Financial Literacy for Youth
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:
- Frauds, scams and predatory lending practices
- Public and work-related benefits
- Banking practices
- Savings and investing strategies
- 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.