image of a teenage girl holding a piggy bank and a credit card.

There's a quiet battle being waged in the financial industry. The stakes have less to do with regulations and penalties than with making "Generation Y" understand the importance of money management. As we look at our country's current personal debt statistics, it's apparent that we have to do something to help our young adults avoid making the same financial mistakes their parents did.

The Importance of Financial Literacy

The Baby Boomers, many of whom have never taken a course in money management, have run up record amounts of debt, one trillion dollars in credit card debt alone. Statistics show that the average household has more than $9,400 worth of credit card debt, which at the average interest rate of 17% would take 35 years to pay off and end up costing $23,600. If the children of the baby boom generation were to follow in their parents' financial footsteps, our country would be on the road to economic ruin.

As you can imagine, credit card companies and financial investment firms have headed up the efforts to "educate" teens and young adults about the problems debt can cause. There are currently dozens of booklets and websites available that purport to offer lifesaving financial information. But just last year, at the same time that the credit lenders were offering their watered down information, they were mailing thirty billion credit card solicitations to prospective customers, young adults in particular. Many advocacy groups are angry that our youth are being targeted for credit cards and are shocked at how easy it is for them to get one.

There are two sides to the story. Parents feel safer when their children have a card in the case of an emergency, especially those parents who have children in college. The downside to this situation is that students don't understand the long-lasting effects that debt can have. Immediately upon their graduation into the "real" world, students with credit problems may encounter difficulties in acquiring auto loans, renting apartments, and may even be prevented from getting certain jobs. Many parents have countered this by getting their children an additional card on an existing account to monitor their spending.

The causes of this problem are fairly obvious: Students do not make very much money, nor do they have any formal training in managing the little they do have. The rising cost of living hasn't spared college students, either, which means their charges can add up as quickly as yours and mine. Their newfound freedom from some of their responsibilities at home often leads to irresponsibility when it comes to using the colorful plastic card in their wallet. With all that they have going on in their lives, money management is probably one of the furthest things from their mind.

So what can be done to help our youth understand money? Talk to them. Below are some suggestions you may want to share with your kids:

  • Shop for the card with the lowest permanent interest rate, not the lowest "teaser" rate.
  • Pay your bills on time.
  • Try to pay more than the minimum amount due.
  • Keep records of ALL your spending.
  • Stay away from items you merely "want" and focus on the things you need.
  • Keep an open line of communication between parents and children.

If you need funds due to an emergency, consider trying to get a loan from a credit union or the school's financial aid department, rather than using credit cards. Loans have a fixed repayment time of only a few years, whereas credit card repayment can take decades.

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