Financial Literacy Programs for Youth
To enhance financial literacy programs for young people, here’s an activity that teens can do right now, to learn four key financial scenarios. All youth – and many adults – should understand all four of these financial literacy fundamentals to avoid major problems in life and prepare for their financial future. The lesson covers basic calculations for saving, how to start putting aside funds for long-term needs such as retirement, the real cost of excessive credit card debt, and the importance of having some emergency funds available for life’s surprises.
Here’s the lesson:
Financial literacy programs – understanding how money works, how to use it to your advantage, and how to avoid common problems – is key to living the life you want. If you are disciplined and save a little money each month, you will be able to afford the better things in life. Complete the activities below to explore four key ways to save: putting away a little each month, planning for the long-term, avoiding credit card debt, and preparing for life’s surprises.
1. Exercise on saving money
Learning to consistently save money is probably the most important aspect of financial literacy. By saving, you will afford more things because you will EARN interest instead of PAYING interest. For example, if you put away $100 a month at 6.5% interest, you’ll have $7205.68 at the end of five years. But you’ve only put in $6000 of your own money.
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You open a new savings account with $100. If you deposit $50 a month and earn 4% interest, how much will you have after 2 years?
2. Exercise on preparing for retirement
Most people decide, later in life, to retire from the working world. It’s a time to relax, spend time with family, pursue your favorite leisure activities, and travel. When you retire and stop working (or work less), you’ll need savings to pay for your living expenses and leisure activities. Social Security may provide some income for those older years, but it won’t be enough. By the time you retire, it may not be there at all. A key part of financial literacy is learning how to calculate what you’ll need, then being disciplined and start putting away that amount.
Like savings and investing, you should start with a little money now and add a little each month. Over the course of your life it will add up quickly. By the time you retire, you’ll have enough to pay your bills and have some fun in those leisure years. But it’s best to start now.
DO THIS: CLICK to to find a calculator for this activity.
After you retire, if you want to have $50,000 per year for 20 years (or a total of $1,000,000), how much will you need to save or invest every month until then? Enter the following:
- Your current age,
- You retire at age 65,
- The interest rate you earn is 7%,
- You want $50,000 Desired Gross Retirement Income Per Year,
- You want the money to last 20 years after you retire.
- Then click SUBMIT for your answer: “… I will need to save ____….”
3. Exercise on the real cost of credit cards
Credit cards are risky. A key message of these financial literacy programs: knowing when to use, and when to stop using, your credit cards. If you use credit cards to pay for food, clothes, leisure activities, and playthings, you can quickly pile up big bills. When you try to pay those bills, it’s difficult because most credit cards have high interest rates and the balance continues to grow. Plus, if you miss payments it can damage your personal credit rating. Then, it will be much harder to get loans for important expenses like a house, car, or an education.
When you add up how much credit cards charge in interest, it’s alarming. For example, assume you have made purchases of $3500 on your credit card and the interest rate is 12%. If you pay the minimum payment each month of $70, it will take you six and half years to pay it off! You’ll pay over $2000 in interest – in addition to the $3500 you owe in purchases.
DO THIS: CLICK to find a calculator for this activity.
You make $6500 in purchases on your credit card, and you pay the minimum each month of $130 (or 2%). If the interest rate is 16%, how long will you take to pay it off?
How much interest will you pay, in addition to the $6500 in purchases?
4. Exercise on saving an emergency fund: The fourth and final lesson in financial literacy is about preparing for the unexpected. Life always has surprises, some of them not so pleasant. What happens if you injure yourself and can’t work? Or if your car needs a new transmission? Or if a family member becomes ill and you have to take time off to help them? How will you support yourself?
To be prepared for these surprises, you should plan on saving for an emergency fund. You should have enough in your fund to cover three or four months of living expenses.
You need to start setting aside savings for an emergency fund. You should have three or four months of living expenses in your fund. How much will you need in your emergency fund?
Consider all the insights in these financial literacy programs to prepare yourself for a strong economic future.
