Parents can get help teaching kids financial responsibility

April 13, 2005

GAINESVILLE, Fla. — April is Financial Literacy for Youth Month and with credit-card debt at staggering levels among college students, University of Florida experts say childhood training in money management has never been more important.

Though elaborate programs aimed at wealthy youngsters have emerged recently, children from every income level can — and should — learn the basics of personal finance before leaving home, said Mary Harrison, a consumer education professor with UF’s Institute of Food and Agricultural Sciences, or UF/IFAS.

“Kids make mistakes, that’s why it’s important to teach them to handle money very early,” said Harrison, who designed a summer financial education program, Money Mystery, offered in several Florida counties through the UF/IFAS statewide extension service. “Otherwise, they may have to learn through trial and error when they get out on their own, and the stakes are higher.”

Credit-card debt among college students skyrocketed in the early 1990s, according to the lending agency Nellie Mae, a leading provider of higher-education loans. In 2002 the agency published a study showing that among 600 U.S. undergraduates at public and private four-year institutions, 83 percent had at least one credit card, and those with cards carried an average balance of more than $2,300. A similar study of graduate students, published in 2004, showed that 96 percent had one or more credit cards, with an average debt of more than $7,800.

“One of the main reasons young people drop out of college today is to work to pay credit-card debt,” Harrison said. “That can have dire consequences because once you’re out of college you may not manage to get back in.”

Financial training should begin early and much of it needs to happen at home, she said.

Parents can start by emphasizing the relationship between money and work, Harrison said. When children ask for expensive toys or clothes, parents should let them pay for them, earning money doing odd jobs. It’s a good idea to open savings accounts for children as soon as they begin making their own purchases.

“When children learn to save they start to develop financial priorities,” Harrison said. “By the time you save enough to buy something expensive you may find you don’t want it enough to give up all your hard-earned money.”

Other early lessons should include comparison shopping and simple budgeting, she said. Children should be encouraged to notice whether they use the things they buy, to educate them about the pitfalls of impulse purchasing.

Though parents are the best teachers of financial management, they shouldn’t hesitate to consult outside sources, said Jo Turner, a UF professor of family and consumer economics. Banks, investment brokers and other firms have recently begun to offer financial camps and courses aimed at wealthy youngsters, which can carry a hefty price tag. But many programs are available at no cost to consumers, she said.

One example is the nationwide High School Financial Planning Program offered by the National Endowment for Financial Education, Turner said. Available to schools, clubs and church groups, the program teaches teens what they need to know to survive on their own. It includes units on financial planning, career planning, budgeting, saving and investment, credit and insurance.

In Florida, the program is co-sponsored by the UF/IFAS extension service, and parents can learn more by contacting their local county extension agent. On a national level, information is available online at www.nefe.org/hsfla/.

Financial institutions nationwide are beginning to offer free programs aimed at individual families, said Laura Levine, executive director of Jump$tart Coalition for Personal Financial Literacy, a national, nonprofit organization that promotes financial education for youth, based in Washington, D.C.

“More and more institutions are realizing that educating their customers and prospective customers is an important part of their business,” Levine said.

Jump$tart’s Web site, www.jumpstart.org, includes a searchable database describing more than 500 educational products and programs from a variety of providers, many offered at no cost to consumers, she said.

Every other year, the organization conducts a financial literacy survey of U.S. high-school seniors, she said. The most recent, from 2004, showed that on average students correctly answered only 52 percent of the survey questions. Average scores have remained in the 50-percent range since the survey began in 1997, although theoretically the average score should be about 70 percent, she said.

Students who took financial education classes in school scored higher on the survey than those who didn’t, but nationwide only about one student in five takes such a class, she said. Regardless of other opportunities, she said, parents must take an active role helping their children understand personal finance.

“One of the things our survey showed was that 58 percent of the kids feel like they learn the most about finances from their parents,” Levine said. “So even if parents don’t feel like experts, their kids are relying on them.”