Financial literacy should – but often doesn’t – start young

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It’s no secret that too many Americans make bad borrowing decisions, fail to save for retirement, and even lack basic budgeting skills. This financial literacy deficit starts early, say officials of local banks and credit unions, which is why institutions in the region are offering programs and classes to help people – teens and adults alike – forge better strategies for make their money work for them, not take them down. .

So many things, Lena Buteau says, boil down to tiny decisions that add up.

Have that morning coffee. If someone spends $ 2.69 at Dunkin ‘Donuts every morning, that’s well over $ 900 a year. Spend $ 7 or $ 8 on lunch five times a week instead of making lunch at home, and you’re looking at around $ 2,000 a year.

“When you think you can’t afford something, look at your daily expenses,” said Buteau, vice president of retail administration at Monson Savings Bank, while explaining the importance of MSB’s financial literacy programs, many of which target students but are also needed by many adults.

For example, people of all ages often struggle to understand the long-term impact of buying on credit, she noted, using the example of someone buying a laptop at 650. $ at Best Buy but who takes an offer of $ 150 to put it in store. 25% interest credit card then only pays the minimum each month. At this rate, this laptop would pay for itself in seven years – ultimately costing more than double its original price.

“When you explain this the kids are shocked at the numbers,” she said. “It really touches the house.”

Because so many habits and philosophies are forged early on, Buteau said, “We come in and teach students how to save, lend, credit scams, how to protect your money, and so much more.

And it’s not just schools, she added. “We want to go to church groups, to Boy and Girl Scout troops, to anyone who will give us an hour of time for a financial literacy class.”

“No disrespect for schools, but they don’t prepare kids for real life – how your credit score affects your insurance and car buying, how to handle a checkbook.”

Michael Ostrowski, President and CEO of Arrha Credit Union, said his institution internally focuses on financial literacy.

“No disrespect for schools, but they don’t prepare kids for real life – how your credit score affects your insurance and car buying, how to handle a checkbook. People no longer go to banks; they do stuff online and you can get ripped off if you don’t know what you are doing. ”

For this reason, Arrha has worked with high schools in the past on financial literacy programs and is currently planning another program for local students.

“When we were kids, we had home-ec lessons, and they taught us how to write a checkbook. They don’t do that anymore, and I don’t know why, ”Ostrowski said, before suggesting a possible reason. “With all the regulations that schools go through, for MCAS and stuff, they’ve bailed out programs like this, but they’re absolutely essential for the development and future lives of children.”

Jon Reske, VP of Marketing at UMassFive College Federal Credit Union, noted that financial literacy and education in general have long been part of the culture of credit unions.

“Why? Because unfortunately your parents and my parents probably never taught us anything about personal finance, especially if things weren’t going well at home,” he told BusinessWest. the opposite approach – we say your child should be involved in understanding how the budget works in your home.

Jon Reske says even good budgets can be disappointed with a bad loan - with long-term consequences.

Jon Reske says even good budgets can be disappointed with a bad credit loans – with long-term consequences.

“We also run workshops on a regular basis – everything from buying a home 101 to how to create a budget to understanding credit,” he added, noting that the latter is particularly critical, because the average American, between the ages of 21 and 65, will. borrow about $ 1.5 million, and bad decisions can escalate quickly and have a long-term impact. “You can be the biggest budget in the world and be smart with your pennies, but if you make bad borrowing decisions you can be overwhelmed with debt.”

Monson Savings also runs workshops for adults, such as first-time home buyers, and offers a Credit Builders Loan Program, which is an effective way, as the name suggests, to create credit without taking on debt. unmanageable. The customer borrows a certain amount from the bank, which is deposited into a savings account and is not accessible until the loan is repaid. Not only does the borrower create positive credit through one-off payments, but in the end, the balance, plus interest, is available for a down payment on a car or house, a cushion for emergencies – anything, really.

In short, institutions across the region understand the deficits that exist in financial literacy and how this influences the decision-making process – and how bad decisions can turn into years of heartache. And they’re doing something about it.

A matter of trust

A new national survey by Junior Achievement USA and Citizens Bank shows that over 30% of teens do not believe they will be financially independent from their parents by the age of 30. Sixty percent think they’ll own a home by this age, 44 percent think they’ll start saving for retirement, and 43 percent think they’ve paid off their student loans.

“With a strong economy, you’d think teens would be more optimistic. It just shows the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial future.

“These survey results show a bewildering lack of confidence among teens when it comes to meeting financial goals,” said Jack Kosakowski, President and CEO of Junior Achievement USA. “With a strong economy, you’d think teens would be more optimistic. It just shows the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial future.

Financial literacy has long been a cornerstone of Junior Achievement, but there is no shortage of educational programs available at credit unions and banks.

“Money is very emotional. It’s one of the hardest things to discuss, even with your spouse, ”Reske said. “And it’s hard to be objective. That’s why it’s good when people come to our workshops and say, “I’m not moved now; I look at the objective side. I wish I had taken this before I got this loan. ”

While money problems can seem overwhelming at times, he added, financial literacy tools are much more accessible than they were 10 years ago if people know where to look. He also described a number of concepts that UMassFive workshop participants could learn. For example:

• If you are able to pay the bills weekly, when they arrive, do it. This reduces the risk of missing a deadline and ending up with late fees, which is easy to do when you pay the entire stack of bills once a month.

• Start building an emergency fund. According to a US News & World Report study, two-thirds of Americans struggle – and often do – to find $ 1,000 for an emergency, such as an urgent car repair or medical procedure.

“So what’s going on? You put it on a credit card, and now you pay 21% interest, and soon $ 1,000 turns into $ 1,200, ”noted Reske. “And an emergency fund can keep you from missing a rent payment or not having your car repaired, which could lead to a larger repair in three to six months.”

• Check your credit report on an annual basis, if only to make sure everything is correct. “If your credit report activity is inaccurate, you get an inaccurate score, and most of the rates you get are based on your score.”

• Put each credit card on a minimum automatic payment so you don’t miss any payments – then pay more principal when the bill arrives in the mail. Plus, it’s not a bad idea to dedicate a single credit card to online shopping only, making it easier to identify instances of identity theft.

• Finally, it’s never too early to start saving for retirement. According to Forbes, 33% of adults have no savings for retirement.

“Social Security will pay for some of your expenses, but not all,” Reske said. “Time is more precious than money because of the compound interest. If you start planning at 50 or 55, you just don’t have enough time; you have wasted 20 years. And if you have a 401 (k) at work with employer correspondence and you’re not there, you’re dumb. ”

Budget battles

UMassFive also runs a workshop for high school students where they choose a career, receive a salary, and then go from station to station filling a budget in different categories, from accommodation, transportation and food to luxury items and student loans. – and trying to stay within that budget.

“Kids say, ‘I never knew how expensive things are,’” Reske said. “People wonder why a 40-year-old can’t find $ 1,000 for an emergency; it’s because they haven’t been taught that the key is to tackle problems as early as possible ”with smart budgeting followed by spending discipline.

Monson Savings runs a similar program in local schools. “One thing I am including in this is student debt. If you want to spend $ 30,000 a year in college and go for a $ 30,000 a year job, you won’t be able to pay that money back, ”Buteau said, stressing the importance of making smart decisions. regarding university – whether university is even the best option.

In fact, she said, many kids today are so focused on college – because that’s what their schools grow – that they may not know about careers. in trades that offer solid wages and no long-term debt.

One thing’s for sure: Whether in high school, college, early adulthood or beyond, there’s no bad time to learn more effective strategies for managing money, budgets and credit – in other words, to become more literate.

“If you’re sick, go to the doctor,” Buteau said. “If your car breaks down, you go to a mechanic. If your pipes are broken, you call a plumber. But if you have budget or funding issues, no one thinks of going to the bank for advice or a course. And it’s free. ”

And when it comes to finances, there’s nothing wrong with free.

Joseph Bednar can be reached at [email protected]

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