America’s Next Generation: Financial Literacy a Must

By Mike Condrey, CLU, CFP, Northwestern Mutual Financial Network

The personal savings rate in the United States has been declining steadily over the past few decades, from 6% in the 1980s to just 2.4% in 1999, according to the Federal Reserve Bank of Cleveland. It’s one of the lowest savings rates among industrialized nations, and it indicates that millions of Americans are headed toward a bleak future unless they change their financial habits.

According to a study by Zion’s Bank in 2000, average household debt is a record 101% of income, up from 84% a decade ago. With this as their heritage, our children are being raised in an era of extravagant spending and little planning for the future. They are in danger of reaching adulthood with no regard for saving, the value of money and the need for personal financial responsibility. In short, we are creating a generation of spenders.

According to Consumers Union, a nonprofit research group concerned with helping people spend their money wisely, children aged 5 to 14 spend billions of dollars annually, yet 38% of 12 year olds who participated in a survey, don’t know that a boom box will cost more if they paid with a credit card over a three-month period rather than cash. In a study published by U.S. Bancorp Piper Jaffreay, teenagers spent an average of $135 per month on clothing and accessories in spring 2002. That’s up from $110 in spring of 2001.

With youth demographics soaring and their spendable cash burning holes in their $150 designer jeans, how can children learn good financial habits? By educating young people early and often the rewards are clear: they’ll become smarter, money-savvy, consumers. According to a study by the National Bureau for Economic Research, adults who received personal finance training as children save 5% more than those who didn’t and their net worth is higher by about a year’s worth of earnings.

The foundation of saving – delayed gratification – can be one of the most difficult, yet most valuable concepts to teach children. How do children become interested in putting money away for tomorrow when they’d rather spend it today? Listed below are a few guidelines from the National Council on Financial Education that are useful for parents when teaching children the value of money:

  • Set goals: Goal setting for good grades, toys or savings helps children become responsible.
  • Introduce them to money: As soon as children can count, take an active role in observing others and yourself managing money.
  • Encourage saving: When giving children an income or allowance, give it to them in denominations that encourage savings. For example, give out five $1 bills and support at least $1 to be set aside for savings.

Understanding the economics of money – the value of savings, practicing cautious consumerism, balancing want vs. need – is as important as understanding the financial mathematics of balancing a checkbook or budgeting an income.

But some might ask why should children have to worry about the economics of money? Isn’t there enough time for them to learn, and how much would they really understand anyway? In an article in Credit Union Magazine, lifelong habits are instilled when we’re young; that’s when we learn to brush our teeth, eat fruits and vegetables, and look both ways before crossing the street. There are consequences for not having these good habits. Learning to save, or the alternative of not learning to save, has similar consequences.

Perhaps most important is for parents to provide the example children need in order to learn the value of saving. But are parents the only ones responsible for teaching kids financial responsibility? And what is the most effective way to reach these kids?

An estimated 88% of high school students say they learn “everything they know about money” from their parents. Yet nearly half of those students say their parents do not regularly discuss family finances with them, according to a recent Louis Harris & Associates poll.

With this in mind, it seems logical that school curriculums should teach financial planning and money management, since kids spend an average of 1,400 hours a year in school. But according to Kid Capital (2001), eight in ten children and young adults age 16-22 have never had a personal finance class.

Children today learn best through interactive mediums and teaching techniques. As a matter of fact, according to Nielson Research, younger teens today watch less television but spend more time online than any other demographic group. The internet is part of their culture today, and that’s why the use of the internet is an important medium in teaching youth financial planning and money management.

Websites that teach financial responsibility to our kids as well as provide teachers and parents easy access to this information are an important tool in financial literacy lessons. Experts believe that as few as 10 hours of personal financial education can positively affect students’ spending and saving habits (Credit Union Magazine).

It’s clear that today’s youth need to know more about their financial future. To ensure today’s students become tomorrow’s financially astute adults, a solid understanding of economics and personal finance is needed, both at home and in the classroom.

Some interactive web sites to visit:

Mike Condrey, CLU, CFP, is the Managing Partner with The Northwestern Mutual Financial Network based in Raleigh, for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin. To contact Mike Condrey, please call (919) 834-7772 or e-mail him at

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