How parents can turn cynicism into teachable moments.
It's no surprise. Many adults are wary of banks and credit card companies in the wake of the economic crash and many fear another cataclysm is around the bend. Now a new study shows banks and other financial institutions are losing the popularity contest with teens.
Many youth now view the financial sector as a bully laying in wait to snatch their lunch money through predatory lending tactics and high interest charges. That's the view one gets from reading a national opinion poll of high school students recently commissioned by the University of Arizona's Take Charge America Institute for Consumer Financial Education and Research and conducted by The Financial Literacy Group.
"A healthy skepticism about financial institutions has soured into cynicism, where teenagers almost expect to be victimized by financial firms," economists Michael E. Staten and Dan Iannicola Jr. say in an article titled Warm and Fuzzy Financial Ed Doesn't Cut It Anymore.
The poll of 878 students at 18 high schools in 11 states "shows that the majority strongly distrusted financial institutions even while expressing great confidence in other things like their likelihood to find employment and to achieve financial security."
"For example, 60 percent of students polled firmly believe that credit card companies often entice people into taking on more debt that they can handle, while 70 percent believe that businesses try to 'trick' young people into spending more than they should," the article states. "Only 25 percent of students disagreed with the statement, 'the stock market is rigged mostly to benefit greedy Wall Street bankers,' and only 17 percent disagreed with the statement, 'banks are mostly interested in getting my money through hidden fees.'"
The study also found teens lacking in some basic knowledge when it comes to personal finance. For instance, 68 percent did not know that owning stocks is a riskier form of investment than owning government bonds, and more than half didn't know that a high credit score is better than a low score.
It's not surprising that banks and financing companies aren't winning any popularity contests with teens. But like many financial literacy educators, I'm concerned that kids aren't learning strong life skills to manage their finances.
The habit teens develop today can get them into financial trouble tomorrow.
Our children are bombarded with advertisements and pressured to "keep up with the Joneses" by having the latest fashions, gadgets, and toys. With purchases just a few clicks away on their computers or smart phones, teens are constantly enticed to make impulsive purchases. Direct deposit, debit cards, credit cards, and online banking have each accelerated the pace of money transactions -- and accordingly, the speed at which our children can make right, or wrong, financial choices.
Kids need a clear, alternative vision to the "spend, spend, spend" mentality that surrounds them. Fortunately, there are things parents can do to teach their kids responsible money management habits and help them avoid future debt to credit card companies and banks and the unnecessary risks propagated by Wall Street.
By sharing these financial lessons with our kids starting at an early age, we can help them understand the importance of being financially responsible and self-sufficient for life:
- Teach children the difference between needs and wants -- Share your full family financial picture, including what you earn, what you spend, what you borrow, and how you invest and save. Hold regular "family night" discussions with them to go over the family budget and review where the money is going. You can even have your kids participate by writing checks, reconciling accounts, and helping to set and monitor your family budget.
- Teach by example -- If you tell your kids one thing, but do another, they will catch on very quickly. Explain how there are things you'd like to buy that you decided to forego and why. Don't be afraid to openly discuss the financial mistakes you've made and what you've learned from them.
- Allowances are a great idea, as long as they are tied into chores -- The earlier children learn basic financial principles, such as the exchange of goods and services for money, the better. Nothing builds a child's self-esteem faster than self-reliance. The amount your child receives for chores should be based on their age as well as what you expect them to use the money for.
- Use the "40/30/20/10 Savings Rule" -- 40 percent of kids' earnings can be used for spending, 30 percent should be set aside for short-term savings, 20 percent for long-term savings, and 10 percent for donating. If children sort their money into these categories every week, they will develop responsible lifelong money management skills at an early age.
The fact that teens are more wary than ever about banks, credit card companies and Wall Street shouldn't be a stumbling block to teaching them principles of financial literacy and independence. Erratic markets and gloomy headlines can provide teachable moments. When teaching kids about money, parents should avoid expressing cynicism and instead stress that young people can take control over their fiscal future. Help kids envision a bright future and formulate their own vision of self-reliance and freedom by providing the tools and habits they need to achieve their financial goals.
As a consultant to financial advisers, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 400,000 Americans. Pamela's book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future, is a New York Times Bestseller. Learn more at www.BankOnYourself.com