Most credit counselors agree that the earlier individuals are educated on basic financial topics and money management, the more equipped they will be to make wise financial decisions in the future. Studies have demonstrated that young adults who gain a firm understanding of the importance of budgeting, building and managing their credit scores and differentiating between “good and bad” debt are more likely to be more prosperous and stable than those who lack this education. With this being said, a new study reveals that an alarming number of high school students lack sufficient financial knowledge to make important decisions.
Nearly half of high school students between ages 13 and 18 said they don’t know how to establish good credit, according to a new survey conducted by EverFi, Inc. More than a quarter of respondents also said they don’t feel confident in their ability to manage their income after graduating high school. When asked basic questions about credit scores, most students surveyed falsely believe that a score of 500 is considered strong, while more than a third said a score of 300 is a healthy rating.
‘Many high school students have little, if any, personal experience in managing their own finances, yet they are just moments away from entering adulthood, opening lines of credit and making financial decisions that will impact their individual futures and our entire global economy,” said Tom Davidson , CEO of EverFi. “This cyclical nature of sending students into the real world without sufficient financial education is leaving the next generation unprepared for the challenges they’ll face as adults.
Educating teens on financial topics
Most high schools do not offer financial literacy courses, making it more important than ever that parents take on the role of educating their children on financial matters. Teaching kids about money management, credit card debt and budgeting does not have to a boring and laborious task. Instead, parents can begin by using real-world examples and allowing their children to take a hands-on approach. For example, opening a bank account for a teen is a good start. Parents can use it to help teach kids about the importance of saving, compound interest and setting up a monthly budget. Most banks also provide resources to customers, such as tracking spreadsheets, online calculators and tutorials.
Once teens have a firm understanding of checking and savings accounts, parents can then begin discussing credit-related topics and continue building on this knowledge.