“We get too soon old and too late smart.”  I have, as I am sure you have also, seen that axiom on bumper stickers, tee shirts, coffee mugs, and on signs in souvenir shops.  I have always agreed with it as an absolute truth that could apply to almost any part of life.  It is particularly true when we think about how we have handled money.  If I had a dollar for every time I regretted how I spent my money when I was younger, I would have enough money that I wouldn’t have any regrets.

Learning how to handle money, or “financial literacy” is deficient in our country as illustrated by excessive personal debt, including credit card debt, student debt; the profusion of payday lenders and, a failure to prepare for retirement.

A report from the Financial Industry regulatory Authority (FINRA) Investor Education Foundation states that “two out of three U.S. adults lack financial literacy” and that “only 37% of Americans could pass a basic economic/financial test.” Also, from the same study:

• 18% of respondents spend more than they earn.

• 21% have overdue medical bills.

• 26% have used non-bank borrowing such as high-interest payday loans or pawn shop loans.

• 32% only pay the minimum due on their credit cards.

A variety of articles and studies arrive at different numbers, but the common thread is that Americans are not saving nearly enough.  The population is divided into Baby Boomers, Generations X and Y and now we have the Millennials.  They may have different labels, but they all share the same shortfalls in saving.

How to get money smart sooner? My personal experience is that very few people understand the time value of money; a small amount of money invested early in life will  grow  to a large amount over time.  Catching up later in life becomes very difficult, if not completely impossible.

The solution is education and training early in life, and as a continuing education process as we get older and our financial needs (and wants) change. Starting in the junior or senior year of high school might work if the subject matter is relevant. A seventeen-year old could probably not care less about saving for retirement in fifty years, but might pay close attention to learn how to buy a car.  Saving for the prom is more relevant at eighteen than learning how to buy a house. 

Getting the money to attend college and the reality of paying back huge student loans should definitely be addressed while still in high school.  It would not be a bad idea to have the parents in on the same class.

Once we are out in the world, financial literacy becomes a lot more relevant.  Now there are bills to be paid, cars to maintain, children to be fed, clothed and educated and any other number of financial obligations that “No one ever told me about.”

A research paper from Virginia Tech University titled: Personal Financial Wellness and Worker Job Productivity concluded, in part, that personal financial wellness affected job productivity. Workers needed to know more about personal finance and wanted to receive comprehensive workplace financial education. Specifically, workers showed an interest in the areas of understanding employer provided benefits, budgeting, investing, tax planning, college planning, buying insurance, buying a home, getting out of debt and managing credit.

Where to start?  It would be great if children were brought up to be knowledgeable about money, but we do not do a very good job at giving good examples of responsible money habits. A good place to start would be to teach those high school juniors about managing credit, and the pitfalls of debt, particularly credit card debt.

When our high schoolers begin working full time, either upon graduation from high school, or after graduating from college, their financial education should continue.  Now, out in the “real world”, living expenses are no longer abstract, but real and immediate. The cost of driving is no longer just gas, but maintenance and insurance. Should they pay for medical insurance, or take the chance that they won’t need to see a doctor?

Starting to save and invest for retirement as early as possible will pay off at retirement. Should they rent or buy a house, and how do they make that decision? Do they have credit cards?  How many, and how are they using them?

A credit card, like fire, must be kept under control. Handled responsibly they can expedite purchases and contribute towards a positive credit score.  Used carelessly they can keep us from reaching our financial goals and haunt us for years. High interest rates and penalties for late payments quickly turn an asset to a heavy liability.

Some of the most attractive cards come with a usurious interest rate and excessive penalties for being late. From my personal experience with gas company credit cards, a choice to pay only the minimum rather than the full balance results in an interest rate of 27.24%.  A late payment will cost a penalty of $37.

To demonstrate the consequence of an interest rate of 27.24% suppose you had a credit card balance of $1,200 and paid the monthly minimum of $100.  That first $100 payment would not reduce your balance to $1,100, but to $1,125.  Only $75 went to pay off the balance, the rest went to interest. It would take 14 months to pay off the $1,200 with interest paid over that 14 months of $180.  On the other hand, an interest rate of 6% would pay off that same loan in the 13^th month with a final payment of $34 which would equal the total interest.

All credit cards are not equal and we could best serve our young students by educating them on how to shop for credit cards and to start building a positive credit history.

A study by U.S. News & World Report, “What’s Normal and What’s Not” is a comprehensive look at credit card annual fees, annual percentage rates (APR), balance transfer fees, cash advance fees, late fees, and penalty late fees. To see the full study go to:  https://creditcards.usnews.com/articles/fee-survey

Good credit management learned, and practiced, early will go a long way toward making sure our young citizens reach their financial goals. I would like to see financial literacy as a course, or series of courses, taught as a continuing education program. What could be better than earning credit for learning about credit?