Good financial habits … Start them early

Good financial habits, like so many other important skills and knowledge our young people acquire as they grow, should begin at an early age. The evidence is mounting that many people, including many young adults, have not learned basic money-management skills. They know how to spend, however do they know how to live on a budget, save for a rainy day, manage credit, and keep out of debt?

Young individuals come to our bank all the time. Many have little prior experience with credit. They don’t know their credit score or even where they can obtain a copy of their credit report for free. I’ve seen young couples whose credit history has kept them from getting a mortgage. I’ve seen young men and women get into financial trouble over a credit card. And I wonder … if they had early exposure to financial education, would they be in this situation today?

Financial education is one of the most important foundations that young adults can have. Education and hands-on money experience are critical in building a generation of smart money managers.

Unfortunately, formal financial education is rare. A recent study showed that 98 percent of college students learn money skills through trial and error. But financial smarts doesn’t have to be learned through financial mistakes.

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For this very reason I applaud the educators of Rogers High School (in Newport) who for the past five years have partnered with BankNewport in providing their senior class with a financial education program. Our co-taught program, instructed over several months, covers important topics such as budgeting, managing credit, saving for future needs, the importance of insurance coverage and the ease (and pitfalls) of electronic banking. We hope that these lessons will help fill the need for financial education in our community.

But even when formal financial education is provided, every one of us can be a teacher every day. Think of the teaching opportunities offered by that first gift of cash on a birthday, or by the money earned from baby-sitting or lawn-cutting – these all present opportunities to discuss the value of spending less now and saving some for the future. Trips to the grocery store offer great opportunities to talk about monetary choices. Go with a budget and plan to stick with that budget — foregoing soda, for example, in favor of the milk and eggs.

Encourage young people to think about their spending and saving options. Many teenagers make enough money to open their own checking account, perhaps a joint one with a parent. Some youth even make enough money to open an Individual Retirement Account. Imagine what a nest egg they will have in retirement if they start saving for it as teens.

Parents should consider paying bills in the presence of their children, review credit card and bank statements with them, and talk about how the family budget covers the cost of food, clothing, rent and all the rest. Discuss how you pay for purchases. Do you use a debit card, a credit card or cash — and why? When the family’s credit card bill or bank statement arrives, help them understand the concept of paying interest and earning interest, and the longer term costs of immediate gratification. Collegeboard.com indicates: Imagine being 25 years old and still paying off a slice of pizza that you bought with a credit card in college. It sounds crazy, but it happens if you don’t pay off that credit card balance.

Help the young people in your life practice their saving and investment skills. If they have a job, help ensure that a portion of their income is put regularly into savings. If they use a credit card, make sure they use it sensibly. Help them develop a budget. Ask them to think about their financial future.

Our young people control our nation’s financial future. Their financial success will have a direct impact on the financial health of our communities. Every one of us can be a resource for them. We owe it to them to do everything we can to help prepare them for the financial challenges and temptations they will certainly face ahead.

Sandra J. Pattie is president and CEO of BankNewport. BankNewport, with its insurance agency, OceanPoint Insurance, are also offering financial literacy programs in Coventry and West Warwick High Schools.

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