As a parent, I know how I feel when one of my kids comes home with a C on a report card: None too pleased. Hearing that most college kids would give themselves a C when it comes to managing their personal finances, according to a 2015 study of 1,600 students from U.S. Bank, landed with a similar thud.
Unfortunately, it wasn’t all that surprising either. We know we’ve got a financial literacy problem in this country. In fact, Lauren Willis, a professor at Loyola Law School, who has studied financial literacy education, says if students are giving themselves a C, the reality is probably much lower. “College-age kids tend to be overconfident,” she notes. “If they are giving themselves a C, [the reality is] it’s probably an F.” Ouch.
The good news is that over the past few years we’ve learned a great deal about what works and what doesn’t when teaching kids – college-age ones and those who are younger – about money. Here are five things to keep in mind if you want a money-oriented message to resonate.
Parents have the power. Nearly three quarters of the kids represented in the research said that parents are their most trusted resource on financial matters. Kids learn from their parents both directly and by example. “We have a 24/7 information environment, but people want information from a trusted source,” says Christine Hobrough, senior vice president of U.S. Bank. “I thought that was encouraging.” (She’s not the only one.)
Timely advice is key. In general, people come for financial advice when they have a particular problem or issue. They need a mortgage? They learn about mortgages. They have a child? They learn about wills and life insurance. College-aged kids are no different. The research shows their biggest concerns are paying off student loans and getting a job. It’s key to meet them where they are. When they get that job, for instance, the door is open for a briefing on enrolling in a 401(k) and capturing the match.
Skills trump theory. One of the frequent problems with financial literacy education has been that it increases people’s knowledge, but not the skills that they need to use the knowledge, Willis explains. Learning how to make a budget, for example, versus the advantages of budgeting will go much further toward actually applying financial education to everyday life. That’s something the National Endowment for Financial Education (NEFE) has recognized, as well. Its high school program has shifted to focus on “competency education,” says Billy Hensley, director of education at NEFE. “ Instead of taking a quiz on the material presented, we actually have them create a budget or come up with a financial plan. Students respond more to that, because it’s relatable. It’s relative to their current place.”
A little self-defense goes along way. Willis emphasizes that it’s key to teach kids that the person on the other side of the table doesn’t necessarily work for them. She notes: “Currently we have a culture where we call the person on the other side of the table, for instance, ‘my broker.’ Even when we go into the car dealership we say ‘my guy,’ but he’s not your guy. ‘My realtor may be working for you, but may be working for the seller. We Americans are very trusting. We need to figure out where to put the balance. Yes, we do need to use a bank, not the mattress but it’s important to understand it’s not ‘your’ bank.”
Hit refresh, constantly. The final complicating factor in the world of money is that the information is constantly changing. A bank is not an auto company with an assembly line that takes a long time to change — with a bank you can change your terms overnight, Willis notes. Which means? Whether you do it in school or at home, you can’t talk about this stuff often enough.
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