President Obama and his top financial advisers in November were handed a blueprint for what kids at certain ages should be expected to know about money. The document is still a work in progress. But it’s far enough along to have boiled down thousands of pages of research from a dozen independent sources into 20 simple “money milestones.”
Identifying what kids should know about money, and by what age, is a critical step in the global push to raise personal financial literacy rates. By finding ways to make an impression on young people before they fall into bad habits, we may be able to get them to do things like budget and save as readily as they learn to brush their teeth.
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More than a few have taken a stab at a definitive age-based list of money milestones. I took a shot at it here about 18 months ago. The JumpStart Coalition for Personal Financial Literacy has its version. You can find other lists here and here.
But the money milestones that Obama and his team—including Alan Krueger, chairman of the Council of Economic Advisers, and Gene Sperling, director of the National Economic Council—have in hand attempt to synthesize and simplify the best information out there. As part of her work for the Youth Subcommittee of the President’s Advisory Council on Financial Capability, Beth Kobliner, author of Get a Financial Life, prepared the paper, and when the milestones are finalized a year or so from now and blessed by the White House they will carry a lot of weight with educators and others in the financial education field. (And to my knowledge, this working paper has not previously been reported.)
Here’s how the milestones break down:
- Ages 3-5 A child should come to understand that you need money to buy things; you earn money by working; you may have to wait before you can buy what you want; there’s a difference between what you want and what you need.
- Ages 6-10 A child should come to understand that you must make choices about how to spend your money; you should shop around for the best deal; it is dangerous and costly to share too much information online; putting your money in a bank account will protect it and earn interest.
- Ages 11-13 A child should come to understand that it is smart to save 10% of what you earn; entering credit card or Social Security numbers online puts you at risk of identity theft; the earlier you save the more you’ll have in the long run; a credit card is a loan and you will owe more than you spent if you do not pay your bill in full each month.
- Ages 14-18 A teen should come to understand that college is expensive and you should choose a school and student loans based in part on your career expectations; you should avoid using credit cards for things you cannot afford in cash; you pay taxes on your income and should budget for take-home pay, not gross pay; a great place to save and invest is a Roth IRA.
- Ages 18 and up A young adult should understand that you should use a credit card only if you can pay off the balance every month; you should never be without health insurance; you should always diversify your investments and pay attention to the costs associated with various investment products.
These milestones are broad and simple by design. They are meant to promote awareness of basic personal finance issues that, perhaps, you take for granted but which generally are found lacking across the population.
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Kids who are raised with even cursory knowledge of things like interest expense and fees on financial products will, as adult consumers, know enough to investigate further when necessary. That’s a minimum goal of financial education—and it is the right approach. We can reach higher, too. But loftier financial education goals should not be at the expense of building a solid base. For now, what’s needed is a set of widely accepted guideposts that all interested parties can teach to. Maybe we’ll have it soon.