Post-Graduate Studies: Are Young Adults Passing Their Financial Literacy Tests?

With their diplomas and degrees in hand, another group of graduates is off to tackle the world of “adulting.” Whether they’re making the transition to a college campus or that first real job, they should have a firm grasp on the basics of financial literacy—but do they?

“Usually the answer is ‘no’ and should that change, yes,” says Rod Murray, Senior Vice President Commercial Banking at Associated Bank. “Financial literacy is something that is probably lacking across the board. I see a little bit of movement there and they’re doing a better job, but financial literacy should be top of mind, and it’s usually not.”

If you know a young adult who is about to experience that first taste of independence, you should have a conversation with them to ensure that they are at least familiar with the basics of responsible money handling.

• Balancing a checkbook? Although it seems like nobody has a checkbook or writes checks anymore, the concept of “balancing your ledger” is still important. “With the online piece that banking has, that can be a little bit easier to do,” says Murray. “You see what clears every single day versus doing it once a month, like when you had to balance a checkbook when you got a paper statement.”
• The good and bad of credit cards. College students are still a favorite target for credit card companies, whether through on-campus booths and giveaways or regular mailings. While it is a valid way to build good credit early, young adults should recognize the implications of their own credit card. According to Murray, “It should have a lower limit. They should be responsible for it and understand it. And that’s a discussion that a parent or adult or guardian should be having with them on what that means— it’s not just plastic money.” They should also know the results of a bad credit history; dodgy credit can jeopardize acquisition of mortgages, vehicle loans and even employment.
• Start a budget–and stick to it. Discipline is key. “Make a budget, but the first person you should pay is yourself,” advises Murray. “And then you work with what’s left and don’t go above it.”
• App awareness. Technology such as person-to-person payments or paying with a swipe of the phone makes spending easy, but can also lead to unconscious overspending. “You start having something such as an app that pushes money across the table. Well, that can’t be any easier, and it’s instant and it doesn’t seem real,“ says Murray.
• Student loan considerations. Conversations on the cost of higher education should begin as early as high school, when students and parents are considering the colleges to which they’ll apply. Be honest with them about their options: Is it truly affordable? Will they be getting scholarships and grants? Will other family members help with costs? Have they saved any money themselves? And once they graduate, will they be able to balance loan payments with rent and other costs of everyday living?