(Photo: The Associated Press)
Gabrielle Karol, News104:25 p.m. PDT March 30, 2015
According to Gabrielle, Millennials may have lived through the Great Recession – but it hasn't made them good at managing their money.
A recent FINRA report found that 23 percent of Millennials were spending more than they earned, and 31 percent had unpaid medical bills.
Lack of financial literacy likely starts at home, and few schools teach it. A 2013 survey by Citi and Parenting found that while nine in 10 parents agree that financial education is important, nearly half don't have regular conversations with their children about money. George Washington Carver High School teacher Farrah Poladi, who teaches the school's mandatory financial literacy course, says students come in with little financial know-how.
"Typically, it's zero. Typically, they've heard of credit cards, they've heard of student loans, but they don't quite understand what it all means, like what is an interest rate or what's an APR," Poladi said.
While the school's course received rave reviews from graduating seniors, it's not necessary – or advisable – to wait until the end of high school to start teaching children about money. Lighthouse Financial Planning's Debbie Grose, a certified financial planner and mother of two boys, said parents should start educating kids about money as early as they can.
"You can use them as a natural guide as to when to start the conversation. When they start to ask questions, it means they're interested, they want to learn about it and they have some sort of context from which they're asking," Grose said.
Grose says the first and most important thing to explain is the concept of "needs versus wants."
"I said, you know, money is a finite thing, and you only have so much of it, and there are certain things we need, like groceries, and to pay our mortgage and to pay for our car and the gas to get around, and then what's left after all the needs are paid for are the wants," Grose said.
The best tool for making this concept come to life is an allowance. Grose advised not tying allowance to chores (as children who don't do their chores will be deprived of valuable money lessons). It should also be used to teach kids the importance of saving and donating to charity.
"What I've told them is 10 percent of every dime they get has to be saved. Saving is for a rainy day, or if they have some big thing they want to purchase, like a bike, or if we're going to Disneyland … I also require that an additional 10 percent of their allowance or any money that they get be saved for charity," Grose said.
Once children enter middle school, Grose said parents can open up a real savings account to familiarize them with banking. Some banks even have "Young Savers" accounts, where the bank will match a certain amount of savings.
As teens head into high school, parents should start talking about the cost of college. Grose says it's best to be upfront about whether you're willing to contribute, what you have saved, and what your child will be expected to pay.
"The students that are more invested in the decision-making, and they understand … it's just a better outcome for the students and the parents," Grose said.
High school is also the time when parents can tackle more challenging concepts, like credit cards, loans, investing and renting versus owning.