Youthentity column: Financial education is key to healthy communities

Kirsten McDaniel

At Youthentity, when we speak of financial literacy, we often talk about it in terms of its benefits to our local community: a financially literate population is more likely to be happier, healthier and more stable as a whole.

In local and national headlines, we’ve see the many ways that lack of financial education can manifest, including creating victims of predatory lending, subprime mortgages, or fraud and high interest rates — all of which can result in bad credit or bankruptcy. Financial illiteracy can also lead to enormous debt, which for many people becomes a lifelong burden and obstacle to advancement.

In our 14 years of delivering financial literacy workshops to students and schools throughout the Western Slope, we’ve found that several financial concepts stand out as having the most mystery and misconception surrounding them – and that these misconceptions can stick with us into adulthood:

1. Ah, credit cards. So much misunderstanding surrounds these ubiquitous monthly loans. We’ve heard adults say that to “build credit,” it’s best to carry a balance on a credit card (to which we respond with a resounding, “No!”). As we teach our students, paying credit cards off in full each month is the best practice for managing this important piece of plastic. And though credit cards get a bad rap, if used knowledgeably, making purchases with credit can be worthwhile through cash-back and points rewards programs.

2. Interest — especially compounding interest (if everyone understood this one from an early age, we’d all be in much better shape). Compounding interest is interest on interest; or, the result of reinvesting interest instead of paying it out. Which leads us to…

3. The misconception that saving for retirement is something to worry about when we get older. Time is the secret ingredient to a healthy retirement fund. Just a few dollars a month starting at age 20 can make a powerful impact on how and when you retire.

As mentioned above, these misconceptions often follow us into adulthood unless we experience an intervention of formal financial education — the most effective way to instill responsible financial habits. When we invest in teaching young people to responsibly manage money, we help them to develop long-term thinking, goal-setting and the connection of money spent now to their future selves — referred to as “intentional spending.”

While the effects of financial illiteracy are apparent in and around our community, it is a global epidemic. And like many of the world’s pressing issues, the solution to financial misinformation and mismanagement starts locally. We are fortunate to live in Colorado, a state which mandates financial literacy education in our schools – truly an investment in the future of Colorado.

Kirsten McDaniel is executive director of Youthentity, a Carbondale-based youth development nonprofit which offers career exploration opportunities and personal financial literacy education to over 5,000 youth throughout Colorado.

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