Thursday, Oct. 01, 2009
The Importance of Personal Finance Education
The dorms are full, the libraries are packed, and college campuses are buzzing. Whether you're a graduating senior or the parent of a kindergartener, paying for college has surely crossed your mind.
In conjunction with the Opinion Research Corporation of Princeton, N.J., this summer the Center for Economic and Entrepreneurial Literacy (CEEL) conducted a survey of 500 college students to find out what they know about personal finance.
What we learned is that today's youth is fumbling around in the dark, financially speaking. Two-thirds of college students have taken out loans to pay for their education, and 25 percent expect to have that debt hanging over their heads more than 10 years after graduation.
The picture when it comes to consumer debt is gloomier still. Sixty-four percent of college students have at least one credit card; of those, 61 percent carry a balance, but 44 percent didn't know what the APR was. Eighty-one percent severely underestimated the amount of time it would take to pay off a credit card balance making only the minimum payments. And when asked how they would pay for an unexpected $100 classroom expenditure that they couldn't put on a credit card, 36 percent erroneously answered that securing a payday loan would be more expensive than overdrawing their checking accounts.
The results suggest another credit crisis in the making. But there is hope. Most of the college students surveyed - 58 percent - said they learned the most about saving and spending from their parents. More than any book, class, or friend, Mom and Dad have the biggest impact on the financial habits their kids develop.
Ideally, parents can lead by example by creating and following a household budget. Families shouldn't be afraid to talk about money openly. Too often, the subject is taboo and kids don't learn how to prioritize their spending or what goes into a budget.
For those who are uncomfortable talking to their kids about how much money they earn, sit them down with the classifieds section of the Sunday paper to show them the costs of major line items like homes and cars, and compare those numbers with the salaries listed in the job ads. Share with them how much Fluffy's vet bill is, and what the weekly grocery bill adds up to. Help them prepare for the future by opening an individual retirement account (IRA) as soon as they are eligible.
Getting the family's financial information out into the open while they're young will go a long way when you start talking astronomical figures like college tuition or on a more global scale, the federal deficit.
Learning basic economic principles is just as important as Shakespeare and organic chemistry - and arguably more universally practical.
It is clear that we need to increase personal finance education at all ages so we have better informed workers, borrowers, and voters.
-James Bowers, Managing Director of the Center for Economic and Entrepreneurial Literacy, a non-profit organization that promotes financial literacy
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