Many youth think of credit cards as free money. Many high school students surveyed thought that it was okay to borrow against future income to go on vacation or buy clothing. Baby Boomers learned basic financial management skills from their parents, and the experience of using cash and personally calculating their bank accounts the hard way — manual deposits, withdrawals and hand-written, updated cheque-books. Credit was a four-letter word.
Today, we rarely see money deposited, don’t use cash, and don’t keep a personal log of transactions, resulting in a disassociation with the value of money. Youth are desensitized to the real cost of purchases. When no money – and ultimately value – is earned or exchanged, transactions become invisible, with no obvious cost or consequences.
We’re bombarded with messages about financial health. So why are so many in such poor health? Research shows that our high school seniors are well below a passing mark in financial literacy. College students didn’t fare much better.
Today’s youth are being inundated with misinformation and offers that are hard to pass up. And they don’t have the skills to proceed with caution. Try asking them if they review their bank account ins-and-outs on a regular basis. Then ask them the security implications of accessing their banking data in an unsecured network. Ask them if that freemium game is really free. Or, ask them the risk profile of buying a cryptocurrency at a 52-week high. Ask them what the odds are of a credit card boosting their credit rating. Or what the opportunity cost is on that fast-and-friendly car loan. Odds are they’ll give you an eye-roll — assuming because they know more about navigating the digital world, they have the world of invisible money covered.
Yet, when students learn to assess the opportunity cost behind that sparkly object, that object suddenly loses its luster. It's apparent that education in financial management is needed more than ever.