"Teach Your Children," Crosby, Stills Nash and Young sang in 1969. The title resonates 50 years later when it comes to financial literacy.
A new report says that American teenagers are sold on the American Dream -- but they seem to have no idea how to pay for it.
A Junior Achievement/Fannie Mae survey shows the vast majority (88%) of U.S. teenagers aspire to own a home someday, but report significant financial and homeownership knowledge gaps.
The survey also says that 85% of teens believe owning a home is part of “the good life,” compared with 87% of adults, based on Fannie Mae’s Q4 2020 National Housing Survey.
Yet less than half (45%) of surveyed teens could correctly define a home mortgage while three-quarters (76%) of younger Americans said they “lacked a clear understanding of credit scores.”
The survey of 1,000 nationally representative U.S. teens between the ages of 13 and 17 was conducted from May 25 through May 31, 2022, by Wakefield Research.
“There’s been this theme that younger Americans aren’t interested in homeownership, but the results of this survey contradict that assumption,” said Jack E. Kosakowski, president and chief executive of Junior Achievement USA, a Colorado Springs, Colo., nonprofit that says its mission targeting young people is "economic empowerment through education."
“Teens appear very interested in owning a home someday, but seem to realize they need more information on how to do it.”
Teens' Financial Literacy Lags
Financial experts say that many younger Americans aren’t money savvy and have much to learn to get there.
“The study is true,” said Bill Ryze, a chartered financial consultant at Fiona in Memphis. “Teens hope to own a home, but they are financially illiterate. In my experience, they don’t understand home mortgages, and very few of them understand credit scores.”
The main problem and contributor to financial illiteracy among teens is that not enough financial-literacy classes address teens, and those that are in place are less than fully effective.
“The U.S. needs a better national strategy to address finances among the youth,” Ryze told TheStreet.
“The financial illiteracy among them is worrying, and we need to come up with clear standards and devise how we can teach financial education to establish positive behavior. There is a need to train educators to deliver financial education effectively.”
Education Is the Key
What can parents, schools, and the financial sector do to prepare today's teens for the "real financial world" that's right around the corner?
Money experts have some ideas.
“Find resource-friendly financial materials like age-appropriate books on finance to help them grasp financial concepts,” Ryze said.
“Also, engage them in financial-related activities like working with them to create a home or school budget and sticking to it.”
On all fronts, it’s also advisable to encourage kids to save, with both short and long-term goals.
“The ability to buy things they need from their savings or add interest to their savings could motivate them,” he added.
“Explain to them what debt is, how credit cards work and why a good credit score is essential. It may seem a lot to discuss with teens, but it helps them learn how to be responsible and avoid falling into debt.”
Parents should also be on the front line of financial literacy, as money lessons truly begin at home.
“Including children in some household financial conversations, helping them to establish savings accounts, build credit early with a prepaid credit card, and encouraging part-time jobs all contribute to early financial literacy,” said Erin Sykes, chief economist at Nest Seekers International, the New York residential broker.
Online learning programs geared to kids -- like Juni Learning, Education 10x, and Bankaroo -- can help, too.
“By using these tools, teens can establish a path to home ownership and the good life rather than feel intimidated or overwhelmed,” Sykes said.
