$1.05 trillion in credit card debt. $245 billion in personal loan debt. These are just a couple of figures showing how much debt U.S. consumers were carrying as of the final quarter of 2023, according to TransUnion.
Now in reality, it’s possible to land in debt despite being financially savvy. But a big reason some consumers end up with debt is that they were never taught the importance of trying to avoid it — at least in the context of credit card balances.
Financial literacy pays off
A recent report by Tyton Partners in collaboration with Next Gen Personal Finance found that taking a financial literacy course yields a lifetime benefit of $100,000 per student. Much of that $100,000 benefit can come in the form of debt avoidance and strong credit, which can lead to affordable borrowing for essential expenses like auto loans and mortgages.
Students who learn strong financial habits may also be more inclined to have more success with budgeting, saving, and investing for the future. So it’s important to make sure your child has access to such education during young adulthood.
Of course, it’s hard to determine just how accurate that $100,000 claim is. But there is plenty of data that shows a correlation between financial education and financial strength.
According to data from the Brookings Institution, low financial literacy is linked to numerous negative credit-related behaviors, including higher borrowing rates, higher mortgage delinquency rates, and foreclosures. On the flipside, financial literacy among teens has a positive correlation to asset accumulation and net worth at age 25.
Make sure your child gets the education they need
As you can see, teaching children to manage their finances and debts can go a long way. So if your school doesn’t currently offer a financial literacy program, petition your school board to introduce one. And if that doesn’t work, impart some knowledge yourself.
Some of the topics you should especially make a point to discuss with your teen are:
- The importance of having emergency savings at all times
- The importance of having good credit, and how to arrive at it
- How to benefit from using credit cards without landing in debt
- How to avoid taking on too much total debt
- How to set financial goals
- How to create and follow a budget
Along these lines, being open about your financial situation could also help to set your child on a solid path. So if you’re comfortable doing so, share your financial wins (as well as your mistakes) so they can learn from them.
It’s a little hard to say with certainty that getting a personal finance education will make your child $100,000 wealthier in their lifetime. But it’s more than fair to say that the more financially literate your child is at the end of their high school years, the better their chances of making savvy money-related decisions as a young adult and beyond. So it’s definitely in your best interest to transfer that knowledge or petition your local schools to do it for you.