Thursday, May 5, 2011

Teach Your Children Well

Proverbs 22:6 instructs us “Train a child in the way he should go, and when he is old he will not depart from it”.  This holds true for all aspects of life’s lessons – including how to effectively manage personal finances. 

The Problem
The National Endowment for Financial Education (NEFE) administers personal financial literacy tests nationwide every few years.  The tests cover all areas of personal finance, including investments, debt, credit, and saving.  The most recent test was performed in 2008 and the results were quite surprising.  Of the 6,856 high school seniors given the test, the mean score was a dismal 47.5%.  The same test was given to 1,030 full-time college students and the results were somewhat higher, with a mean score of 62.2%.  Additionally, numerous studies and surveys are conducted every year by various financial institutions and consumer advocate groups.   Some of the results are startling: 
·         More college students withdraw from college due to personal debt problems than they do for academic problems.
·         31% of college students polled do not worry about debt, believing that they can pay it back once they are out of school and earning a regular paycheck.
·         More than 25% of students think it is reasonable to run up a debt to splurge on a special celebration with friends at a restaurant or to use a credit card as a way to “raise cash”
·         Less than half (46%) of students always keep records of their spending and receipts.
·         23% of students choose to ignore overdraft penalties and the prospect of months or years of paying off a debt incurred for a moment of fun.

As grim as these statistics are, it is by no means a reflection of parents not attempting to provide guidance for their children.  Nearly all parents (97%) surveyed in a recent study by Charles Schwab believe it is important to teach their teens to budget and save and invest for retirement.  A similar survey in 2008 by The Hartford Group found that 72% of parents acknowledged that they are their children’s primary source of personal finance education, although  44% admit to needing more guidance on how to best teach their children the skills necessary to become financially responsible and successful adults.  However, 16% report never talking to their children about using money wisely.  So what is a parent to do?

The Solution
One option is a program being offered this summer by Lone Star College–Kingwood called Discovery College.  Discovery College is a summer youth program that was started over 26 years ago and offers over 50 one-week courses for kids aging from 8-17 years old, including two courses in financial literacy.  “Relating With Money – Financial Literacy For Youth” is a program designed for children between the ages of 12-14.  In this class the students will learn the importance of developing personal financial skills.  This includes: identifying wants vs. needs; writing checks and balancing checkbooks; building a personal budget; and introducing investments, credit, and debt.  A class for 15-17 year olds, “Money, College, and Me”, will also be offered.  In addition to covering some of the topics discussed in “Relating With Money”, this course will expand into other areas of personal finance including insurance, taxes, estate planning, and the different types of retirement plans typical for those entering the work force.  Both courses will prepare the students for financial independence, whether going off to college, joining the military, or getting a job after graduation.

The Results
For the most part, students taking financial literacy programs produce more appealing statistics.  A 2008 study by the Charles Schwab Foundation of teens participating in any type of financial education program revealed that:
·         Those who reported learning about saving money were more likely to save regularly (72% vs. 57%), participate more often in retirement programs, make larger contributions to the program and have a much higher savings rate than others.
·         Youth who reported learning how to create and maintain a budget were more likely to report actually developing one (50% vs. 30%),
·         Teens who learned to track spending were more likely to having developed a budget (50%) vs. those who learned little or nothing (29%) and also more likely to save money to purchase something (80% vs. 60%).

Discovery College begins June 6th and ends August 4th.  For more information on Discovery College, including costs and dates for all courses being offered, visit their website at  

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