor example of money management which children need to remedy with education are the celebrities in the media. Reality television shows are just one example of celebrities being showcased and idolised because of their extravagant, expensive and seemingly consequence free lives. However, in the reality, there are consequences, there isn’t an endless supply of cash, cars and tiny dogs, but that doesn’t mean you children idolise these celebrities any less.
Schools have the opportunity to offer the antidote, or at least a counter point, to these over indulging celebrity role models, by teaching responsibility and moderation. We rarely ever talk about how to get out of debt.
3 – The banking system.
How many times has your received a preapproved credit card or credit limit increase in the mail? More times than you can count, and temptation and ignoring the consequences aren’t the only lessons the banking system would have children learn the hard way.
There is no doubt that financial products can be confusing. There is a sea of fine print which you are expected to read and understand when signing up for a new financial product – on the spot, in the bank branch. Plus there can be fees applied to every movement you make on your account, and every mistake you make too, where these exception fees earn the banks billions of dollars each year. Understanding the way interest is applied to credit card balances is another important lesson which the fine print doesn’t go a long way to explain as there are compounding interest charges, and you need to understand how payments are applied to balances according to their interest rate and their sequence.
There is also so much choice in financial products, that choosing the right savings account and credit card could be lessons in themselves, not to mention the curriculum you could teach on understanding home loan products, features, fees and interest rates.
4 – Form good habits young.
You don’t have to remember to brush your teeth or lock the front door when you leave the house, and you certainly don’t question why you should do these things, because you learnt their importance at a young age, and you’ve been doing them all your life. Learning good money management skills can be approached the same way when finances are addressed in detail at school.
Do you know how to budget your money?
While school may not suit every personality type, there is no doubt that you remember the spelling rules and the times tables songs you learnt there, and if children learn money management in conjunction with their other lessons, this too can be drummed into them, and the knowledge available to them when they do need it.
School sets children up to learn about life, for life and it can be valuable to teach children good money habits when they are young, because you never know when they’ll need it. Similarly, your children are unlikely to appreciate money management lessons if you thrust everything onto them when they turn 18 or they move out of home – after all there is a lot to learn.
5 – Consumerist society.
There is no doubt that we live in a material, consumerist society and your children will be tempted early, to start filling their lives with stuff. For example, the average college graduate will be almost $20,000 in debt before they’ve even gotten their first job. Plus, it is not only the parents who are consumed by credit card debt, as the average credit card debt of 25 to 34 year olds has increased 47% from 1989 to 2004, and 11% for 18 to 24 years olds in the same period.
Therefore, as your child is being tempted from every angle to spend, spend and over spend, you will want to make sure they are getting the most comprehensive money management education possible, from as many different sources as possible, including their school, where they spend so much of their time.
If you would like to read more, check out our piece on how to manage my money after college.
This was a guest post from Alban– a regular blog contributor.