Benefits of Youth Financial Literacy

Young people around the world need support to build their financial literacy. A 2020 survey of more than 100,000 teenagers living in the world’s largest economies found that 90 percent of young people are not equipped to make important financial decisions.

The study also found that only half of all young people have a bank account and two-thirds of students cannot understand common financial documents. Low youth financial literacy rates such as these can have long-term consequences.

Teenagers may be vulnerable to poor decision-making, such as running up credit card debt or living without a financial safety net. Many young people sign up for loans without understanding important terms, like interest rates and penalty fees. Since youth from financially disadvantaged backgrounds are less likely to be financially literate, this can perpetuate the cycle of poverty.

As young people with low financial literacy skills get older, their lack of knowledge causes more serious consequences. The average American owes more than $30,000 in student loan debt, and 10 percent of borrowers have given up on paying their debts. Nearly 20 percent of American adults live beyond their means, and more than 50 percent do not have enough savings to protect themselves in the event of a financial emergency.

For this reason, numerous organizations, including the American nonprofit Junior Achievement, have created financial literacy curricula specifically for children and teenagers. As of 2021, half of all US states have passed bills that require all high school students to complete personal finance courses.

In addition to giving students the knowledge needed to make informed financial decisions, financial literacy courses have a number of other benefits. Firstly, financial courses often include components about setting and reaching financial goals. This helps young people become more focused on long-term achievements rather than instant gratification, which makes them less susceptible to financially irresponsible decision-making such as taking out payday loans or overspending on credit cards.

Young people who have completed personal finance classes also develop healthier financial habits. Many courses review the difference between needs and wants, as well as the importance of creating and staying within a budget. As these youth grow up, they can apply these habits to larger goals, such as saving for a house or retirement.

Financial literacy courses also prepare young people for real-world decision-making. Understanding concepts like inflation, assets, and liabilities enables youth to make reasonable decisions with their money. Personal finance classes can also serve as a good source of information for young people who do not have positive or knowledgeable financial role models around them.

There are several ways to make personal finance courses more accessible for youth. Students prefer learning about personal finance through activities that are fun and relevant. To this end, schools and afterschool programs can collaborate with education companies like Junior Achievement and use their materials as part of the curriculum.

Parents can also instill good financial habits in their children by asking them to help with common finance activities, like paying bills or making a budget. Many banks allow children as young as 13 years old to have their own checking accounts. Parents can open accounts for their children and they can set savings goals together.