PERSON OF THE WEEK: Today's teenagers will be tomorrow's homeowners – does that prospect scare you? Well, maybe the future would not be so scary if teenagers were able to gain a better understanding of financial matters – including the home loan process.
This week, MortgageOrb speaks with Mark Hansen, co-author (with Kevin S. Ferber) of the new book ‘Success 101 for Teens: Dollars and Sense for a Winning Financial Life,’ about helping teenagers with financial education.
Q: Who is ultimately responsible for providing teenagers with the basics of financial education? Is this strictly the duty of the parents, or are the schools at fault for not providing these lessons as part of their curriculum?
Hansen: The basic premise of financial education is the responsibility of both parents and schools. Of course, teaching young children about finances at home lays an important foundation. When children observe these habits reinforced, it becomes a part of who they are.Â
The problem with leaving it only to the parents is that it just doesn't happen enough. We can't rely on parents teaching our children about financial literacy, any more than we can rely on them to teach our children to read. Take a look at the financial situation in America, and you can clearly see why we need a financial curriculum taught in schools.Â
Handling money is the one skill that every student will need when they graduate, and they will require an understanding of this skill throughout their lifetime. I firmly believe that for change to happen, we must begin an essential program of financial education in every school. We must educate our youth and empower them with the tools to be self-sufficient.
Q: For many people, the words ‘teenagers’ and ‘saving money’ very rarely appear in the same sentence. How can today's adults encourage tomorrow's adults to put aside funds for that proverbial rainy day?
Hansen: First and foremost, adults should lead by example. How can we expect teenagers to put money away for a rainy day when their parents are living above their means? Observing their parents pay for their wants with that little plastic card while obtaining that instant gratification speaks volumes. If we want to encourage our teens to put money away, we must model the behavior we are achieving.
Another way parents can encourage teens to save their money is to allow their kids to want something and to educate them on how to achieve their goals. In my book, I talk about the three-envelope method. This demonstrates how to pay yourself first and how to take a certain percentage of everything you make and place it into one of the three envelopes: day-to-day expenses, short-term goals and long-term goals. This is a motivating technique for who to learn to save and to witness your money grow.Â
Q: The concept of interest rates can be baffling to many adults. How is it possible to get teenagers to understand the impact of interest rates on borrowing?
Hansen: One way to educate our teens about interest rates is to begin sharing your credit card statements with them. It's important that you have something concrete to show them so they can grasp what can happen when the bill is not paid off every month.Â
The communication between parents and their children is crucial in this area. They should see paying bills as a shared activity rather than an adult one.
The schools need to have a large impact in this area as well. In math classes, instead of the main focus being on areas that most students never utilize, how about lessons on teaching our teens how to compute and calculate interest rates? These are simple percentages and computations that need to be taught.Â
And you are correct in saying that many adults struggle with this concept. It's not because they can't compute numbers, but that they just never learned the formula. When are we going to wake up and see that education is the key?
Q: Homeownership is not an immediate priority for teenagers, of course. But is it too early to educate today's teenagers on what is involved in buying a house and maintaining mortgage payments?
Hansen: It is never too early to begin teaching your child about homeownership. Encourage your children to paint the vision for themselves by being specific about what type of home they would like to have later on in life. Guide them to be aware of their own thought processes regarding things that are important to them, like having their own home. Ask them how many bedrooms they would like to have, how they would like to have the home designed, what colors they would they paint the walls, etc. These are all thoughts that can be contemplated to support them in planning for their future.Â
In educating your teens on how to maintain a mortgage payment, remember to begin sharing your own house bills with them so they can understand the process. This is a perfect opportunity to teach them about interest rates. This is an ideal subject that can be taught in schools, too. Wouldn't it be fabulous to have a high school class where students create a vision board of their very own dream home and then work to create a financial plan for figuring out the payments based on various interest rates and selling prices? Now that's what I call educating our youth!
Q: Are you optimistic or pessimistic that today's teenagers will become the financially responsible adults of tomorrow?
Hansen: I am optimistic that today's teens will become financially responsible when they are provided with the tools that they need. We have an opportunity here for our youth to notice the importance of taking control of their financial future. Parents and educators need to encourage our teens to reflect and observe the choices they now make and how those choices can affect their future.Â
Without a doubt, most parents will say that they struggle with having conversations such as these with their teenage son or daughter. Those are difficult years, and there is often a tremendous power struggle going on in families. Again, that's another reason why it's crucial to have a curriculum in schools that will teach this. Yes, with the proper educational programs, our teens will become financially responsible adults of tomorrow.