Financial Literacy: We Can Do Better

We live in a time when a healthy financial life is increasingly difficult, particularly for young people. One big reason is that our culture has changed. We’re bombarded daily with thousands of messages pushing the benefits of consuming, teaching us to want more of everything. In addition, consuming and overconsuming, regardless of income, have become so very easy. The ease of obtaining credit in all its forms—mortgages, car loans, credit cards, student loans—is convenient but has become a curse for many who lack adequate financial literacy skills.

A survey of over 100,000 college students from over 400 colleges by the National Association of Student Financial Aid Administrators as well as another by AIG Retirement Services of 30,000 students across a similar number of schools produced remarkable findings:

• Nearly two-thirds of students reported they had never had any personal finance training.
• NASFAA found that the average correct score for incoming college students on a six-question test on basic financial literacy was a dismal 33%.
• The average student debt burden for graduating college students is about $30,000. Students feel unprepared to handle student loans. While most expect to take on debt to attend college, only 15% of them felt they had the education, information, and resources to be able to pay off those loans in the future.
• Thirty-six percent of college students surveyed had over $1,000 in credit card debt.

As Reformed Christians, we believe in the three-legged stool analogy for training our children. As parents, we are partners with our church family and with our local school in training our children. But I think few, if any, of those institutions are currently providing adequate financial preparation.

But is that really a problem? I think so.

We need to equip our young people to manage their money because Christ calls us to do so. What topic is mentioned more than any other in the Bible? Money and possessions. Over 2,000 verses in the Bible talk about money. Suffice it to say that the Bible and specifically our Savior have much to teach us about how we ought to live with money.

So what does the Bible really say about money? I most like Ron Blue’s characterization in his book Master Your Money: God owns it all. We are merely stewards when it comes to the resources God entrusted to us. Similarly, God will demand an accounting of just what we’ve done with what’s been given to us, as Jesus taught in the parable of the talents. Teaching young people about the basics of how to handle their resources is not about growing their wealth and having more, but about teaching them how to be good stewards of the resources God has entrusted to them.

What Can We Do?

Training begins at home. Our checkbooks, bank statements, and tax returns reveal exactly what we believe about stewardship. They tell our life story, reflect our goals, priorities, relationships, and even where we spend our time. Secrecy about our personal finances is the norm in our society. Perhaps the time has come to help our kids understand the kinds of financial decisions we make every day.

In our churches, pastoral support of stewardship is essential. Let’s encourage our pastors to preach more sermons and teach us more about the many places God speaks to us about stewardship and how to live our financial lives. This shouldn’t be simply an annual “stewardship Sunday” sermon, but regular reminders from the pulpit about what God expects of us.

Schools can be the primary place for teaching specifics of financial literacy. The surveys referenced above noted that the current low level of financial literacy comes from the lack of fiscal education in K-12 education. Only 17 U.S. states require a personal finance course to graduate high school. Of those states, only seven require a financial literacy test to graduate. There are great Christian educational materials for K-12 financial education. It’s time we use them in all our schools.

Financial literacy training at the college level is critical because college is often the first time students are personally responsible for managing their finances on a daily basis. Calvin University has several programs to increase student financial literacy.

The cultural pressures on our young people have never been more pervasive or intense. The rapidly changing nature of money and how we access and spend it heighten the need for strong financial literacy. While we are making some headway, training our families to be better stewards of the resources God has entrusted to us needs to be a clear priority. This applies to our homes, our churches, our schools, and institutions of higher education. It’s our responsibility as God’s faithful stewards.

How can you coach young people and young adults as they become independent through high school, college and post-college ages? Follow the time-tested advice of notable Christian financial writers Larry Burkett, Ron Blue, and Dave Ramsey, summarized below:

Advice for High Schoolers and Young Adults:

• Spend less than you earn! Do it always, regardless of your income. There’s no more important or fundamental principle to money management.
• Set short-term and long-term financial goals.
• Build liquidity by saving toward those goals, including starting an emergency fund—save $500 in college for that unexpected emergency (a car breakdown or some other rainy-day issue), and save toward at least three months of expenses once you are working.
• Avoid using debt—only borrow to buy or invest in appreciating assets, such as yourself (student loans in moderation and tied to your future income) and a home.
• Start to invest toward long-term goals. Start saving early to take advantage of the tremendous power of compounding. Always invest enough toward retirement to take advantage of your employer’s match, and use the tax-advantaged vehicles available to you.
• Give generously and regularly. Make it part of your monthly budget.
• Track your expenses and live on a budget, and use available tools such as Mint or Quicken to keep it simple.
• Build a strong credit history. The time to start is in college. Start with a single credit card used modestly and fully paid each month. Use simple tools to check your credit report regularly.
• Manage your risks wisely through good use of insurance (health, life, disability, property, and casualty and liability), getting good advice along the way.

Advice for Parents of Younger Kids:

• Help your kids create some income so they know what it feels like: give them an allowance, encourage them to babysit, mow lawns, shovel driveways, wash cars, deliver papers, walk dogs, etc.
• Teach them how to use that income by putting it into categories in the same way you do:
  • Savings—open an interest-bearing bank account and help them save toward some specific short and medium term goals (bike, video game, etc.)
  • Giving—explain what a tithe is, why God calls us to give, why you choose to give, and why it makes you happy. Better yet, guide their giving to someplace they can also give their time.
  • Investing—open a mutual fund account, or find a good company to invest in and purchase stock through a dividend reinvestment plan for a long-term goal (college). If your children have any income, help them open a Roth IRA and help them fund it (or ask grandparents to help).
  • Spending—yes, children should have freedom to spend some money as they see fit; it can be a teaching/learning opportunity depending on their choices.
• Teach them very basic financial fundamentals:
  • Where does the cash in the ATM come from? What does the bank do with your money?
  • How do you pay your bills? (Explain budgeting basics.)
  • What are debit cards or credit cards, and how do they work?