We
are failing our children in one of the most important areas
of life. But, if more parents and schools understood the
significance of credit reports and early credit education,
that could be fixed. The credit failures and bankruptcy rates
in the United States would decrease dramatically. After speaking
to a group of college students last year I ask the
question, “How many of you have checked your credit report?” No
one raised his or her hand. Then I asked how many of you know
what a credit report is? No one raised his or her hand. Then,
after a moment of silence one student ask, “Does it have
to do with things you charge?” I said, "Yes, you
are on the right track.” Then I ask, “How many
of you have discussed credit or charging merchandise with your
parents?" No one raised his or her hands.
I have spoken to many young adults at lectures and women's
shows. Many of the financial concepts they embrace have disturbed
me and should disturb most parents who read this.
In a conversation with one young adult college student I
spoke to, she told me she understood credit, but expressed
concern for her high school sisters inability to understand
money and credit, often confusing the two. She became concerned
when her sister, who is a high school senior, did not understand
that $75,000 was too much to pay for a car. Her sister repeatedly
asked her middle-income parents to purchase the car for her
on credit. She also expressed her concern for her parents
inability to explain why purchasing the car was not an option
for her sister or them.
The above scenarios demonstrate the lack
of commitment to financial management education in high schools, colleges,
and at home. In high school and college, we take many difficult
classes we never use. I took a lot of math in high school
and college, up to two years of Calculus in college. I
have yet to find the need to use integers, linear algebra,
matrices, or complex geometric equations since college
graduation.
After being forced to manage graduate school
loans and a large
business loan without large scale money management skills,
I realized I needed formal education in this field. My money
management skills were way below average, but over the years
I perfected them and overcame my debt management deficiency.
With the lack of formal education in this field, my deficient
money management skills came at a cost, and took a significant
number of years to develop into the high level of money management
skills I have today. No one prepared me for the level of
management I would need to manage my college loans, business
loan, and personal living expenses for a bright financial
future.
Are we failing our kids in the area of debt
and credit? Do too
many kids think credit is money and debt is good? If we don't
teach them the advertisers will, and that seems to be a large
part of the problem. There is a constant stream of advertisements
telling media viewers to pay off their bills with a home
loan or consolidation loan. Many young people do not understand
that this is debt replacement, NOT debt payoff. And in most
cases, the debt replacement is much worse than the original
loan.
Another example of debt management for young adults comes
from their own high debt parents, and parents who just feel
they need to spoil their kids rotten with things they can't
afford. The alternative is to teach them the true value of
the American dollar and the limitations of credit.
The entire blame does not go to advertisers,
and parents can't
teach what they don't practice. Too many parents are knee
deep in debt themselves, they confuse debt with money and
don't pay their bills on time. Thus, creating a vicious cycle
of high debt and poor credit through example.
Students are getting cell phones and credit
cards they don't pay for, and home phones turned off before they even know a credit
report exist. So when they graduate from college with school
loans, high credit card balances, and unpaid bills, they
only qualify for the highest interest rates on car loans
and home loans, if they are lucky enough to get a car or
home at all. The vicious cycle continues and worsens.
Is there a solution to this vicious
cycle? My recommendation is
that high schools and colleges include a full Credit and
Debt Management Personal Finance course as a required segment
of their curriculum. This requirement should start with colleges
that charge high tuition and have a large percentage of students
graduating with thousands of dollars in school loan debt.
As far as parents are concerned, more parents need to learn
what a budget is and lead by example.
Lois Center-Shabazz is the founder
of MsFinancialSavvy.com and author of the 3-time award-winning
personal finance book, Let's Get Financial Savvy! ISBN #0971979502.
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