Financial Literacy for Youth

Posted December 9, 2021, By the Annie E. Casey Foundation

A colorful, playful drawing of two seated young women--one holding an oversized credit card, the other holding oversized coins. Behind them are oversized dollar bills.

Too many U.S. adults strug­gle with fam­i­ly finances and crush­ing debt, under­min­ing their abil­i­ty to ful­ly sup­port them­selves and their chil­dren. Con­sid­er these sta­tis­tics: More than two-thirds of adults would fail a basic finan­cial lit­er­a­cy test, and more than 47% of Amer­i­can house­holds do not have $400 to cov­er an emer­gency. Against this bleak back­drop, it’s no sur­prise that youth across the coun­try are grow­ing up ill-equipped to han­dle their own finances.

What is finan­cial literacy?

Finan­cial lit­er­a­cy encom­pass­es the skills, knowl­edge and tools that peo­ple need to take action and make finan­cial deci­sions that will sup­port their per­son­al goals, accord­ing to the U.S. Finan­cial Lit­er­a­cy and Edu­ca­tion Commission.

The process of acquir­ing these skills, knowl­edge and tools is called finan­cial edu­ca­tion and can take sev­er­al forms, such as class­room edu­ca­tion, per­son­al coun­sel­ing and coach­ing, tech­nol­o­gy-based pro­grams and self-study.

Finan­cial lit­er­a­cy vs finan­cial capability

Finan­cial lit­er­a­cy refers to the man­age­ment of mon­ey, often with an assump­tion that an indi­vid­ual has access to funds and can decide how to use them. Finan­cial capa­bil­i­ty includes skills learned through finan­cial lit­er­a­cy but also pro­vides young peo­ple with the skills and infor­ma­tion need­ed to access finan­cial insti­tu­tions, prod­ucts and mar­kets. For exam­ple, the Annie E. Casey Foundation’s Oppor­tu­ni­ty Pass­port™ is a matched-sav­ings pro­gram aimed at help­ing young peo­ple emerg­ing from fos­ter care build finan­cial capa­bil­i­ty and assets.

America’s finan­cial lit­er­a­cy gap

As a result of insti­tu­tion­al bar­ri­ers to wealth accu­mu­la­tion and home­own­er­ship, adults of col­or, par­tic­u­lar­ly those in the South — when com­pared to their white peers — are gen­er­al­ly less like­ly to be finan­cial­ly lit­er­ate and more like­ly to expe­ri­ence finan­cial hard­ship. Finan­cial lit­er­a­cy is also less com­mon among low-income individuals.

The finan­cial lit­er­a­cy gap begins ear­ly in life. White and Asian 15-year-olds, on aver­age, have sub­stan­tial­ly high­er finan­cial lit­er­a­cy scores, while His­pan­ic and Black stu­dents have sub­stan­tial­ly low­er scores when com­pared to their gen­er­al pop­u­la­tion peers, as report­ed in the 2020 U.S. Nation­al Strat­e­gy for Finan­cial Literacy. 

Why is finan­cial lit­er­a­cy impor­tant for youth?

Finan­cial lit­er­a­cy is key to help­ing young peo­ple man­age mon­ey effec­tive­ly so that they can become finan­cial­ly sta­ble, build assets and achieve their per­son­al goals. 

Deci­sions made in ear­ly adult­hood can have last­ing finan­cial con­se­quences. For instance, today’s youth can amass debt quick­ly, often in the form of school loans or cred­it card debt. Accord­ing to a report by the Nation­al Endow­ment for Finan­cial Edu­ca­tion, Gen­er­a­tion X youth report­ed an aver­age debt of about $60,000 by their late 20s, and their suc­ces­sors — Mil­len­ni­als — had already reached this point in their mid-20s.

Many young peo­ple receive no for­mal finan­cial instruc­tion. Instead, they learn about mon­ey through social­iza­tion, such as observ­ing and lis­ten­ing to their par­ents, care­givers, oth­er adults and peers. 

What are the key ele­ments of finan­cial literacy? 

The gov­ern­ment web­site youth​.gov iden­ti­fies five areas of finan­cial lit­er­a­cy and capa­bil­i­ty that a young per­son should learn about:

  1. Frauds, scams and preda­to­ry lend­ing practices
  2. Pub­lic and work-relat­ed benefits
  3. Bank­ing practices
  4. Sav­ings and invest­ing strategies
  5. Cred­it use and inter­est rates

Finan­cial lit­er­a­cy and capa­bil­i­ty pro­grams for youth in fos­ter care

The Casey Foun­da­tion has tai­lored its finan­cial lit­er­a­cy and capa­bil­i­ty resources to meet the unique needs of young peo­ple in fos­ter care. Too many of these youth have grown up with­out a sup­port­ive adult mod­el­ing how to make smart finan­cial deci­sions for the short and long term.

The Casey Foundation’s Oppor­tu­ni­ty Pass­port from the Jim Casey Youth Oppor­tu­ni­ties Ini­tia­tive is a matched-sav­ings pro­gram that sup­ports young peo­ple who are tran­si­tion­ing from fos­ter care into adult­hood by help­ing them secure employ­ment and increase their finan­cial capa­bil­i­ty. Oppor­tu­ni­ty Pass­port incen­tivizes work and sav­ings to help young peo­ple gain finan­cial sta­bil­i­ty as they exit fos­ter care.

To help young peo­ple who are tran­si­tion­ing from fos­ter care into adult­hood, the Foun­da­tion cre­at­ed Keys to Your Finan­cial Future, a com­pre­hen­sive finan­cial edu­ca­tion cur­ricu­lum that helps youth improve their finan­cial knowl­edge and skills and posi­tion them­selves for suc­cess. The eight-mod­ule cur­ricu­lum includes guides for facil­i­ta­tors and par­tic­i­pants.

Casey’s Youth and Cred­it empha­sizes the need to pro­tect the cred­it of youth in fos­ter care. While not irrepara­ble, poor cred­it can posi­tion youth who are exit­ing care on an uphill finan­cial climb. This report, geared toward adults work­ing with young peo­ple in care, offers a step-by-step process for imple­ment­ing a cred­it check require­ment autho­rized through fed­er­al leg­is­la­tion in 2011.

The Foundation’s Learn and Earn to Achieve Poten­tial (LEAP)™ ini­tia­tive aims to increase employ­ment and edu­ca­tion­al oppor­tu­ni­ties for young peo­ple who face some of the great­est chal­lenges on the path to adult­hood, includ­ing youth who have been involved in the child wel­fare or jus­tice sys­tems and those who’ve expe­ri­enced home­less­ness. LEAP part­ners are help­ing these young peo­ple to max­i­mize their earn­ings, set sav­ings goals, build good cred­it and, ulti­mate­ly, estab­lish finan­cial secu­ri­ty and independence. 

Finan­cial lit­er­a­cy pro­grams for students

Today, too many stu­dents are assum­ing sig­nif­i­cant debt to finance their edu­ca­tions. This edu­ca­tion­al debt does not affect all bor­row­ers equal­ly, with large dis­par­i­ties for peo­ple of col­or and women in the amount of debt tak­en and the abil­i­ty to repay loans.

Pro­mot­ing finan­cial well­ness and finan­cial capa­bil­i­ty can help guard against over­bear­ing stu­dent debt. For exam­ple, the Casey-sup­port­ed Car­oli­na Col­lege Advis­ing Corps is work­ing with high school stu­dents to help them nav­i­gate col­lege bor­row­ing and min­i­mize stu­dent loan debt.

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