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Do teens know the basics of personal finance?

By Danielle Rice

In 2010, Junior Achievement and The Allstate Foundation conducted their “Teens and Personal Finance” survey as a snapshot of teen attitudes and behaviors around financial literacy. The survey looked at how teens are reacting to economic recovery, and how their spending, college planning and job searches have been impacted by the recession. More broadly, the survey seeks to assess how well-prepared our young people are to effectively manage their finances.

The results indicate that despite some of the painful economic lessons recently learned by governments, families and businesses, there is still a need to educate our youth about how to effectively manage money.

“Teens are admitting that they don’t have knowledge of some of the basic money management skills around investing, budgeting and using credit,” said Jack E. Kosakowski, president and chief executive officer, Junior Achievement USA™.

Results Underscore Lack of Knowledge

“The poll shows we need to do a better job of ensuring our youth are financially literate,” said Kosakowski. Asked about spending, saving, budgeting and credit, teens showed a striking lack of understanding. Among the key findings of the survey were:
Teens struggle to balance spending and saving. An alarming majority of the respondents indicated they lack the knowledge to understand and effectively reconcile spending and consumption with saving and investing. Nearly half of the 1,000 U.S. teens surveyed say they are unsure about how to effectively invest their money, and nearly a quarter (22 percent) of teens said they do not budget their money.

Many teens don’t get the importance of budgeting. Among the teens who do not manage their money, significant subsets say they don’t know how to do this, think budgeting is for adults only, or think it doesn’t matter. Many teens may be lacking parental role models in this area; 20 percent of those who do not budget their money said they don’t budget because their parents don’t.

Teens have a false sense of security about finances. Even as many teens fail to see the importance of learning and using even the most basic money-management practices, many predict being as well-off or better off than their parents. This lack of basic money management skills could stand in the way of lifelong financial stability and security. For example, the survey found that 54 percent of teens say they are unsure about how to effectively use credit, yet 74 percent think they should get a credit card by age 21. This lack of knowledge coupled with a sense of financial entitlement could exacerbate future national financial woes.

What can parents do?
Talk with your kids about finances. Hold regular family meetings about budgets and finances. While you don’t necessarily need to give all the details to your children, it helps them to see the big picture of where your family’s money comes from and where it can go. Give them real-life examples about how you have saved for the family to go on a vacation, purchase a new home or buy family necessities such as food and clothing. Discuss wants versus needs, especially when it comes to gift-giving holidays like Christmas and birthdays.

Model good financial behaviors. We all know that actions speak louder than words, so teach your teen about financial responsibility by modeling good financial habits. When you’re setting a budget, or balancing your checkbook, or paying bills online, take the opportunity to show your teen what you’re doing and how it contributes to the family’s financial stability. Teaching your teens can be a good opportunity to get your own finances under control. Try using cash rather than credit cards whenever possible and explain to your teen how credit cards work and that using credit cards isn’t ‘free’ money. Show your teens a credit card statement and explain how you manage the monthly payments within your budget or use the credit card as a convenience to make big purchases (but, hopefully, not to supplement your budget or make purchases you can’t afford).

Help your kids set a budget and show them how to stick with it. Although many kids in the study reported that they don’t set budgets because their parents pay for everything or they don’t make enough money that it matters, that won’t always be the case. And it’s never too early to learn that budgeting is about allocating what money you have to cover competing priorities, even if there’s not a lot of money or ‘enough’ money. “When my kids get money for holidays or birthdays, we talk about what they want to buy and how much they’ll need to reach certain goals, such as a new video game,” says Cindy, a mom of two pre-teens in Bristow, Va. “They might not have enough money right away, so we talk about how long it will take to save up and how they might earn more money.”

Give an allowance. If your family’s finances permit, some experts suggest that allowances are a good way to help kids understand financial concepts such as earning money, saving money and budgeting. If you can’t, or choose not to, give an allowance on a regular basis, discuss ways your child can earn money by doing chores or starting their own business (even a lemonade stand can earn money on a hot Saturday afternoon). This will help them to understand more clearly the value of a dollar, how to earn money, and will probably make them think twice before spending their hard-earned money. “I find that my kids give purchases a lot more thought when it’s their own money rather than when I’m footing the bill,” notes Donna, a mother of three in Manassas.

Learn More About Financial Literacy
Junior Achievement empowers young people to own their economic success through K-12, volunteer-delivered programs focusing on work readiness, entrepreneurship and financial literacy.
Junior Achievement and The Allstate Foundation have partnered to create a series of financial literacy tools aimed at helping families open a dialogue around sound money management practices at Money Management Practices. Junior Achievement aims to empower young people with the tools and confidence to create financially sound futures.

Read the complete report on the Teens and Financial Literacy Survey at Teen Personal Financial Survey

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