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What is financial literacy, and how do we teach it to our kids to keep them from repeating our mistakes?
Every generation hopes to teach its children not to repeat the same mistakes. As an adult, you’ve definitely learned some knowledge over your lifetime the hard way, and if you’re a parent then passing on that knowledge feels critical to help protect your kids in the future. Some things should be given a heavier focus in the United States education system, the capacity to understand how important it is to manage your finances wisely among those topics. What are some things you wish you had known in high school regarding money management?
1. Your Credit Score is Everything
They barely touch on this in high school, but one underestimated yet heavily important focus when teaching financial literacy should be the importance of a good credit score. Why is it not harped on that your credit score will make or break all the major financial decisions in your life? Kids who are heading out the door and into the real world need to have a clear understanding of just how vital a healthy credit score is. It can determine huge decisions like:
- Auto loans to help you afford that car you need to get you to and from work
- Credit card applications
- Mortgage loans in case you ever want to get a place of your own
On top of why your credit score matters, it would also be helpful to know what actually impacts it and helps you to look better to the credit bureaus. Sometimes people think that paying a cell phone bill or rent payment on time helps to build credit. Unfortunately, this is rarely the case. Knowing what builds healthy credit really boils down to two major factors:
- The age of the debt and
- The regularity of the payment.
Students understand that there are consequences for turning in late homework, but they can’t possibly grasp the importance of paying your bills on time. Understanding the major difference between a lunch detention and consequences that directly impact your future ability to buy a house are so drastically different.
In my case, I’m extremely grateful to have been taught about this concept from an early age. It helped me consider my ability to pay for things and the consequences of not having the funds to pay for what I wanted. Now as an adult, I continue to use my credit cautiously and in ways that will help me in the future.
2. Don’t Accept Every Credit Card Offer
When you’re young and a fresh 18-year-old, “exclusive” offers keep rolling into your mailbox offering you one credit card or the other. Fancy gilded envelopes, flashy lettering and exciting verbiage make it seem like you’ve won some sort of contest, but that applying to every offer you receive is not a good idea. It’s exciting to see that you’re an adult now and you can make these kinds of choices, but exercising caution is more important than a piece of plastic with your name on it.
Reading the fine print on these so-called exclusive offers is essential before applying to any line of credit. The application might scream that the interest rate is 2.5% and that you pay no fees, but learning to check out the fine print is a handy skill to learn. Oftentimes these offers expire after 12 months, raising your interest rate to something catastrophic and inundating you with hidden fees later on. I’ve seen many friends and colleagues fall victim to great advertising, but pwhile you’re still young. Over the years, I’ve learned that different programs and even simple Excel sheets give me the freedom to spend when I want, and have the money I need when the car breaks down. It’s all about balance, so I encourage everyone to find something that helps to manage spending and saving.
It’s easy to say that kids are irresponsible and want to blow their money as soon as they have it, but think about how you learned to save and maintain a healthy bank balance. It takes some trial and error (mostly error) to figure it out, but being taught in high school just how important these decisions are would have been so much more helpful. It takes a village to raise a child, and learning financial literacy in school can be one way that the village does its part to help.oor judgement lands them with an account overrun with high rates and fees.
Another reason that it’s a bad idea to apply for every credit card offer goes back to the initial bullet point: Your credit score. Applying for multiple lines of credit at once gives your credit score a major hit and can flag you to the credit bureaus as untrustworthy. (Again, it all comes back to your credit score!)
3. Put Some Damn Money Away
The minute you hold your first hard-earned paycheck, it’s easy to want to go on a shopping spree and blow it all in one weekend. As an adult you know that’s horrible advice, but as a kid you can’t think of anything better to do than having fun with your paycheck.
Saving a portion of your paycheck should be beaten into students’ heads as many times as possible so that they understand how big of a deal it is. Parents and grandparents can advise their kids, but sometimes the voice of a teacher or peer is louder than the authority figures at home. There is so much that you learn when you’re balancing your own bank account that you never even considered before:
- The reality of overdrafting your account, how easy it is to do and hidden fees or locked debit cards every time you overspend
- Autopayments from bills coming out of your account every month; unless you’re paying attention then your account can drain in a hurry
- Unforeseen, expensive emergencies that can seriously impact whether or not you eat this week
It’s more fun to spend and boring to save, nobody is arguing that point. But understanding the significance of putting money in the bank and being ready for anything is a great skill to learn.
