Young Adults Need Financial Skills for Successful Living

If you are a part of a teen or young adult’s life, ask yourself: are they ready for living on their own?   Even if the teens you care about are not your own children, you can still find ways to provide a good example and to encourage thoughtful decision-making.

Below are seven types of skills that will provide a young adult with resources for sound financial choices in the future.

• Comparison shopping – A person’s ability to evaluate their different options, examining not only the price but also the features of the product in relation to their own needs and priorities.

• Evaluating information, including advertising – A person’s ability to recognize that advertisers often present one-sided information, because their purpose is selling, and identifying sources of reliable information.

• Resourcefulness – A person’s ability to see more than one way to meet a need or solve a problem. Examples: cooking instead of eating out, buying a new accessory instead of a whole new outfit, getting a haircut from a friend.

• Realistic expectations – A person’s ability to recognize that scarcity is a fact of life; no one can have everything they want, and choices need to take into account both short-term and long-term satisfaction.

• Checkbook management – A person’s ability to write checks properly, record them in the check register, record ATM transactions, keep the account balance up to date, and reconcile the bank statement with their register.

• Consumer privacy – A person’s ability to keep key information secure, such as social security number and credit card & bank account numbers, and to avoid excessive exposure to direct marketing by phone, mail or email. Keeping information secure includes destroying records after useful life is expended and recognizing fraudulent attempts to gain personal information.

• Credit management – A person’s ability to selectively evaluate credit offers; understanding the costs incurred when credit card balances are not paid in full each month; understanding that paying only the minimum balance is a very costly decision; recognizing that "plastic" is still real money.

Keep in mind that it doesn’t do any good to have a skill if you do not use it. Young adults are more likely to believe these skills are valuable, and actually put them to use, if they have had a chance to practice them successfully and experience their benefits before they are out on their own. Use the following tips and your own ideas to help your teens build the skills they need. If you have a good idea, share it with us! We all have an interest in ensuring the financial well-being of future generations.

• Start teaching children about personal finances and management early. The best habits are those that are ingrained in our psyche!

• "Think out loud" about your own decisions, letting children hear about the factors you consider.

• Talk about "choices" and "decisions." For example: "I chose this because…," or "I decided this was more important than…"

• Involve them in planning a project with a fixed amount of money (a party, a vacation, room redecorating, etc). Allow time so they can compare alternatives and generate creative ideas.

• Watch television ads with your children and laugh with them about the assumptions: "I can’t believe they’re trying to tell us that if we drink that soda our lives will be fun and exciting like the people in the ad!"

• Encourage them to work toward a longer-term goal (example: saving money for a special purchase, or working for weeks to make a complex craft project), so they can experience the benefits of investing now for results in the future.

To build checkbook skills:

• Help teens open a checking account when they get their first job or several months before they leave home, to give them experience before they are on their own.

• Some teens may be more receptive to suggestions from adults other than their parents. If this is the case, let us give the teen pointers on writing checks and avoiding common mistakes. We’re here to help you and your family!

• Expose younger children to checkbook management. Let them see you recording checks and balancing your register. Let them write out checks for you to sign. Be sure the child understands that a check represents real money and is in actuality a legal contract!

To build consumer privacy skills:

• As opportunities arise, tell children about your own efforts to protect your privacy. For example: if you send in a warranty card, show them that you only write the essential information, and explain why you ignore the extra questions included for marketing purposes (such as household income, etc).

• Explain why they should not print their Social Security number on their checks or driver’s license.

• As they use the Internet and email, teach them about protecting their safety by not giving out information about their age and where they live. Then expand that lesson to include account numbers and other financial information.

• Post a sign by the telephone reminding all family members not to give personal or financial information to telemarketers or to any incoming caller.

• Discuss with your child your own experiences and philosophy about credit.

• Let children see that every credit card purchase is included in the monthly bill.

• Show children or teens the paperwork and costs on a loan you have (mortgage, car loan), including the cost of credit as disclosed on your paperwork. They’ll be shocked that a $27,500.00 minivan will actually cost $33,100.00 when the finance charges are paid!

• Send for your credit report and let teens see the information compiled. Be sure they know that bills paid late or "bad checks" will be reflected on the report and impact the credit score.

• Be sure teens know how their credit score can impact their lives. It may be used not only to determine the interest rate they pay on a loan, but may also impact their auto insurance premium, or even whether or not they are considered a candidate for hire on a future job.

• Show teens how credit costs are determined by how quickly you pay off a debt. For example, a $2,000 balance on an 18% credit card can be paid off in 11 months with payments of $200/month, at a total interest cost below $200. Monthly payments of only $50 mean a payoff time of 62 months, and interest cost of $1,077.

• As teens approach age 18, help them compare credit card offers received in the mail, looking at interest rates, annual fees, grace periods, other fees, and credit limits.

• Make it clear to your children that you will not bail them out of any credit difficulties. Also make it clear that it is better to catch any problems sooner rather than later, that creditors are usually willing to work with a borrower, and that there are financial counseling agencies to help people make repayment plans.
  
• Encourage college students to think about ways to keep student debt as low as possible.

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