Other Voices
Posting Date: May 19, 2008
Strengthening Financial IQ Of Generation Y and Beyond
Editor: In less than a month, many college graduates will be entering the workforce. They will rent apartments, buy cars, and take the first steps of what is widely considered an ‘adult life.’ While this is certainly an exciting time in their lives, warning signs point to the fact that it can also be a stressful time. A majority of college students and recent college graduates may have a good handle on topics like world affairs and the statistics of their favorite sports teams, but many lack an understanding of the most basic money management skills such as budgeting, saving and investing.
Take credit scores for example, which have become a definitive measure of how financially responsible a consumer is. Not many adults, let alone college seniors, know that a credit score can affect one’s ability to buy a car, a home, get a decent rate on insurance or even get a job.
A recent survey showed that only 17 percent of respondents knew their credit scores by the time they were 21 years old. That is a problem especially given today’s economic climate which demands that we be even more careful stewards of our money.
Generation Y (ages 18-25), as they are called, is responsible for their financial futures in a way that previous generations were not. They will pay for their retirement largely through their 401(k) and other plans that they contribute money to over an extended period of time. They will be asked to shoulder more responsibility for their own healthcare.
In addition, they will do all of this while already carrying a larger debt burden. In fact, the average college graduate enters the workforce owing $23,000 in debt that they racked up while in college. This amount is much more than previous generations.
To make matters worse, most adult Americans are not far behind when it comes to managing their finances. If it’s difficult for adults to navigate their way through today’s complex financial choices, can you imagine what it’s like for a college student or recent graduate? It is clear to see that America is in the midst of a financial literacy crisis.
However, there is good news and that is aggressive education and awareness efforts are underway to tackle this pressing problem head on — especially when it comes to strengthening the financial IQ of Generation Y.
This is critical not just for these newly minted graduates, but for the long term health of our economy because this consumer demographic will be helping to drive the engine of our economy for years to come.
One such effort recently took place in the form of the Second Annual Financial Literacy and Education Summit, co-sponsored by the Federal Reserve Bank of Chicago and Visa. For the second consecutive year, this national event brought together a panel of public policy, education and private sector financial education advocates, ranging from Federal Reserve Chairman Ben Bernanke to U.S. Treasurer Anna Cabral to Pursuit of Happyness author Chris Gardner.
This Summit put a spotlight on how we can collectively help alleviate financial trouble among college students and young adults through better awareness of and access to effective financial education tools and resources.
We invite you to view this important event, which can be seen online at no cost at www.pracitcalmoneyskills.com/summit2008.
If the next generation does not have a roadmap to help them manage their personal finances, then we are all responsible for this tragic failure.
(Doug Tillett is the Vice President of Public Affairs at the Federal Reserve Bank of Chicago. Jean Chatzky is a personal finance expert, award-winning journalist and best-selling author.)