Young people say they don't feel prepared to make smart financial choices, according to a recent a recent survey by the Charles Schwab Foundation. Carrie Schwab-Pomerantz talks about the study's findings, and tells us how parents should teach their own children.
>> Baie Netzer: The current financial crisis has taught many people lessons about the perils of excessive debt. Parents in particular are hoping their kids take those lessons to heart and don't make the same mistakes they did, but a survey commissioned by Charles Schwab foundation reveals that most young people don't feel adequately prepared to make smart financial choices. Carrie Schwab-Pomerantz is President of Charles Schwab Foundation and she's here to tell us more about the state of economic anxiety among young people today. Carrie thank you for joining us.
>> Carrie Schwab-Pomerantz: Thanks for having me.
>> Baie Netzer: So according to your survey young 20 year olds don't feel adequately prepared to manage their finances. How bad is the situation or them?
>> Carrie Schwab-Pomerantz: Well these young people consider themselves their financial fitness pretty flabby. Only 1/3 pay off their credit card debt on a monthly basis that means the rest you know pay unreliably. One in 4 still live at home because they don't have enough money to live on their own and only 1 in 4 don't take advantage of their 401Ks with their employer. So they have a lot to learn.
>> Baie Netzer: So young people don't feel prepared to manage their finances but yet your survey also shows that they feel it's very important to learn how to manage finances and to make smart choices. Is it become more and more important for them now because of the current financial crisis and what they see their parents going through?
>> Carrie Schwab-Pomerantz: I think this economic down turn has been a wakeup call for everybody and these young people said, 2/3 said that their financial fitness was more important than their physical fitness and in fact they feel that personal finance should be mandated in the schools K-12 and that it's more important than physical fitness, nutritional health or sex education combined. So it's really a top priority for these young people.
>> Baie Netzer: Should parents of say teenagers who are still at home or perhaps even young adults who are still at home speak more to their kids about the financial issues they're struggling with? Would that be useful to them or is that too stressful for them?
>> Carrie Schwab-Pomerantz: You know financial literacy or understanding about personal finances can be very theoretical so this is a prime opportunity to have the conversation with young people. Now exactly what you say to them really depends on your child's age and maturity level. But it's a wonderful you know way to bring the concepts of budgeting and not living with beyond your means and having mortgages that you can pay for, those kind of concepts are really real life situations.
>> Baie Netzer: You've worked quite a bit on issues of financial literacy, you've testified in Washington D.C. I' m assuming that financial literacy encompasses more than not borrowing too much money or buying a house you can't afford. What exactly does financial literacy encompass?
>> Carrie Schwab-Pomerantz: There are really 5 dimensions to financial fitness. The first is managing your inflows against your outflows; you know not living beyond your means. There's also managing debt; you know home mortgages, credit cards. There's also saving or investing really key and important. You know a lifetime process. There's also insurance planning; you know expecting the unexpected. And then lastly estate planning; stating where you want your assets to go should something happen to you.
>> Baie Netzer: So what advice to you have to give to young people who say it's important to learn how to manage their finances but they don't know how to go about doing it? You know it's a wonderful opportunity for parents to start teaching their kids at a young age. So I think you should start with budgeting and living within your means; you know tracking your spending and and looking at your income versus your expenses. Also saving, making it a habit. Something that kids don't think about, something they do for a lifetime. And then lastly managing credit card debt. Our surveys show that even young people, teens have credit card debt. So get a credit card on training wheels and show them how to pay it off on a monthly basis and how the fees and interest can build up and then lastly consider going to Schwabmoneywise.com it's a wonderful resource for parents, all sorts of tools, tips and calculators that can help you, guide you through the conversation.
>> Baie Netzer: Ok good advice. Carrie thank you very much for joining us.
>> Carrie Schwab-Pomerantz: Thank you for having me.
>> Baie Netzer: We've been speaking to Carrie Schwab Pomerantz President of the Charles Schwab Foundation. I'm Baie Netzer from moneywatch.com, thanks for watching. Music
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