Encouraging Financial Literacy in Young Adults
By Mark Redlich, High School Vice-Principal
As I write this, students in the class of 2017 have completed their IB Exams, gone on their Senior Expedition and are getting ready for graduation on June 3rd. Before you know it, they will scatter to the four corners of the world and begin their plans for life after high school. I am confident they are prepared academically for whatever lies ahead; I am confident they are prepared for the personal and social challenges that life will present them; and I am confident that they will work to make the world a better place. I know YIS has prepared our graduates well for what life has in store for them.
However, as I reflect on what could be missing from the equation, I wonder if our graduates are prepared for what lies ahead in their financial future? Do they know how to balance a budget and pay bills on time? Do they know about credit card debt or student loan debt? Do they know how to invest for the future? Outside of my life as an educator, I work with adults on many of these issues and know how challenging many people find financial literacy. It's hardly surprising then that young adults struggle.
My concerns are supported by research from a recent survey in the USA by the National Endowment for Financial Education and George Washington University, which indicated that "only 8 percent of those polled had a high level of financial knowledge." Research by accounting firm PwC indicates that millennials confront greater financial difficulties - including economic uncertainty and student debt - than their parents did. And a 2014 study by the OECD based on 29,000 15 year olds in 18 countries found that millennials had difficulty "dealing with financial issues, such as understanding a bank statement, the long-term cost of a loan or knowing how insurance works." Clearly, there is a problem; the question remains, how do we prepare students for their financial future?
Answering this question from the school's perspective is difficult, especially since research has found that "the long-term effectiveness of high-school classes in financial literacy is highly doubtful" (Mandell and Klein, 2009). That study suggests that young adults need to be taught these skills closer to when they will actually apply them.
Nevertheless, I suggest that there are things all parents can do with their children at any age to build an understanding of financial matters. I've gathered the following suggestions from a variety of sources, including Forbes, CNBC, and the National Financial Educators Council.
- Facilitate financial reflection - Talk to your children about money. Encourage them to think about what they spend and why their purchases are important to them.
- As appropriate, talk to children about your family's financial decisions - How does your family save for special purchases, like vacations or a new car? How will tuition for university be covered? How are you planning for your retirement?
- Provide opportunities to earn money - Through a part-time job or an allowance earned by doing work at home - help your children learn that money comes as a result of hard work and effort.
- Provide opportunities for children to borrow money (with interest) - Help them to learn that borrowing money can be useful, but that debt can also have consequences and needs to be carefully managed.
- Teach your child how to deal with a bank - Set them up with a bank account to learn the benefits of savings, but also help them to realise that banks are businesses whose job is to make money from their customers through student loans, credit card debt, etc.
Obviously, these conversations about money will differ, depending on the age of your child, but I would argue that it is never too early to start. I further suggest that there is no reason to stop after your child graduates from high school; if anything, these conversations need to happen more frequently once students are away from home and have far more opportunities to accumulate debt or build wealth.
There is no silver bullet to teaching financial literacy to children, but this is certainly not a reason to ignore it and the great impact it will have on their future. YIS graduates should be academically prepared, emotionally strong, socially responsible and have the financial knowhow to continue their journey towards success after they leave our community.