Home Posts tagged financial literacy

Financial Literacy Is Key for Young Professionals

By Contributor
Banking and Financial Services

Stick to the Plan

By Amanda Goewey

 

As many recent college, trade school, and high school graduates settle into new jobs, their pockets may be feeling a bit heavier with money from the first few paychecks. It can be tempting (and exciting) to spend this newfound money on summer fun, but young professionals should have a plan for these paychecks. Understanding the options for what you can and should do when the money starts flowing is a great place to start.

 

Make a Budget and Stick to It

Setting a budget is critical for young professionals who are often balancing myriad expenses, like school and car loans, rent and utility payments, entertainment, and more for the first time. A budget is a plan that helps track and manage expenses to keep spending within your limits and help build your savings.

Budgets are built on a simple equation: your income minus your expenses equals your monthly net. To be financially stable, your expenses must be less than your income — that’s how you know you’re living within your means. If your expenses are equal to your income, you will be living within your means, but you will have nothing left over for savings.

 

Amanda Goewey“Setting a budget is critical for young professionals who are often balancing myriad expenses, like school and car loans, rent and utility payments, entertainment, and more for the first time.”

 

Create an Emergency Fund

One account everyone should have, regardless of age or career stage, is an emergency fund for unexpected costs like vehicle and home repairs, medical bills, or vet bills, if you have a pet. It’s critical to consider this fund as a part of your overall monthly budget.

Setting a specific goal for an emergency fund will help determine a reasonable timeline for reaching it. For example, if your goal is to build a $2,000 emergency fund in one year, you’ll need to allocate about $167 per month to that fund. Being consistent in saving that amount every month is critical to achieving the goal. Consider setting up a direct deposit for the amount needed from your paycheck.

 

Pay Off High-interest Debt

High-interest debt is ever-changing alongside loan interest rates; it’s generally accepted that high-interest debt is anything above the student loan or mortgage rates. Those interest rates are assigned when you borrow or receive money in advance, also known as credit.

So, what should you do if you’re carrying this type of debt? While simply paying it off is the best answer, actually doing it isn’t quite that straightforward, but should be a top priority before setting savings goals. Having debt, especially high-interest debt, will lead to poor credit, which can create obstacles to achieving your financial goals.

One of the most straightforward ways to pay down high-interest debt is to carefully budget and track your expenses and limit non-essential spending. There are several budgeting apps that can help track all expenses from monthly bills to groceries, eating out, and even monthly streaming subscriptions. Review where you can cut spending and make a plan for paying down the debt.

 

Start Saving for Retirement

Believe it or not, it is never too early to start planning for retirement, and taking advantage of employer-sponsored retirement benefits is a great way to start. Many employers offer programs such as 401(k) plans and 403(b) plans. These accounts help reduce your current taxable income, are easy to contribute to through direct deposit, provide interest rates that support significant growth over time, and can be transferred from employer to employer, if and when you move on.

When it’s time to determine your contribution, a good rule of thumb is to contribute enough to ensure you receive your employer’s full matching contribution, if offered. If your employer does not offer a retirement benefit, consider starting an individual retirement account (IRA).

 

Bottom Line

Your banking institution can be a helpful resource in determining what option is best for you and your financial goals. For example, the NBT Bank Wealth Management team can help you determine contribution limits, how employer contributions work, what terms like ‘vesting’ mean, and who is actually directing investments within your plan.

Getting a new job and having a new source of income is exciting, but figuring out how to manage your money can be stressful. Spending money is easy, but doing it responsibly and within a budget takes a bit more effort. The good news is, there are many helpful resources, like your banking partner, that can help you assess your current financial situation and future goals and provide you with money skills and tools for long-term success.

And remember, if you suddenly find yourself with extra money, from a bonus, birthday gift, or tax return, use it as an opportunity to get ahead of your timeline and put a portion of it toward your debt or your savings — but be sure to set aside a little bit to celebrate your new gig!

 

Amanda Goewey is the Massachusetts market manager for NBT Bank. With more than 15 years of experience in banking, she is responsible for overseeing retail banking at NBT’s eight branches in Berkshire County.

Financial-literacy Programs Equip Families for Success

By
Country Bank team members help high-school seniors navigate a Credit for Life Fair.
Banking and Financial Services Special Coverage

Generational Impact

Country Bank team members help high-school seniors navigate a Credit for Life Fair.

Country Bank team members help high-school seniors navigate a Credit for Life Fair.

 

Jodie Gerulaitis’s title at Country Bank is first vice president, Community Relations. But before that, she was a Financial Education officer for the institution — a role for which she still has a passion.

“My job was offering financial education to our communities,” she said, noting initiatives like Savings Makes Sense, a partnership forged in the late 1990s with local schools — eventually about 40 of them — in which the bank collected deposits and students could engage in banking activities right at school.

These days, that program has morphed into Money School, a series of financial-literacy resources in public schools that include books, workshops, and five annual Credit for Life fairs that involve about 2,000 seniors from 13 different high schools.

The fair, a Massachusetts-based program that many banks participate in, asks students to role-play a 25-year-old, visiting about a dozen booths and making financial choices based on their career and salary goals.

“Some students get a salary or a credit score they weren’t expecting, and they also learn to understand needs versus wants,” Gerulaitis said, adding that the students also get a dose of reality; at one booth, they might get a bonus at work or an unexpected expense. “Do they want to take vacations? Is that important to them? Do they want to own a pet? These are choices you and I make every day, and we’re bringing it to the students.

“The students who wind up with a low credit score or a low salary and are struggling, they’re going to learn the most,” she added. “They see how difficult it is to get where they want to go. Can they afford a house, or do they need a roommate to split expenses? It’s a really eye-opening experience, and they need to experience this stuff now, so they don’t make bad choices later.”

Two years ago, the United Way of Pioneer Valley started partnering with middle- and high-school students in Springfield and Holyoke to teach basic financial-literacy skills to young adults before they start interacting with finances for real, President and CEO Megan Moynihan said.

Megan Moynihan

Megan Moynihan

“It’s so very important — if you don’t understand how to take care of yourself from a financial perspective, how can you become successful?”

“We want them to create a basis to be financially successful before they go out into the real world,” she noted. “Many of these students may not have access to learning about financial independence through their families. They didn’t learn about the importance of saving and credit and preparing a budget as a child. Some of the students we work with have zero idea going into these classes. The goal is to give them a basis, a skill set to prepare them for the real world.”

The United Way’s financial-literacy programs go well beyond young people; it launched an initiative called Thrive almost a decade ago, which helps individuals across all age groups achieve financial security through education and other resources.

“Personal financial education is huge — it’s a huge gap for so many individuals,” Moynihan said, noting that the partner agencies the United Way funded would refer to Thrive people who needed the service.

“Our partner agencies let us know about individuals who needed support. We would do one-on-one coaching with those individuals, typically follow them for an entire year, helping them with budgeting, helping them set goals for raising their credit score. Many did not even have bank accounts, so we brought in individuals from the banks to set up simple checking accounts, direct deposit, and credit cards to create credit. Others would learn how to fix their credit score, how to consolidate credit, the importance of reducing expenses, and more.”

Around 2020, the United Way switched to a more direct-service model, and now Thrive services are offered to any client of the nonprofit who needs them, typically people who access services from one of the United Way’s service centers in Springfield, Chicopee, and Holyoke.

“Individuals come in needing help with food insecurity or mental-health support, and we can also help them with personal-finance training; every individual who comes through our doors has access to Thrive financial education,” Moynihan explained. “We also partner with other nonprofits on a classroom-style, six-session financial-education series.”

Serving about 450 people at any given time through its youth programs, human-service agencies, and workplaces, Thrive impacts families in ways that can be generational, she noted.

Jodie Gerulaitis says the financial-literacy skills students develop now will benefit them later, no matter what college or career path they choose.

Jodie Gerulaitis says the financial-literacy skills students develop now will benefit them later, no matter what college or career path they choose.

“It’s so very important — if you don’t understand how to take care of yourself from a financial perspective, how can you become successful?”

For this issue’s focus on banking and finance, BusinessWest talks to several area professionals involved in financial-literacy efforts about those impacts, and the various forms these programs take.

 

Lifetime Financial Journey

Springfield Partners for Community Action is another local organization offering financial-literacy education through a series of different free workshops, from basic financial literacy to first-time homebuying and property management.

“They all consist of a little bit of financial literacy. We dive deep into budgeting, credit, debt management, banking, and investing,” said Gabriel Ortiz, a housing councilor at Springfield Partners, noting that the workshops average around 28 people each. Some are one-session workshops that run six to eight hours, often featuring speakers from the banking and financial-services world, while the first-time homebuyer workshop is a two-part series.

“We have a lot of professionals that have been in that industry for a lot of years, and they give their expert analysis of what the process is and how to get people where they need to go, watching out for predatory lending, things like that.”

Meanwhile, the basic financial-literacy session is a good idea for people looking to establish some credit and start saving for the future, Ortiz added.

“In Springfield, probably one out of four residents live in poverty. Springfield has seen inflation, and potential tariffs will make it harder for households to manage their budgets. As a local financial advisor, we’re trying to give some helpful tips and help people regain control of their finances, stick to a budget, and cope with today’s economic challenges.

“We want to help people transition from poverty to a more equitable future,” he went on. “By establishing generational wealth, buying homes, and establishing some credit, that’s definitely going to help families down the road.”

Having offered financial-literacy programs since 1996, Gerulaitis noted, Country Bank has seen those initiatives take on a life of their own.

“These programs make a difference. Sometimes parents are not in the financial situation they expected themselves to be in, and I’ve found the grown-ups at home sometimes don’t talk to kids about money. Maybe they’re embarrassed about their financial situation.

“So, whether they come from a wealthier background or not — really, all walks of life — these programs empower students to make the decisions themselves. After all, if the parents aren’t having these conversations, who is?”

“In Springfield, probably one out of four residents live in poverty. Springfield has seen inflation, and potential tariffs will make it harder for households to manage their budgets. As a local financial advisor, we’re trying to give some helpful tips and help people regain control of their finances, stick to a budget, and cope with today’s economic challenges.”

Sherleen Crespo, vice president, branch manager, and mortgage specialist at Westfield Bank, who is being honored as one of BusinessWest’s 40 Under Forty this spring, said this reality — and the opportunity to start the conversation — is one of the reasons she loves being in banking.

“Sometimes financial literacy starts in the home, but not everyone has access to that,” she said. “Parents try their best, but they may not know as much as they should. And that lack of education affects people.

“Now, schools are very much involved in financial literacy. They invite me in, and that’s something that we didn’t have when I was growing up,” Crespo added. “It’s super important. It’s planting a seed toward breaking these generational cycles. The more we can educate people, the more that they’ll be able to grow.”

Gerulaitis agrees, and has anecdotal evidence to boot.

“I run into students after they’ve been through the programs — at the grocery store or a restaurant — and they say, ‘thank you, thank you. I got my first job, and a lot of what you said makes sense now.’ They put it into practice. That’s why we hit them when they’re seniors. Whether they’re going into the workforce or college, these skills are necessary at all levels. You can see the impact later on.”

And it’s not just high-schoolers; Country Bank targets educational programs throughout the community, from college students to senior centers. She’s even read age-appropriate books about money to preschoolers.

 

Bridging the Gaps

Moynihan said the United Way has a Thrive program that goes into workplaces, helping coach employees on the best ways to navigate financial struggles. In fact, three staffers are certified as financial coaches in the workplace, and they come at their roles from a mentorship perspective.

“We’re not giving you this information and saying, ‘now go figure it out yourselves.’ We’re setting you up with a mentor to walk you through these programs that will support you not just in your financial education, but on everything else that impacts your life.”

Another Thrive coach is a social worker, “so he understands the full scope of the needs of our clients — not just help with financial literacy, but so many other underlying issues that need to be addressed in the classes,” she went on. “We work with individuals to understand and identify the other areas where they need support so they can become financially stable.”

Every individual doesn’t need the same level of support, or the same educational components, she noted; some need close hand holding to get through it, and others just need to learn about different modalities to budget, save, and make good financial decisions.

“You don’t know what you don’t know, but it’s one of those things where it can be very difficult to ask for help. They might be ashamed,” Moynihan said. “So we move at the speed of trust. It can take time to build a relationship with an individual to become comfortable talking about this.”

The United Way is also part of the Bridges to Prosperity program through Springfield WORKS, a state-funded pilot program tasked with overcoming the ‘cliff effect,’ a phenomenon whereby the increased income from securing a job isn’t enough to offset public benefits while unemployed.

“It’s a first-in-the-nation approach that pairs cash payments to employed individuals over a two-year period with financial coaching and workforce training to bridge the gap between being on state assistance and being fully, gainfully employed,” Moynihan said. “So far, it’s working wonderfully.”

At the same time, the need for financial education continues, and Gerulaitis wishes it started at a younger age for everyone. She’s part of a committee that has advocated in Boston for state-mandated financial-literacy education in schools, trying to make Massachusetts the 27th state to mandate that as a graduation requirement.

Meanwhile, she added, Country Bank is doing as much as it can by offering free financial education.

“Even if it’s just one class, these schools love to partner with us. They feel they’re able to offer something to students as a benefit. Not all of them have personal-finance classes,” she said. “So, we’ve done a lot of programs. We want to provide as many free resources as we can to the community and guide them through their financial journey.”

Square One Aims to Make an Impact with Financial-literacy Program

By Contributor
Education

Dollars and Sense

By Mark Morris

From left: Square One’s Dawn DiStefano, Melissa Blissett, and Kristine Allard; and FP Investment Group’s Flavia McCaughey, Flavia Cote, and Peter Cote.

Given the scope of Square One’s work for children and families, it’s not unusual for the organization to receive contributions to support its efforts.

But recently, FR Investment Group offered a donation that goes far beyond writing a check.

“Instead of making a monetary donation, we’ve chosen to do something harder,” said Peter Cote, president of FP Investment Group. “We’re giving our time and services to help Square One clients and staff improve their financial literacy.”

Dawn DiStefano, Square One’s executive director, had seen similar attempts at financial education fizzle out, despite good intentions. This latest proposal was different.

“The FR group wanted to understand who we are and what we want for our clients and staff,” she said. “They were curious, inquisitive, and showed us they valued our expertise as well.”

The Empower Financial Literacy program is now a monthly offering at Square One. Flavia Cote, executive vice president of FR Investment and Peter’s wife, runs the session each month with FR staff, including her daughter, Flavia McCaughey, a vice president with FR.

McCaughey presented the idea to her parents that working with families at the lowest income levels to help them understand the basics of finance could have a huge impact on those families — and also on the community at large. The Cotes supported the idea but also offered some sage advice.

“My parents told me to be prepared that maybe only one person would show up to the meeting,” McCaughey said. “I discussed that possibility with the team, and we decided if the program makes a difference in even one person’s life, it’s worth it.”

Instead, 14 people have signed up for the program, with eight or nine regularly attending the monthly sessions.

“Given that we’re still dealing with COVID and that everyone has busy lives, I’m excited about 14 sign-ups,” DiStefano said. “The program will be here when they’re ready. It’s not a one-and-done.”

“Instead of making a monetary donation, we’ve chosen to do something harder.”

Far from it. Peter has committed his firm to running the financial-literacy program for the next 30 to 50 years.

“That’s how long it’s going to take to make real change in the financial well-being of our community,” he said. “You have to be on the ground and commit to the long term.”

 

Changing the Narrative

This kind of commitment is necessary to break what DiStefano called a self-fulfilling prophecy of bad outcomes.

“Those who grew up in a family where they worried about how they were going to eat and get to school often end up creating that same unstable environment for themselves when they are adults,” she said. “They’re not surprised when they lose an apartment or don’t care about their credit score because they feel they couldn’t buy a car anyway.”

Just like savings, tough situations also have a way of compounding and growing. DiStefano gave an example of someone who lost a job, and in order to receive housing assistance, they had to be in arrears on their rent, which would then negatively affect their credit score. “This is what people are dealing with,” she said.

Melissa Blissett, vice president of Family Support Services at Square One, asks people what’s going on that prohibits them from living a better life and uses a tool called the family-goal plan to help them.

Flavia McCaughey leads a financial-literacy session at Square One.

Flavia McCaughey leads a financial-literacy session at Square One.

“The FR folks speak the same language we use with our families, and we both use the SMART goal approach,” Blissett said. SMART, a popular goal-setting technique, is an acronym for specific, measurable, achievable, relevant, and timely.

Flavia Cote said her team encourages people to set a goal such as buying a reliable car, and the FR staff breaks it down to the actions needed to eventually reach the goal.

“We encourage people to try to save at least $10 a month,” she said. “Even if they can’t save $10 next month, they have started to think about saving.”

To prevent being overwhelmed by a large goal, Peter suggests taking it one step at a time. “I don’t want people to think about years from now — just think about the next 24 hours. When you bring it down to 24 hours, you help people see an attainable goal.”

In their monthly sessions, the FR staff help people with figuring the numbers and, more importantly, understanding the emotions that come with handling finances.

“If someone can’t save for one month, we encourage them to set the goal for next month,” Flavia said. “We want to bring hope and make finance simple enough for people to achieve some sort of financial independence.”

Like dedicated saving, positive actions can also have a compounding effect. Recently, a class-action case involving overdraft fees at a regional bank reached a settlement for several million dollars. Once all the claimants received their share, $23,000 remained. This final amount is usually provided to a nonprofit program in alignment with the core theme of the case and is known as a ‘cy pres,’ from a French phrase meaning ‘as near as possible.’

The plaintiff’s counsel, Angela Edwards, learned about the Square One program from Flavia Cote and thought it sounded perfect. “I recommended the cy pres for Square One, the defense counsel agreed, and the judge approved it.”

 

Making Progress

Peter Cote sees his main job not as a financial person, but as a champion for others. “We’re dealing with people who have a variety of financial challenges, and we are their champions to let them know it will be OK.”

When people attend the sessions at Square One, Flavia said, they show they are ready to make progress with their lives. “We try to help people understand their situation is not permanent and there is a way to change it.”

While a term like financial literacy might sound academic, Peter offered a few different terms that might better describe the course.

“You could call it financial well-being, or Life 101,” he said. “Maybe Figuring It Out 101.”

Financial Literacy Should — but Often Doesn’t — Start Young

By
Banking and Financial Services

Adding It Up

It’s no secret that too many Americans make poor borrowing decisions, fail to save for retirement, even lack basic budgeting skills. That financial-literacy deficit begins early, say local bank and credit-union officials, which is why area institutions offer programs and classes to help people — both teenagers and adults — forge better strategies for making their money work for them, not drag them down.

So much, Lena Buteau says, comes down to tiny decisions that add up.

Take that morning coffee. If someone spends $2.69 at Dunkin’ Donuts every morning, that comes out to well over $900 a year. Spend $7 or $8 on lunch five times a week instead of packing a lunch at home, and you’re looking at around $2,000 a year.

“When you think you can’t afford something, look at your daily expenses,” said Buteau, vice president of Retail Administration at Monson Savings Bank, while explaining the importance of MSB’s financial-literacy programs, many of which target students, but which are needed by many adults, too.

For instance, people of all ages often struggle to understand the long-term impact of buying on credit, she noted, using the example of someone who buys a $650 laptop at Best Buy but takes a $150-off deal to put it on a store credit card at 25% interest, then pays only the minimum every month. At that rate, that laptop would be paid off in seven years — eventually costing more than double its original price tag.

“When you explain this, the kids are shocked at the numbers,” she said. “It really touches home.”

Because so many habits and philosophies are forged early, Buteau said, “we go in and teach students about saving, lending, credit scams, how to keep your money safe, and much more.”

And it’s not just schools, she added. “We want to go to church groups, Boy and Girl Scout troops, anybody that will give us an hour of time for a financial-literacy class.”

“No disrespect to the schools, but they’re not preparing kids for real life — how your credit score affects your insurance and buying a car, how to handle a checkbook.”

Michael Ostrowski, president and CEO of Arrha Credit Union, said his institution has an internal focus on financial literacy.

“No disrespect to the schools, but they’re not preparing kids for real life — how your credit score affects your insurance and buying a car, how to handle a checkbook. People don’t go into banks anymore; they do stuff online, and you can get ripped off if you don’t know what you’re doing.”

For that reason, Arrha has worked with high schools in the past on financial-literacy programs and is currently planning another program for local students.

“When we were kids, we had home-ec class, and they used to explain how to do a checkbook. They don’t do that anymore, and I don’t know why,” Ostrowski said, before offering one possible reason. “With all the regulations schools are under, for MCAS and other things, they’ve bailed on programs like this, but they’re absolutely critical for kids’ development and future life.”

Jon Reske, vice president of Marketing at UMassFive College Federal Credit Union, pointed out that financial literacy, and education in general, has long been part of the credit-union culture.

“Why? Because, unfortunately, your parents and my parents probably never taught us anything about personal finance, especially if things weren’t going well in the household,” he told BusinessWest. We take the opposite approach — we say your kid should be involved in understanding how the budget works in your house.

Jon Reske says even good budgeters can be tripped up by a bad loan — with long-term consequences.

Jon Reske says even good budgeters can be tripped up by a bad loan — with long-term consequences.

“We also do workshops on a regular basis — everything from homebuying 101 to how to create a budget to understanding credit,” he added, noting that the latter is especially critical, as the average American, between the ages of 21 and 65, will borrow about $1.5 million, and bad decisions can compound quickly and have a long-term impact. “You can be the greatest budgeter in the world and be smart about your pennies, but if you make bad borrowing decisions, you can be overwhelmed by debt.”

Monson Savings also conducts workshops for adults, such as first-time homebuyers, and offers a Credit Builders loan program, which is an effective way to, as the name suggests, build credit without going into unmanageable debt. The customer borrows a certain amount from the bank, which is deposited into a savings account and cannot be accessed until the loan is repaid. Not only does the borrower build positive credit through on-time payments, but at the end, the balance, plus interest, is available for a down payment on a car or home, a cushion for emergencies — anything, really.

In short, area institutions understand the deficits that exist when it comes to financial literacy and how that impacts the decision-making process — and how bad decisions can turn into years of heartache. And they’re doing something about it.

A Matter of Confidence

A new national survey by Junior Achievement USA and Citizens Bank shows that more than 30% of teens do not believe they will be financially independent of their parents by the age of 30. Sixty percent believe they will own a home by that age, 44% believe they will begin saving for retirement, and 43% think they will have paid off their student loans.

“With a strong economy, you would think teens would be more optimistic. It just demonstrates the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial futures.”

“These survey findings show a disconcerting lack of confidence among teens when it comes to achieving financial goals,” said Jack Kosakowski, president and CEO of Junior Achievement USA. “With a strong economy, you would think teens would be more optimistic. It just demonstrates the importance of working with young people to help them better understand financial concepts and gain confidence in their ability to manage their financial futures.”

Financial literacy has long been a cornerstone of Junior Achievement, but there’s no shortage of educational programs available at credit unions and banks.

“Money is very emotional. It’s one of the hardest things to talk about, even with your spouse,” Reske said. “And it’s hard to be objective. That’s why it’s nice when people come to our workshops and say, ‘I’m not emotional now; I’m looking at the objective side of it. I wish I’d taken this before getting that loan.’”

While money issues can seem overwhelming at times, he added, financial-literacy tools are much more accessible than they were 10 years ago if people know where to look. He also outlined a number of concepts people attending UMassFive’s workshops might learn. For example:

• If you’re able to pay bills weekly, as they arrive, do it. It reduces the risk of missing a deadline and winding up with a late fee, which is easy to do when you pay the whole pile of bills once a month.

• Start building an emergency fund. According to a U.S. News & World Report study, two-thirds of Americans would struggle — and often do — to come up with $1,000 for an emergency, like an urgent car repair or medical procedure.

“So what happens? You put it on a credit card, and now you’re paying 21% interest, and soon $1,000 turns into $1,200,” Reske noted. “And an emergency fund can keep you from missing a rent payment or not getting something fixed on your car, which could lead to a bigger repair in three to six months.”

• Check out your credit report on an annual basis, if only to make sure everything is correct. “If the activity on your credit report is inaccurate, you’re getting an inaccurate score, and most rates you get are based on your score.”

• Put every credit card on a minimum automatic payment so you don’t miss any payments — and then pay more principal when the bill arrives in the mail. Also, it’s not a bad idea to dedicate one credit card to online purchases only, to more easily identify instances of identity theft.

• Finally, it’s never too early to start saving for retirement. According to Forbes, 33% of adults have zero saved for retirement.

“Social Security will pay a portion of your expenses, but not all,” Reske said. “Time is more valuable than money because of compounding interest. If you start planning at 50 or 55, you just don’t have enough time; you’ve wasted 20 years. And if you have a 401(k) at work with an employer match and you’re not on it, you’re being foolish.”

Budget Battles

UMassFive also conducts a workshop for high-school seniors in which they choose a career, get a salary, and then go from station to station filling out a budget in different categories, from housing, transportation, and food to luxury items and student loans — and trying to stay within that budget.

“Kids say, ‘I never knew how expensive things are,’” Reske said. “People wonder why a 40-year-old can’t come up with $1,000 for an emergency; it’s because they weren’t taught that the key is to get in front of problems as early as possible” with smart budgeting followed by spending discipline.

Monson Savings runs a similar program in local schools. “One thing I build in there is student debt. If you want to spend $30,000 a year on college and go for a $30,000-per-year job, you’re not going to be able to pay that back,” Buteau said, stressing the importance of making smart decisions about college — if college is even the best option.

In fact, she said, many kids today are so focused on college — because it’s what their schools push — that they may not be aware of careers in the trades that offer robust salaries and no long-term debt.

One thing is for sure: whether in high school, college, early adulthood, or beyond, there’s no bad time to learn more effective strategies for handling money, budgets, and credit — in other words, to become more literate.

“If you’re sick, you go to the doctor,” Buteau said. “If your car is broken down, you go to a mechanic. If your pipes are broken, you call a plumber. But if you have trouble budgeting or financing, no one thinks to go to the bank for advice or a class. And it’s free.”

And when it comes to finances, there’s nothing wrong with free.

Joseph Bednar can be reached at [email protected]

Too Smart a Solution to Ignore

By
Opinion

Opinion

By Jennifer Connelly

There’s no doubt that talking, in some form, is one of our favorite pastimes. But within our close circles of family, some things that are important to talk about between generations are not being discussed at all — critical things like money and how to manage it.

More than 75% of kids report that their parents don’t discuss money and personal finance with them, probably for several reasons. For parents struggling with their own personal finances, they may not feel educated or financially empowered enough to be a mentor, or they may not have time. It may take a small crisis such as misusing a credit card or phone plan for a parent to recognize certain financial basics are a must in the short term. But still, they may not fully realize how important ongoing and broad financial education is to preventing increasing financial struggles, protecting against cycles of financial instability and poverty, and maximizing a child’s chance for financial success.

So it’s not surprising that last year, a much-touted global study by the Organization for Economic Development Corp. showed that one in five teenage students in the U.S. lack basic financial literacy skills, lagging behind 14 other nations. But most young people will face significant financial decisions before their 20th birthday. And the number and complexity of financial decisions they’re faced with is growing all the time: student loans, credit-card options, insurance, mortgages, investing, and entrepreneurship, to name a few.

Student loans may be the first major financial decision many young people face. In 2018, the U, S. Department of Education reported that student loan debt in the U.S. was over $1.4 trillion. In Massachusetts, 60% of college students graduate with debt averaging over $31,000, and default rates are significant.

Also, the increased use of costly, ‘quick-fix’ financial options by young people — such as payday loans, pawn shops, and rent-to-own stores — is concerning.

The consequences of overwhelming debt and poor financial decision making can be grave, including lack of ability to pursue educational, job, and residential opportunities; bad credit resulting in a lifetime of higher interest rates; job loss; bankruptcy; extreme psychological stress; and physical and emotional strain. However, most states do not require schools to teach young people much about the financial world they will face and the skills they need to engage and succeed economically. 

Personal financial-literacy education (PFLE) includes the basics of financial products, the influencers and consequences of financial decision making, and the necessity of personal financial planning. The call for all students to be taught this crucial preparatory subject is growing louder, often coming from young people themselves who often say they wish this had been taught in their school.

The logic and effectiveness of teaching high-school students PFLE is solid: financial literacy leads to better personal-finance behavior. Many studies demonstrate people with higher levels of financial literacy make better personal-finance decisions. A 2014 study commissioned by the Federal Reserve showed that mandated personal-finance education in high school improved the credit scores and reduced the default rates of young adults. And it is well-established that those who are financially illiterate are less likely to have a checking account, rainy-day emergency fund, or retirement plan, or to own stocks; they are more likely to use payday loans, pay only credit-card minimums, have high-cost mortgages, and have higher debt and credit-delinquency levels.

Government and business leaders perennially focused on the state’s fiscal and economic health should care that financial illiteracy is currently the norm. Also, for all the talk in Massachusetts about addressing economic inequality, practical, viable solutions are in short supply. Requiring PFLE is a win for everyone.

Jennifer Connelly is president of Junior Achievement of Western Mass. This commentary is supported by the agency board’s officers, Albert Kasper, Phil Goncalves, and Nicole Denette.