Tuesday, March 01, 2011
The Money Trap
By Andrea Schoellkopf
Journal Staff Writer
Josh Holmberg got a T-shirt when he applied for a credit card at New Mexico State University.
That credit card paid for his senior year, a debt Holmberg thought he could pay off easily with his first three months of work after graduation.
The 1990 Valley High graduate was wrong: His paychecks couldn't cover the debt, and the minimum payments he managed to make didn't make a dent in the balance.
"Instant gratification," said Holmberg, is the most important thing for teens when they think about money.
But educators are trying to change that. In 2007, state lawmakers required high schools to offer a financial literacy course as an elective. The semester-long course can now count toward one of the four years of math required for graduation. More than 700 students statewide have taken the online course this school year.
Ultimately, Holmberg took out a loan against the car his parents had given him for graduation to help him pay off the credit card in full.
Afterward, he and a friend, 1989 St. Pius alumni David Bruzzese, wrote a book, "The Teen's Guide to Personal Finance," as a way to keep teens from making the financial mistakes they did during and after college. The 94-page book, published by iUniverse, is being used by a local Morgan Stanley Smith Barney firm to help teach local teens about money.
"At the end of the day, (financial illiteracy) is the main reason the country's in the shape we're in," said John Nichols, a senior vice president in the firm.
Part of the problem, he said, is that parents are not really fiscally savvy either, so they aren't teaching their children about money.
Central New Mexico Community College has been offering its own financial literacy course online to high school students, who get dual credit in college and high school to learn financial basics.
"As teenagers, we think our parents give us everything," said 16-year-old Atrisco Heritage Academy High junior Edna Salazar, for whom the class is a required elective in her area of study.
And she's right. Many teens interviewed said they didn't have allowances or jobs. If they need something, their parents pay for it.
"I've never budgeted in my life," Salazar said.
The CNM class looks at choosing insurance, filing income taxes and the meaning of credit history. There are presentations by bank and credit union officials about savings. The class looks at government rules and taxation laws, planning for "bad times" to illustrate the need for insurance and how to reach career goals.
Salazar's mom has started paying her for doing extra chores around the house and has set up a bank account with her to show her how to budget and what it means to be under her insurance.
Issac Rael, 16, says he needs to take care of his siblings so his parents can work. But he's getting a good lesson on what he'll need for college.
"(The class has) actually made me smarter with money," said Rael, who does odd jobs for relatives to earn money. " I'm saving up to buy a car."
Holmberg, who has a career in high-tech software sales in Denver, gives talks to students and their parents at libraries and churches.
"There's daily opportunities to have discussions with your children about money," he said.
Youths who have allowances or a job can learn about earning and spending on a small scale. To teach about savings, Holmberg talks about the cost of a school lunch at a restaurant or cafeteria versus bringing a lunch from home, or drinking water instead of soda.
Holmberg suggests teaching the concept of credit by giving a teenager a pre-paid credit card with, for example, $100 on it. Have the teen track purchases and ask how easy it was to get to the limit. Have discussions about higher credit limits and how easy it would be to overextend yourself if there were a higher limit.
He said financial literacy courses often involve talk about monetary policy and the federal reserve. But, he said, youths should understand the basics of personal finance before they learn about global policies.
"Parents tend to shield their kids from difficult subjects," he said. "The birds and the bees is not the only discussion. Money is another one."