Early Financial Education Pays Off

Prevention is often the best approach. For example, if we take care of ourselves by eating healthy food and exercising, we can help to prevent some health problems now and in the future. It’s the same with financial health.

If our young people can learn to manage money, live within their means, and save money toward goals, they will avoid a lot of the painful money-related problems many people experience, such as large amounts of debt, bankruptcy, foreclosure, and so on. It’s easier not to go into debt in the first place than it is to pay off debt after it occurs.

But it can be hard to convince youth about the importance of using money responsibly. They are young and think they have the rest of their lives to save money and live more frugally.

Ask your young participants this bold question: Would they go to a bank and take out a loan for a new pair of shoes? Putting those shoes on a credit card, or buying anything with credit, is like taking out a loan for something. It may help them see that debt can haunt them for a long time and prevent them from meeting their goals.

Here’s an example:

Say one of your students has $3,500 in credit card debt at 18 percent interest. Without adding to the original debt of $3,500, your student pays $70 a month. At that rate, it will take about eight years to pay off the original debt, and your student will also have paid approximately another $3,000 in interest.

Use this example to help your young students see that it often is not a good idea to go into debt to buy something if at all possible. Long after the item is gone, used up, or thrown away, they will still be paying for the item and a large amount in interest.

In addition, the “time value of money” is a valuable lesson to share. The sooner they start saving money for a goal, the more money they will accumulate compared with starting to save later.

Share with your young students the outcomes of two different saving strategies. Joe starts saving some money when he’s 16, and Paula starts when she’s 26. They both save the same amount of money, but see how much less Paula has at the end—even though Paula contributed much longer, until she was 50!