Why is Financial Literacy Important for Youth?
Kids don’t need to know about money. Or so the argument goes. So why is financial literacy important for youth? One reason is that when they’re not taught good money habits and the reasoning behind them, kids will pick up and emulate the relationships with money of the adults in their lives. When they learn financial literacy at an early age, they become less impressionable to the attitudes of money held by the adults around them. Once kids know proper money management skills, they tend to keep them and use them throughout their lives. Early financial literacy teaches kids how to have a good relationship with money, an invaluable lifelong skill that won’t ever be forgotten.
Is Financial Literacy the Most Important Skill for Youth?
Why is financial literacy important for youth and why is financial literacy important in general? In a rapidly evolving economy that increasingly values technical skills, personal finance education seems to have taken a backseat to STEM education. While valuable in its own respect, STEM education does not provide youth with the necessary framework to secure their financial lives. While a tough question for those unaware of the statistics surrounding financial education, “Why is financial literacy important for youth”, is a question best answered by remembering that equipping youth with financial competencies is the most important thing we can do to help them in their lives.
Positive Impacts of Youth Becoming Financial Literate
The Federal Deposit Insurance Corporation (FDIC) analyzed the intermediate-term impact of a financial literacy program on consumers’ behavior and confidence 6 – 12 months after the end of the program. They found that consumers were more likely to have a checking account, budget wisely, save for retirement, and more. After the program, 78% of respondents reported they had a checking account, up from 12% before they had undergone the program. Another 69% reported their level of savings had increased after taking the program, with only 3% reporting that it had declined (Federal Deposit Insurance Corporation). https://www.fdic.gov/consumers/consumer/moneysmart/pubs/ms070424.pdf
Students who underwent the Moneytalks educational curriculum demonstrated positive behavioral changes. A ‘saving scale’ constructed by the author was the composite of a series of questions asking students about their savings habits. The mean value of the savings scale rose from a mean of 24.28 to 26,78, which was deemed statistically significant. Furthermore, statistically significant differences were noted for the proportion of kids who would compare price and buy on sale (University of California Agriculture and Natural Resources). http://ucanr.edu/sites/consumereconomics/files/136495.pdf
85% claimed they were ‘somewhat’ or ‘very’ unlikely to discuss their amount of credit card debt with strangers, more than the percentage of respondents who would avoid divulging details about their love life (CreditCards.com) https://www.creditcards.com/credit-card-news/poll-credit-card-taboo-subject-2013-1276.php
Youth in particular can benefit from financial education offerings that instill healthy financial habits early on. Nearly all research papers produced by academia and government agencies are in consensus that intelligently crafted financial literacy programs can mold the behaviors of individuals to align them with long term financial objectives. Through financial literacy education, poor financial habits can be eradicated and displaced by more appropriate habits. In fact, the literature on financial literacy abounds with examples of behavioral improvement after undergoing a financial education program.
Financial Attitude of Adults is Emulated in Youth
Financial Attitude of Adults is Emulated in Youth
Only 23% of kids surveyed indicated that they talk to their parents frequently about money (Money Confident Kids). http://www.moneyconfidentkids.com/content/dam/money-confident-kids/PDFs/PKM-Surveys/2017_PKM_Results.pdf
In a survey by OECD, well over a quarter of respondents replied that their culture influenced their attitudes toward wealth (Organization for Economic Cooperation and Development). https://www.oecd.org/finance/financial-education/2017%20Seminar%20on%20financial%20education%20and%20
financial%20consumer%20protection%20LAC%20Wood%20.pdf
Financial Illiteracy in Youth Leads to Ill-Equipped Adults
58% of 18-26 year olds set aside a portion of their income as savings (Bank of America). https://about.bankofamerica.com/assets/pdf/BOA_BMH_2016-REPORT-v5.pdf
44% of Americans aged 22-26 do their own taxes (Bank of America). https://bankofamerica.com
57% of millennials have either an advisor or robo advisor (Money Confident Kids). http://www.moneyconfidentkids.com/content/dam/money-confident-kids/PDFs/PKM-Surveys/2017_PKM_Results.pdf
46% of Americans say they have set aside 3 months-worth of living expenses in the case of an emergency (US Financial Capability). http://www.usfinancialcapability.org/downloads/NFCS_2015_Report_Natl_Findings.pdf
Experts Say That Financial Literacy is Important for Youth
“Financial literacy is not an end in itself, but a step-by-step process. It begins in childhood and continues throughout a person’s life all the way to retirement. Instilling the financial-literacy message in children is especially important, because they will carry it for the rest of their lives.” – George Karl, former NBA coach
“Financial literacy is an issue that should command our attention because many Americans are not adequately organizing finances for their education, healthcare and retirement.” – Ron Lewis, former United States Representative
“Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them.” – Robert Kiyosaki, founder of the Rich Dad Company
Managing director of the International Monetary Fund, Christine Lagarde, urges partnerships to be formed with the resource wealthy private sector, which can help programs extended their reach within impoverished communities (International Monetary Fund). https://www.imf.org
The procedure outlined by the Organization for Economic Co-operation and Development requires reviewing existing financial literacy initiatives and best practices, while simultaneously assessing the needs of the target population and creating a mechanism to facilitate communication between stakeholders in the program (Organization for Economic Cooperation and Development). http://www.oecd.org/daf/fin/financial-education/OECD-INFE-Principles-National-Strategies-Financial-Education.pdf
Powerful Results by Becoming Financially Literate at a Young Age
Those wondering, “Why is financial literacy important for youth”, should be informed of the various benefits associated with financial expertise: higher rates of having a checking account, budgeting more often, and lower rates of mortgage defaults to name just a few. Financial literacy research shows that impressionable youth, free of any harmful ingrained financial habits, can adopt healthy financial practices that will lead them to greater financial stability. Subsequently, those who begin to understand why financial literacy is important for youth must advocate for a change in the education system so that youth can experience these benefits for the rest of their lives. We encourage all organizations serving youth to provide financial literacy activities and lessons for students.