British artist Jessie J once famously sang “It ain’t about the money, money, money” in her 2011 pop hit “Price Tag.” While her words do hold some truth to them, it is also important to acknowledge the role money plays in our everyday lives. Money is such a pervasive entity in today’s society, influencing decisions we make and acting as the driving force of the economy; yet, only 33% of adults globally understand basic financial concepts. Narrow that demographic down to teens, and the number is probably even lower—especially for minorities. 

A solid foundation of financial literacy can help students build the necessary arsenal of knowledge needed to make smart financial decisions, which will ultimately pave the way to a financially stable future. 

What is Financial Literacy?

Financial literacy encompasses a number of different financial skills, of which includes budgeting, managing debt, investing, and saving. Having fundamental knowledge in these areas would guide students towards a healthy relationship with money. 

As one grows older, their financial responsibility grows as well—almost in sort of a linear format. For most children, the brunt of their financial burdens were previously carried by their parents or other adult figures in their lives. So, the shift to becoming financially independent can come as a shock. Money becomes more of a complex intangible, as young 18-year-olds struggle with the reality at hand. Suddenly, teens are inundated with a flurry of matters like mortgages, health and auto insurance, retirement accounts, and student loans—all of which can be quite overwhelming for someone who just graduated high school never having heard of half of those products. 

Thus, it is imperative for people to be able to grasp financial concepts such as compound interest and the time value of money to be able to understand more convoluted ideas like the ones mentioned above. Those well-versed in the realm of financial literacy also have both short-term and long-term financial strategies in place, as they wholly recognize the impact monetary decisions can have on their future. 

Why is Financial Literacy for Youth Important?

If students are not getting lessons in money management from their parents (a 2017 T. Rowe Price Survey reports that 69% of parents are reluctant in discussing finances with their children), the responsibility should then go to the education system. However, the majority of public schools in the United States do not include a mandatory financial health class in their curriculum, leaving students unfamiliar with the financial landscape they are faced with post-high school. The following consists of a few statistics to help put things into perspective:

• 79% of teenagers don’t have savings accounts
• 87% of teenagers say they don’t know how to manage their money
• 27% of 15-year olds know what inflation is and can do simple interest rate calculations

Clearly, there is an unaddressed financial literacy gap in teenagers; and this gap will only continue to grow larger without any curriculum to offset it. Like any other skill, personal finance is something that needs to be continuously developed and built upon, which is why kids should be educated at a younger age. 

Here are 6 reasons on the importance of youth education:

1. It teaches them to consider the future

There are several key milestones in the average person’s life: weddings, starting a family, buying a first home, etc. Yet, many people don’t consider the financial costs of those events until it is time to make those payments. That being said, it is never too early to start saving and investing (for both short-term and long-term plans). This futuristic mindset encourages students to evaluate their financial decisions, avoiding impulsive actions that can bring about negative repercussions.

2. It allows them to practice good financial habits

Remembering to pay off bills in a timely manner, maintaining a good credit score, and staying within budget are all examples of good financial habits. Many people, upon being handed their first credit card, end up maxing out their card and later find themselves in mountains of credit card debt. Drawing from this scenario, potential financial health curriculum could draw the distinction between credit and other forms of payment, as well as include lessons on checking one’s credit score and what that means for them as a borrower.

3. It helps them avoid massive debt

Many college students fall victim to the student loan debt trap, where a decision they made in their late teens impacts them for the rest of their adult lives. Approximately 48 million Americans have student loan debt, with an average monthly payment of $300 prior to pandemic relief. Without proper education into debt and how to manage it, students are more susceptible to loan borrowing without understanding the consequences. 

4. It empowers them to reach their goals

An important skill to practice is saving money that does not need to be spent. The iconic pink piggy bank is symbolic of this idea, housing thousands of spare change that—with enough time—can add up to a significant amount. Money does not always come easy; it needs to be worked for, and so, it is useful to differentiate wants from needs. This is where budgeting and investing can come in handy, as students will learn the value of their hard-earned money and work towards saving their money to later afford the luxuries they want.

5. It ensures readiness in face of a financial emergency

With the onset of the pandemic, 56% of Americans found that they were unable to incur an extra $1000 expenses with their savings. A key takeaway in personal finance courses is the concept of an emergency fund, where one has enough money saved to cover expenses for up to 3 months. Students learn important tips like these that will, hopefully, lessen the amount of financial stressors they are faced with when emergencies arise. 

6. It helps prepare them for retirement

There are a variety of retirement plans, ranging from the tax-deductible and employee-sponsored 401K to the nondeductible Roth IRA. Each of these plans have their own set of rules and nuances to them (like contribution limits and employer matching) that can be difficult to understand if one is not already familiar. The earlier one begins investing in these accounts, the more money they will have by the time they are 59 ½, due to compound interest. Without financial classes to provide students with this information, many young adults would be missing out on years of growing their contributions.

What Are Ways to Improve Financial Literacy?

There are many resources available to students interested in learning more about their finances. Some colleges and universities offer courses in personal finance; and more and more financial literacy programs targeted towards students in middle and high school are popping up. If those options are not available, the Internet is always a great starting point. Financial sites like Investopedia and CNN Money or financial services companies like Charles Schawb and TD Ameritrade have great educational articles on all things finance-related. Not to mention, there are online courses in the form of videos, like the ones on Khan Academy. Books and podcasts are other mediums to experiment with; my recommendations being The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness by Morgan Housel and NPR’s Life Kit, respectively. No matter what your preferred method of learning is, there is content out there—ready to be consumed!

Student Hires Program

Student Hires understands the importance of educating students, especially in areas related towards career readiness and job opportunities. We provide one-of-a-kind programs for students to explore different careers and gain relevant experience before transitioning into entry-level roles. Our vision is to transform communities—and that includes providing support to parents, who play crucial roles in a student's development. We hope to provide educational articles for parents that will help them understand their place in their student's academic journey.

Conclusion

Navigating adult finances can be daunting, but that doesn’t mean it needs to be difficult. There is always more to be learned when it comes to managing money. The first step, however, is education; we must ensure that students understand and can apply financial basics in their own lives. From there, students can use what they learned to make smart financial decisions and “forget about the price tag”.