Editor's note: This article was originally ran on the personal finance blog Get Rich Slowly. It has been reprinted here with permission.
While researching a magazine article on “raising money-smart kids,” I felt sorry for parents and terribly worried about their children. (Also greatly relieved that I am not raising kids today.)
The article, for Consumers Digest, ran to a few thousand words. Short form: Our children face serious money temptations and pressures, and generally receive very little useful info either from parents or schools.
They also face consequences more serious than their parents ever did. We’re not talking about a few bounced checks or some other financial oopsie that you remember from your own early adulthood. An 18-year-old without sufficient financial savvy could within five years find himself:
- Saddled with several decades’ worth of student debt
- Paying double-digit interest on an auto loan
- A victim of identity theft
- Unable to get a mortgage
- Looking at seriously underfunded retirement
Today’s tykes are affected by a consumerism-drenched culture, and keeping up with the junior Joneses is a battle that gets more fraught every year. Even if your child doesn’t know someone who gives out $150 birthday favors or rents a limo for the junior-high dance, he’ll see similar excesses on social media or shows like “The Rich Kids of Instagram.”
Prepaid debit cards are marketed to impressionable tweens who then develop a taste for plastic a decade earlier than the previous generation. (One is actually called “Bill My Parents.” So help me.) It doesn’t help that plenty of today’s kids grow up watching parents swipe cards to pay for everything from a gallon of milk to a new dining-room set.
Most troubling of all: Our children will have to think about credit scores and self-funded retirements almost before the ink is dry on their diplomas — and those degrees now come with an average of $29,400 in debt, according to the Institute for College Access & Success.
That’s a lot to consider, and frankly some parents don’t feel up to the challenge. But if you want what’s best for your kids, it’s time to lean in. According to a 2013 study from Cambridge University, our money habits are formed by the age of 7. While it is possible to modify our behaviors later on, it’s easier to build a money-savvy kid than to fix a financially busted grownup.
‘Negligible effects’ on behavior
The youth financial literacy movement that began in the mid-1990s created a lot of sound and fury. Yet it signified virtually nothing, for two reasons:
- There’s no guarantee your child will receive instruction. Currently only 17 states require some form of PF education during high school. It may not even be a stand-alone class, but rather a component of another subject (e.g., civics).
- Recent research suggests these classes don’t work anyway. A 2014 study published in the journal Management Science analyzed 168 papers covering 201 previous financial literacy studies. It concluded that even “many hours” of high school PF classwork “have negligible effects on behavior 20 months or more from the time of intervention.” (Just ask J.D. Roth, founder of Get Rich Slowly. He did well on his high school PF class tests and wound up in major debt anyway.)
At the first meeting of the new President’s Advisory Council on Financial Capability for Young Americans, council member Richard Cordray stated that he will “insist on financial education at all schools” from K-12. (He is also director of the Consumer Financial Protection Bureau.)