Financial Literacy Is In The House by Broderick Perkins
It's never too soon to learn how to handle money but, based on a recent basic financial knowledge quiz, many kids aren't making the grade. Financial knowledge -- especially when it comes to debt, credit, spending and the like -- can make or break that first home purchase and, for better or for worse, leave an indelible mark on an impressionable young mind. Just ask rapper LL Cool J. "The biggest misconception probably comes from the hip-hop community itself ... that the money lasts forever. You have to do the right thing with it," he said during the Hip Hop Summit on Financial Empowerment's "Get Your Money Right" tour. The summit tapped Cool J and a crew of other entertainers who already have young fans ears, hoping to get through to them -- in their own language -- about financial literacy. They need to listen to somebody. High school seniors barely got half of the answers right on a quiz of basic financial knowledge, according to the Jump$tart Coalition for Personal Financial Literacy. Only 14 percent knew that stocks are likely to have higher average returns than savings bonds, savings accounts and checking accounts over an 18-year period, the quiz revealed. "This is what we get with widespread debtors mentality," says 24-year-old financial expert Michael Z. Stahl. "Many young people look at the world in terms of the things they want -- not in terms of how they will make the money to get those things," he added. The survey measured the financial literacy levels of some 5,775 high school students and revealed little improvement between the 2003-2004 survey and the 2005-2006 survey. Don't blame all financial illiteracy on kids and parents who don't provide enough financial learning opportunities. April is the Fourth Annual Financial Literacy Month, with today, April 25, designated as Financial Literacy Day and some critics say the direction of financial literacy education may be a few cents short of a buck. Instead of taking the investment education approach, kids need to be nickled and dimed into financial literacy. "Everyday spending decisions, especially credit-based ones, will do far more harm to your financial future than any investment decision you will likely ever make," says Paul Richard, executive director of the Institute of Consumer Financial Education (ICFE). "National financial education efforts including those on the Internet are by and large void of any meaningful spending education," he added. The ICFE says learning how to spend and to avoid overspending -- by using credit, by paying too much, or by not comparison shopping -- is a prerequisite to fostering improvements in the levels of personal and retirement savings and investments. "If someone is spending everything and more than they earn, where do they think someone is going to come up with money save, much less money to invest?" Richard asks. The non-profit's "Might You Be An Overspender?" helps you answer that question and others about your spending habits. If the test reveals you as an overspender, the website's "Mending Spending" assistance can help you cut it out. Then you can graduate to higher financial learning with Stahl's new "EARLY TO RISE: A Young Adult's Guide to Saving, Investing and Financial Decisions that Can Shape Your Life," (Silver Lake Publishing, $17.95). Only 232 pages short, for the attention spans of many of its designated readers, the book is loaded with advice for kids of any age, including: Get a job. Don't let work interfere with your primary job -- school -- but look for something you can do a few hours a week to earn money. Babysitting, lawn mowing and other landscape maintenance and yard work, cleaning gigs, delivery services or whatever chores your neighbors are willing to pay you to perform can be ways to land some extra cash. Pay yourself first. Shop around for on and off-line savings accounts offering the best return on your money -- some are as high as 4 percent. Learn about the power of compounding. Deposit into your savings account a portion of every paycheck you receive, say 5 percent, 10 percent or more, before you decide how much you'll spend. Yes, that means if you only get five bucks, hold 25 cents to 50 cents for saving. It adds up. "Saving before you spend is one of the most important money habits you can develop," says Stahl. Budget. For one month, keep receipts for everything you buy. Everything. Store all receipts in a safe place. At the end of the month, add up the money you spent. Chances are, it will be more than you think. Then, arrange the money you spend into categories (clothes, snacks, toys, entertainment, etc.). Continue each month to see where you are spending your money and start to manage it. Save to deadlines. Money management and budgeting works best when set to real-world deadlines. Want a good bike, car, getaway? Look at your budget and see how long it will take you to save enough money based on your savings pace. Put you plans in writing, post your goals on the wall and check your progress regularly. Focus. Know how much money you have in your pocket, your room and your bank account so you don't overspend. Likewise, balance your own checkbook every month with the math skills you've learned in school. Use the automated balancing techniques only after you've mastered the task yourself. It teaches discipline. Avoid buying status. Material girls and boys are probably broke. Don't buy into advertisements that promise to make you "tight," "sweet," "fresh" or some other superlative advertisers use to separate you from your money. Don't use plastic. Credit and even debit cards create the illusion of buying power you probably don't really have, not to mention the extra cost you'll incur with credit cards' exorbitant interest rates. If you have a card for emergencies, use it for emergencies and emergencies only. Follow the markets. Before you are ready to invest, keep an occasional eye on financial markets and the economy to learn how the stock and money markets work. When you've accumulated enough savings or have a full time job you'll be well oriented. Think like an investor. Spend less time thinking about how to spend money than you do thinking about how to earn and invest it. Habitually borrowing from family and friends sets a dangerous precedent for your future money handling habits. Spend money you make, rather than money you borrow. Beware. Your road to successful savings and investments is pockmarked by identity thieves. Keep your personal and financial information well guarded. Don't boast or brag about your financial prowess. "Crooks love to get young people's information because it's "fresh," that is, it hasn't been used as much as older people's," said Stahl. |
