Youth Financial Literacy
The rock band involved, GOODING, took this important topic as their mission some years ago. The lead singer, who goes by Gooding, drew upon experiences in his own personal life, as well as the experiences of his friends and family. He saw numerous examples of people making bad decisions with their money – going into debt, not saving, and generally behaving badly with their finances. This problem of poor money management is quite prevalent in the music industry. So, Gooding decided to do something about it.
Now a portion of the band’s tour each year is dedicated to providing concerts to middle and high school students around the country. The premise is remarkably simple. First, get the kids fired up with some excellent rock music, then Gooding provides a lecture about financial literacy. While this might sound silly, it works! The band is terrific, made up of four highly talented, dedicated musicians, and the students are enthralled. This puts them in the perfect headspace to hear about a boring, nerdy topic from someone who is decidedly “cool.” The session wraps up with the students asking questions. The variety and quality of the questions clearly demonstrates that the students were paying attention to the financial portion of the program. I, for one, find it thrilling to witness the lightbulb going off in a young person’s head when something important really clicks. I suspect Gooding feels the same way.
So, what are some financial literacy pearls that we adults should endeavor to pass along to young folks today, assuming they might listen? Here are a few important concepts that would be awesome for kids to graduate high school knowing:
Avoid credit cards like the plague. College campuses are fraught with folks trying to sign our precious babies up for their Very! First! Credit! Card! They often incentivize it with some cool (to a college kid) bonus, and make the process sound very easy. Our job is to make sure kids heading off to college know the difference between a debit and a credit card. Ideally, they would already have some experience with a debit card so they understand how it works. Yes, having a credit card helps build your credit score, but first things first. Get the kids familiar with spending their OWN money responsibly first, before they resort to actual borrowing, which is what happens with a credit card.
Understand what your credit score means. A great resource for this and other topics on this list is our local non-profit, OnTrack Financial Education and Counseling. See what courses they offer that might give your graduates a leg-up on being financially savvy. Short of that, find resources online to give your kids the low-down on how very easy it is to ruin your credit score, and how difficult it is to build it back up. Protecting your score from the very start can help a person qualify for the lowest interest rate loans when it comes time to buy a car or a first home. Responsible borrowing is the key. Make your payments on time and pay more than the minimum. Don’t run your balance right up to your credit limit. Be consistently responsible and watch your score increase accordingly.
Consider the big picture when choosing a college. Not all high school graduates go to college with a completely firm idea of what they want to do when they grow up. That being the case, an enormous amount of money can be saved by attending a local community college or taking online courses to get your general education requirements completed toward your degree. The historic stigma attaching to this approach has mostly vanished as the quality of our community colleges has increased. The ability to graduate from a four-year college or university later with little to no debt is kind of a big deal. Some kids will have a clear idea of their future career path and plenty of maturity; for them, this approach is not imperative. But heading to an expensive four-year school with little to no direction, spending five years (or more!) to get a degree, and graduating with tens if not hundreds of thousands of dollars in student loan debt is a lousy way to start adulthood!
Save, save, save. Get in the habit as early as possible (even very young children can start getting in the groove) to religiously save part of your income. Ten percent is a good target. Plan to have ten percent of everything you earn go right into a savings account. This can also apply to money received as gifts or inheritance. If kids are working and earning income, they qualify to fund a Roth IRA account, which is the absolute best long-term savings vehicle. This should be viewed as long-term savings and invested in a diversified portfolio of more aggressive investments, such as stocks and bonds. Ideally, your savings would get divided into the long-term investment (like a Roth) and a shorter-term investment vehicle (like a money market account). The shorter-term savings would be for shorter-term goals.
Don’t forget to give back. Start kids young with the idea that giving back to their community is an important part of their financial life. Regardless of their choice of charities, instilling the habit of giving is a wonderful lesson. Ten percent “tithing” is the amount suggested most often, but I would temper that advice depending on one’s debt-load. However, since we’re aiming to have these young people have no debts, it is a great opportunity to start saving and giving regularly, before they get used to spending all their money.
And then the biggie – Spend less than you earn, always. This one should be first on the list, but I saved it for last, as it sums up the lessons above. If you don’t outspend your earnings, you won’t incur unnecessary debt or ruin your credit. If you spend less than you earn consistently, you will build your short- and long-term savings, and will have money to set aside for giving.
Get your kids established with these habits early on, and they will be well on the way to financial security. Now go download a GOODING album and support the band that wants to change the way communities think about their money!
Raymond James is not affiliated with and does not endorse Funding the Future.
Dawn Starks is a CERTIFIED FINANCIAL PLANNER™ practitioner and financial advisor at Starks Financial Group. Starks Financial Group is not a registered broker/dealer, nor is it affiliated with Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment Advisory services offered through Raymond James Financial Services Advisors, Inc. This article expresses the opinions of Dawn Starks and not necessarily those of RJFS or Raymond James. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Raymond James does not provide legal services. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER ™, and CFP® in the U.S.