We Are Not Teaching Smart Money

I enjoy giving my great friend and partner, John Hardy, grief by saying he’s a “monkey with a machine gun” when he gets new technology. His new iphone is much more artillery than his skill level.  Words like “Safari” or “Apps” are beyond his current capabilities. Unfortunately, the Millenials (young adults 18-29) are those same monkeys when it comes to being equipped to handle their money and their finances. I think we can all agree that money and investing has become more complex over the last 30 years.  After enduring financial catastrophes of the savings and loan collapse in 1987, the tech bubble’s implosion of 2000, 9/11 and Great Recession of 2008, there is no doubt the landscape is not even or particularly pretty any more.  The days of buying blue chip stocks and CD’s and holding them to retirement have long since passed us by.  At a time when more financial acuity than ever is needed, our successor generation is less prepared than ever.

Ask Millennials to program a Mac computer, iphone or Xbox and within minutes the job is completed quickly and confidently.  Ask them the meaning of compounding interest or dollar cost averaging…deer in the headlights.  Unfortunately with the financial world becoming more complex, financial literacy is decreasing.  A survey by Jumpstart Coalition for Personal Financial Literacy conducted a series of tests of high school seniors on 18-29 year olds from 1997 to 2008.  In 1997, the average score on the 31-question exam was an abysmal 57.3%.  In 2008, the same test had average scores of 48.3%.

Schools are not helping either.  Less than one-half of states in this country require high school students to take an economics class and just 13 require a personal finance class.  Given the complexities and life- long need of financial knowledge, what’s more important….a year of Spanish where the only retention is “que hora es” or “como se llama usted” or how to balance a checkbook, the dangers of credit card debt, and the basics of investing.  Further studies by the Council for Economic Education showed the 13 states with these types of classes had students entering young adulthood saving money and paying off credit card debt monthly.

Additional surveys show that parents not teachers have the most impact on financial literacy.  However, many parents either don’t have the tools themselves or are overwhelmed with just the difficulties of battling today’s children’s issues that include social media, technology, drugs, and alcohol.  We parents also have wrongly become ingrained that ‘we must provide everything for our children’ thus not letting them have skin in the game.  Most children I know, including my own, obtain educations, computers, clothes, cars paying little or nothing for the privileges.  They graduate from college without ever having to save or budget for items nor do they know how to prioritize.

The long term consequences are that Millennials have more debt than any other generation for their ages (average of $45,000) while unemployment for their ages is extraordinarily high at 12.4%. Without the skills to get out of debt or the skills to have a household budget, the problem spirals. Having too much debt can preclude them from certain jobs and wreck credit early in their careers.

Since our future will one day be in their hands, the trend needs to change.  Parents and grandparents need to start teaching 12 year olds about checking accounts, credit cards, savings accounts, and basic investments.  In turn, they can teach you how to Facebook, Tweet, and instant message on your iphone! Here is a link to 5 books for young adults that hopefully can be a start for all of us to teach financial literacy: http://www.kiplinger.com/columns/starting/archive/2007/st0906.htm. Let’s get them educated.  I don’t like the thought of people who can’t balance a checkbook running our country.  Wait a minute…I just described our current Congress!


Source for statistics:   “Millennials struggle with financial literacy”  by Hadley Malcolm, USA Today.  4/25/2012