"The teenage years are an influential period in a young person's life, particularly a time period when they can learn valuable skill sets for the future." So says John Buhrmaster, president and CEO of upstate New York-based community bank 1st National Bank of Scotia.
But here's the problem: American teens are not learning those valuable skills.
The Trouble With Teens
In fact, "PBS NewsHour" observes that when it comes to basic financial literacy -- say, balancing a checkbook or understanding tax brackets and transaction fees -- American teens rank somewhere "between Latvia and Russia."
%VIRTUAL-WSSCourseInline-956%In a 2012 test of financial literacy, math and problem-solving skills in 18 countries by the Organization for Economic Cooperation and Development, the results of which were released this past summer, Americans barely made it into the top half of teens globally. And on the subtlest of financial concepts, American teens lost out to all but six countries
Teens in Latvia, Poland, the Czech Republic and China showed deeper understanding of basic concepts of financial literacy than did their U.S. peers. And this is despite the fact that those first three countries spent nearly five decades as parts of the Communist Soviet bloc, where the economy was centrally planned, such that "consumers" didn't really need to be financially literate. Granted, the teens who took the OECD test of financial literacy were all born after the fall of Communism in Eastern Europe -- but most of their teachers likely weren't. China is still technically Communist.
What's to Be Done?
According to the Independent Community Bankers of America -- where Buhrmaster is the chairman -- financial literacy is fixable. Indeed, he says, "the nation's community banks are on-hand to help provide parents and their teenagers with information about money, savings, credit and additional financial skills."
Even better, a lot of the advice needed to make kids more financially literate is common sense. The National Endowment for Financial Education's High School Financial Planning Program has laid out a road map for improving American teens' financial literacy. And after reviewing these groups' advice, here's our take on a few things your banker might share with your teen:
If you don't know where you're going, you're likely to get lost. The first step to financial literacy, the endowment says, is to set a goal. Whether it's a new car or a college education you're aiming for, you can't know if you're saving enough unless you first know the likely cost you'll have to pay, and how much time you've got to work with to save up what you need.
Credit is key. Credit cards are one of the most common and easiest forms of borrowing. But there are good ways to use credit, and bad ways. For example, frequent credit card use is a good way for a young person to build up a credit record that can eventually make buying a home easier (see goals, above). Over-use of credit, to the extent that you can't pay your bills on time and start incurring late fees, is a bad way to use it.
Money isn't everything ... but it's close. Kids are often idealists who want to make the world a better place, work for a nonprofit or have other laudable goals. But these goals can conflict with other goals -- such as earning enough money to pay back college loans or buy a home. The teen years, when kids first begin to enter the work world with part-time jobs, are a good time to begin thinking about which kinds of jobs pay what kinds of salaries -- and can help or hurt teens in reaching their financial goals. The earlier teens start thinking along these lines, the better able they'll be to sign up for classes and internships that will lead to the jobs they hope to land.
A penny saved is a penny earned. Working for wages isn't the only way to make money, either. Through interest and capital gains, savings that are invested in bank accounts, certificates of deposit, bonds, stocks and even houses can create wealth over time.
Sure, saving isn't always as much fun as spending. But a teen might be reminded that just because you save money today doesn't mean you can never spend it. Delay the gratification of shopping today, and the thing you want to buy may go on sale tomorrow -- so that you can spend and also save. The key is to know what you want to be able to buy beforehand, so that over time, you can get the best deal for yourself as a consumer.
That's what financial literacy is all about.
Motley Fool contributor Rich Smith has no financial interest position in any companies mentioned above. And he never got any of this advice as a teen himself -- but wishes he had. To read about our favorite high-yielding dividend stocks, check out our free report.