What Today's Youths Desperately Need to Know

If you're reading this article, you already have a huge leg up on millions of Americans. Even if you take your knowledge of investments and personal finance for granted, a lack of financial savvy threatens to hold millions of people back for the rest of their lives. And the children in your life could end up among them -- unless you start sharing your money knowledge with them. As this year's Financial Literacy Month comes to a close, it's important to look at how you can make a difference in making today's youths more fit to face the financial problems that abound right now.

Even among adults, few of us do everything possible to manage our money as well as we could. A quick look at the 2012 Consumer Financial Literacy Survey (link opens PDF file) reveals some alarming facts:

One-third of adults don't pay all their bills on time.

Almost 40% carry credit card balances from month to month, in most cases incurring sizable finance charges.

Fewer than half of adults use a budget, and more than 1 in 5 don't have any firm idea on how much they spend for basic items like food and shelter as well as more discretionary purchases like entertainment.

Most adults learned about personal finance from parents or other family members, yet 80% of survey respondents say they could use outside advice from financial professionals.

That last point illustrates the importance of learning about financial issues as early as possible. Like it or not, children and young adults face financial challenges at early ages, and they need the tools to stand up to those challenges and avoid the pitfalls that so many people fall into.

For instance, figures compiled by Edutopia show that spending by teenagers exceeded $75 billion in 2011, making the segment a key target for retailers and other businesses. More than 1 out of 3 high school seniors has a credit card that they use, and many of those go on to adopt some questionable money management practices in young adulthood. Half of undergraduate students have four or more credit cards, even though a substantial percentage of those don't know how much they pay in interest on their debt. Meanwhile, more than 10% of those ages 18 to 24 have incurred enough debt that it takes more than 40% of their income to pay it off.

By contrast, teaching about financial literacy early on can make a huge difference. Early lessons about what money is and how the choices we make to save or spend money affect what we can do in the future can give children a solid foundation in putting their financial experiences in context. Later on, details about earning money at a job, understanding advertising, and choosing payment methods become increasingly important as teens move toward greater levels of financial autonomy. And by the time high school students are ready to graduate, knowing about taxes, budgeting, and investing can help them through young adulthood and beyond.

One obstacle is finding skilled teaching professionals. One study showed that fewer than 20% of teachers believe they have the skills to teach personal finance, making it all the more important that children learn about money from other sources. But along with resources from a host of nonprofit organizations, financial firms are doing their part. Wells Fargo's (NYS: WFC) Hands on Banking program is aimed at teaching basics to kids, while US Bancorp (NYS: USB) marked its 16th annual "Teach Children to Save Day" yesterday. Schwab (NYS: SCHW) also plays a role in fostering financial literacy, with senior vice president and founder's daughter Carrie Schwab-Pomerantz advocating strongly for greater money awareness after noting that her own upbringing wasn't as thorough on the subject as you might expect.

Skeptics will question the motives of banksthat earn a significant portion of their income from charges such as overdraft fees that stem from customers making mistakes with their money. But mortgage-lending banks could have saved billions in losses had their borrowers never gotten themselves over their heads in debt in the first place. Moreover, Schwab and other brokerage companies see greater savings as a win-win scenario for brokers and customers alike, as the broker earns fee income while helping customers buy the investments they need to reach their financial goals.

A long recession and sluggish recovery have made many people bitter and hopeless about money. But it's never too late to provide more knowledge to those who so desperately need it. Supporting financial literacy is the most valuable gift you can give to younger generations, and the effect it will have will last a lifetime.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitterhere.

At the time thisarticle was published Fool contributor Dan Caplinger thanks his parents and the University of Chicago for his financial knowledge. He doesn't own shares of the companies mentioned in this article. The Fool owns shares of and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo and Charles Schwab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy helps you know where you stand.

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