Financial Literacy: How We’re Failing Kids
I vividly remember sitting at a table draped in a white cloth, restraining myself from using it to wipe off my sweaty palms. I was 16 and had just accepted my first formal job as a busser at Meadowbrook Country Club. When my new boss stepped away, I frantically began texting my parents under the table asking what it meant to ‘claim’ myself on this W-4 form they asked me to fill out. I write this now with a grin, knowing it was only the tip of the iceberg of what was to come for navigating jargon filled financial situations in my career.
From Roth IRA’s, ESOP plans, tax brackets, Index funds, HSA’s, credit card trifectas and beyond, I quickly realized that no part of my education had prepared me for the ‘real’ financial world. While mandatory high school economics classes taught me principles like supply and demand, or that compound interest is my friend, there wasn’t much covered in the way of personal finance and how to succeed in that arena.
In a recent Fortune article, it stated that 57% of US adults could not afford a $1,000 emergency expense. I was shocked reading this. But after giving it more thought, I suppose it shouldn't be too surprising. If you aren’t taught healthy financial habits and how to navigate the financial world early on, our system is designed to bring you down and not help build you up. I was lucky to have parents who cared to teach my sisters and me the basics, as well as access to a financial advisor from a young age. In our house, getting an overdraft fee on your debit card carried far more shame than missing curfew – but for many, I realize, this is not the norm.
So how would I change things then? Or what, in the ten years since filling out that first financial form, do I think are essentials that kids and young adults need to be taught early on?
Budgeting
If I had to guess, I would say about 80% of my friends have asked what my salary was for my first job out of school, what I paid in rent, and how I determined what I could afford. While I’m always happy to share or be another data point in their research, this shouldn’t be the first time people hear about the 30% rule or basic spending breakdowns. Similarly, things like gross vs. net pay, how much to have in an emergency fund, and how much you should have saved at age 30, 40, etc. should be taught well before you’re looking at your first full-time paycheck.
Retirement Funds
I would like to create the world's most boring game show called You Too can become a Millionaire. It would be mundane scenes of people contributing annually to their IRA with a big reveal of their account when they turn 65. I’m kidding – but not really. I remember zoning out for an entire lecture my freshman year of college while I messed around with a Roth IRA calculator, watching the numbers climb as I increased the projected annual contribution to the max. It was mesmerizing, addicting, and hopeful. Growing up middle class, I never envisioned a net worth for myself with that many zeroes at the end, all as a result of personal saving efforts. And this doesn’t even scratch the surface of what else is available. From employer 401(k) match programs, to other tax deferred options, this really is essential information all job seekers should understand.
Credit Cards
I used to be terrified by the thought of a credit card — even as an obsessive saver from an early age. I had heard horror stories of people swimming in credit card debt and falling behind on their payments and didn’t want that to be my fate. But I soon learned that this was an essential piece of plastic (or metal) in establishing your credit and I was prepared to pay it off monthly. I’ve had that card since my sophomore year of college and have since added to it with other cards that suit my lifestyle. I didn’t realize when I first began my credit card journey that simply having several years of credit history and timely payments is enough to hike your FICO score over 800, AND get cute automated messages from your bank letting you know you’re exceptional (lol). Furthermore, my friends (and NerdWallet) convinced me that I was genuinely losing money by not taking advantage of rewards points and portals – and they were right. I’ve since paid for trips to Washington D.C., N.Y.C., and San Francisco with Chase rewards points alone. Back in high school I would’ve looked at someone with multiple credit cards and said they were irresponsible; now, so long as it's done correctly, I’d say it’s irresponsible not to.
I recognize that it’s impossible to prepare kids for every single situation they might run into in the adult world, but there are some things that are a guarantee. Ben Franklin told us about death and taxes, but there’s also rent, retirement, investing and so much more. I think it’s wrong to throw people into a new environment without giving them the tools and information to succeed. I’m hopeful that this base level knowledge of personal finance can become as mandatory as reading Huck Finn or knowing the function of mitochondria in a cell — all in an effort to make everyone feel empowered and confident in their personal financial decisions.