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Over 2.7 million students will graduate high school this year, but the sad truth is that six out of ten of them would flunk "Personal Finance 101" if it had been offered in their school. That's the key finding of a recent survey done by the Jump$tart Coalition for Personal Financial Literacy, a non-profit organization dedicated to improving the personal financial literacy of young adults based in Washington, D.C.
Whether it's about savings accounts, retirement, insurance, or credit cards, the students taking the Jump$tart survey knew slightly more about money management than the class of 2004 did. While the trend is in the right direction, the survey results make it clear that the class of 2006 is heading off to college with very little knowledge and experience.
Credit Cards and the Class of 2006
When it comes to credit cards, high school students report very little experience. For example, here are the responses to the question, "Whose credit card do you use?"
12.9% a) My own
14.5% b) My parents
4.80% c) Both my own and my parents
67.7% d) None, I don't use a credit card
Surprised that over 67% have no credit card experience? (I was too!) Laura Levine, Jump$tart's Executive Director, explains that it's because you have to be 18 years old to get a credit card. Still, given all the spending teens do (or persuade their parents into doing) -- plus all the commercials and ads they see on television and the Internet -- it's terrible that the majority of high school graduates are going off to college with no experience at all with credit cards! Yet their inboxes at college are going to be stuffed with tempting credit card offers.
While you might think Jump$tart would be in favor of legislation to prohibit card issuers from being on college campuses, Laura Levine says,
"We believe that education is the right answer. ... They [credit card issuers] will always find a way to reach their customers and potential customers. Imagine trying to travel or buy things on the Internet without a credit card. What's important is to educate every teen about what credit cards are good for and to steer them away from the downsides."
Fortunately, the majority of high school seniors do seem to understand some of the basics about credit cards. Consider how they answered, "Which of the following credit card users is likely to pay the GREATEST dollar amount in finance charges per year, if they all charge the same amount per year on their cards?"
8.8% a) Vera, who always pays off her credit card bill in full shortly after she receives it.
70.6% b) Jessica, who only pays the minimum amount each month.
14.4% c) Megan, who pays at least the minimum amount each month and more, when she has the money.
6.3% d) Erin, who generally pays off her credit card in full but, occasionally, will pay the minimum when she is short of cash.
Like most of the class of 2006, you got the correct answer, didn't you? Paying the minimum amount means you'll pay the maximum amount of interest!
The majority also know that they can check their credit reports once a year for free and that they are likely to get a small line of credit on their first credit card ... to see how they handle it. Perhaps a sign of the times, over 67% understand that a responsible credit counseling service will work with creditors to set up a payment schedule you can meet. However, only 15% know that if your credit card is stolen and you notify the card issuer promptly, the maximum amount you'll be forced to pay is $50. Visit Jump$tart.org to see the entire survey ... with the correct answers.
While I was tooling around on Jump$tart's site, I was reminded that CardRatings.com is one of this coalition's national partners. Curtis Arnold, CardRatings.com's Founder explains why:
"We firmly believe that preventative medicine is the best type of medicine. If we can reach a student or young adult before they begin mismanaging credit and run up 1000s of dollars in credit card debt, then we firmly believe that national credit card debt levels will sharply decline over time. "
What You Can Do
If you want to do your bit to get personal finance taught in the schools, here is what Laura Levine advises:
"Understand the situation in your children's schools. Talk to the teachers. 'Wouldn't it be great if we incorporated some of this material?' But schools don't hold the full responsibility for educating kids."
Levine notes that after-school programs can address life topics like personal finance as well. For example, she points our that the Girl Scouts have developed a money management program.
"If I had a child who was a member of an organization that didn't have a program, I would suggest to them that they consider doing a project where they learn about money."
Her advice for parents who want to teach their children about personal finance is,
"Don't worry about teaching. Have a conversation, maybe you look up the answer together. If you introduce the topic, what you know and don't know about money issues will help."
Curtis Arnold adds:
"I think parents should take advantage of the free credit education resources found on JumpStart.org and CardRatings.com to equip their kids for the deluge of credit card offers they are going to get when they turn 18. Open dialogue is very helpful and a great first step. If you have mishandled credit as an adult, share your mistakes and how it adversely affected your finances."
Summer is an excellent time of year to teach children a bit about money, when they -- and you -- don't have to deal with the school pressures. While it's an especially good idea if you have a child about to head off to college, no matter what your kids' ages, if you want to improve their financial literacy, please take action and utilize the resources mentioned in this article.
The money you save may be your own!
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