May 20, 2013 -- intro: It's graduation season. Did your teenager have to take a financial literacy course to don that cap and gown? Probably not. According to the Council for Economic Education, as of 2011, 22 states required high school students to take an economics class --the "supply and demand" type, not the "how to balance your checkbook type." Only 14 states offered personal finance as a high school class, either on its own or as part of the econ curriculum.
Clearly parents aren't shouting loud enough and educators aren't listening hard enough. In a recent Credit.com telephone survey conducted by GfK Roper, more than 60 percent of parents said U.S. kids are not learning enough about how to manage their own money. More than 90 percent said they want financial literacy to be a mandatory high school course.
So why don't these parents teach their kids financial responsibility themselves? Because they don't think they can. When the National Foundation for Credit Counseling asked adults to grade their financial knowledge, 41 percent said they would give themselves a C, D or F!
But here's the thing: it doesn't have to be hard. You don't have to understand options or derivatives or credit default swaps to be financially stable. As a recovering financial dunce who's now a savvy consumer, let me share the top three things I've learned. I learned them in kindergarten. We all did.
quicklist: 1 title: Don't take stuff that's not yours. text: That's the kindergarten version. Here's the high school version: Don't buy stuff with money that's not yours. In other words, when you go off to college in the fall and you're offered all sorts of shiny credit cards, take a polite pass. Credit card debt is devastating. Here's some math to prove it: say you charge $3,000 to buy knick knacks for your dorm room. If your interest rate is 30 percent and you only make the minimum payments, it will take you 27 years and $14,814 to pay off those knick knacks! Doh! Instead, save up your own money to buy your own stuff.
quicklist: 2 title: Be on time. text: In kindergarten, we learn the importance of getting to class punctually so we don't get marked down. In high school, kids should learn the importance of paying their bills on time, so they don't get marked down. "Payment history" makes up the single biggest chunk of your credit score, 35 percent. That means simply paying your bills on time boosts your score tremendously and yet many adults believe paying late is no big deal. If you're a procrastinator, automate your payments to come straight out of your checking account so you get this right.
quicklist: 3 title: Get a good report card. text: In kindergarten you get a report card. As an adult you get a credit report. Your credit report is a history of all your financial transactions and how well you handled them. Did you take on too much debt? Did you pay on time? You then get a credit score of between 300 and 850 based on that report. Your credit score is a numerical predictor of how likely you are to pay your debts. Banks prefer to lend money to people with scores of 720 and above, so that's what we should all try for. Why? Because having a lower score costs you money. More math: If you have a credit score of 720, you can get a car loan at about 6 percent. If your score is 620, just 100 points lower, your interest rate will be about 12 percent. Over the course of a 3-year loan, for $25,000, the lower rate will save you $2,736 in interest!
A good credit score is crucial. And yet when EverFi, an education technology company, asked high school students what a good score is, most said 500 and more than a third believed 300 was a good score! Yes, yet another survey --one of dozens I found as I researched this column. If we spent half as much time teaching kids financial literacy as we do studying their lack of it, that would be a start. And we can start with those basic lessons we all learned in kindergarten.
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