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A Turning Point for Gen. Y Financial Literacy?

Four years ago, nearly dozing off in class, I thought to myself: “What if I borrow a million dollars, hide it somewhere then declare bankruptcy?” The idea seemed as diabolically ingenious as a well-planned bank heist. And I actually considered it! Today, of course, I realize how foolish that idea was and that pulling it off would have been nearly impossible.

But can you blame me for dreaming about it? After all, I assumed that anyone would just lend me money (even $1 million) without peeking at my credit history. Was it my fault I didn’t know what “credit” was?

At 18 or 19, I was, like the majority of my generation, completely naïve about even the most basic financial concepts: credit, saving and investing. I’ve become more cash-savvy since. I can’t say the same for all of my peers although, fortunately, the recession may mark the beginning of an era when frugality, financial literacy and saving savoir-faire become as hot as Facebook and iPhones.

Gen. Y’s Financial Literacy Track Record

How many high school and college graduates have ever taken a class covering personal banking, credit management, basic investing, and retirement planning? Not many. Stroll the corridors of any teaching hospital and you’ll find medical students who know the majority of biochemical processes in the human body but do not understand what factors determine their credit scores. You’ll find brain surgeons-in-training paralyzed by the thought of repaying $150,000 of student loans. They don’t know where to start.

Sometimes I imagine what I would have done if, at age 17, I knew what I now know about personal finance. That year, I earned about $3,000, but had little to show for it except a closet full of popular sneakers.
Back then, I think I was about five years behind in financial literacy. Fortunately, I think I’m now about five years ahead of where I’m supposed to be.

If I had been ahead of the curve back then, my dedication to saving and investing just may have led me to hoard paychecks and buy a few shares of a breakthrough company (maybe even Google). Even keeping the money in a savings account with a modest interest rate would have done wonders.

Financial Knowledge May Save Lives

Like it or not, we will deal with money for our entire lives. That makes money management an essential survival skill. We don’t all need to learn how to use a scalpel, but we do need to know how to pay bills on time and keep food on the table.

As humans, our instincts would tell us to run away from a lion. We do not, however, know how to run away from debt. (Even though, as young adults living in America in the 21st century, debt is probably more hazardous to our health).

The point is: Financial literacy could be a key to creating a better overall standard of living for the general population…especially for young Americans who are currently in college or have recently joined the workforce.

Higher education costs are soaring, meaning students who take out loans will graduate with more and more student debt. Dealing with increasing student loan debts may be inevitable, but we can at least help young adults avoid compounding the problem by taking on credit card debt and failing to save for emergencies and retirement.

The Recession as Wake-Up Call

The recent economic turmoil is a lesson to Generation Y that we need to become more financially literate. The New York Times reported that teenagers have been cutting back on spending. Even middle school students can probably grasp the basic concept of what a recession is by now. Hopefully, today’s young people won’t forget the recession’s lessons too soon. If not, these lessons are one more case for the argument that the recession is good for the economy.

Even the Credit CARD Act of 2009 by the Obama administration has a section that requires federal agencies to examine and report on available federal financial and economic literacy programs. They must also provide recommendations and develop strategies for funding and promoting financial literacy.

It is reassuring to see that the government is taking action, but parents can play an even larger role in teaching sound financial principles to their children. Little activities such as taking the child to save money at a bank, playing Monopoly, or creating a virtual stock portfolio can be great for family fun while, at the same time, providing valuable money lessons.

In the meantime, those of us who are already grown up are on our own. If you’re reading this, chances are your already on track to take control of your financial future. But what about your friends, classmates, coworkers, and siblings? Have they experienced a financial awakening, too? Do you think the recession is having a positive effect on young people’s money habits? Think we still have a long way to go? Share your thoughts in a comment.

About the Author: Simon is a recent college grad living in Brooklyn. He writes for an interest rate-tracking Website and maintains his own personal finance blog, the Realm of Prosperity.

Published or updated on January 6, 2010

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  1. Financial Literacy is an issue very close to my heart. Thank you for taking an interest, Simon. I began writing Financial Tales as a way to share my knowledge with my children and about a year ago, my son put them online. Now they’re available to anybody who is interested in personal finance, especially you.

    I recommend a few ‘Young Tales’ for you and your readers. Thank you.

  2. Kasasa says:

    You have great content and ideas! Are there dates for this post and others? We’d like to reference Money Under 30 in Tweets and blog posts but want to make sure your content is current. Thanks!

  3. I think the recession is a great thing if you have the correct perspective.

    Investors who love bargains live for recessions this deep as deals are abound. Likewise this is also a blessing (at least last Feb) for beginning investors as they can get in at rock bottom prices.

    To directly answer your question, yes I think the recession is helping Gen Y realize what’s most important. There is always a silver lining, hopefully the mentality learned by many through this recession will remain, but I doubt it as history is bound to repeat itself.

  4. Ken says:

    I think the young people that learn from the recession are the ones that are expected to work by their parents. They are also taught how to save money and allowed to make money decisions of their own. I think it starts with parents.

  5. tom says:

    On one hand, I think the government should mandate financial literacy classes in high school cirriculums, but ultimately I think it should be parents’ responsiblity.

    Problem is, the majority of American parents are in debt and don’t understand the basics themselves. It blows my mind because this stuff isn’t rocket science, it’s common sense:

    ~Spend less than you earn
    ~Save for emergencies
    ~Don’t take on tremendous amount of debt w/o having a way to pay it back (i.e. going to Harvard to become a social worker)

    I agree that the recession made us take a good hard look at our financial literacy. You can’t watch a talk show without seeing some segment on money. Financial literacy is only a click away online.

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