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A perfect, though sad, example of why Personal Finance should be taught young

Of course, you can only teach certain levels of personal finance at certain ages. A 5-year-old probably can’t grasp a mutual fund yet. But a 9-year-old should be able to understand a credit card, a loan, and cosigning.

Unfortunately, schools don’t really teach this kind of stuff. And parents don’t seem to (formally) teach it either….maybe they don’t know it themselves, since no one taught them.

I was just reading SJean’s worries for her sister when she mentioned that she (SJean, that is) had unwittingly co-signed 23k worth of student loans for her. She was 21 and her parents asked her to do it because her sister couldn’t get loans otherwise and her parents couldn’t sign. She didn’t think to ask how much the loans were for, interest rate, etc. She trusted her parents to know what she should do.

Now, if her sister defaults on those loans SJean will be liable for them. Including the interest and such.

It may be easy to blame her, her sister, her parents for now knowing. But imagine a time when you didn’t know. Would you have understood all this at 21?

If you were already financially savvy at 21, pick an earlier time like 18, 16, 12…

Because personal finance isn’t taught early, we have to learn it from life. Unfortunately, life doesn’t always let us learn through explanation and observation. Experience may teach us well, but it’s a tough teacher. Teaching personal finance shouldn’t be left to the school of hard knocks if we can help it.

{ 13 comments… read them below or add one }

Tina February 24, 2008 at 11:58 am

I got taken advantage of by an older brother shortly after my 18th birthday. Everyone needs to know everything at least by then to avoid costly mistakes. The good thing is that I learned, I never co-sign, I have excellant credit (now). My brother didn’t mean to screw me up but was making poor financial choices and dragged me in. (I jumped willingly, I needed a car and he needed money but couldn’t give me a clear title. On paper he sold me a junker truck with a clear title and gave me the cute little Mustang I wanted) The drama continues because he let his brother-in-law drive it while I was gone, he totaled it. The brother in law paid for the Mustang but my brother took the money and paid off his loan so the car would have a clear title. He promised to take over my payments but ruined my credit instead.

This story is as clear as mud. That is how I felt at 18 just moved out on my own. My first car, my first loan.

Amanda @ Me vs Debt February 24, 2008 at 12:05 pm

I’m thinking the same thing. No one should have to rely on learning these things at home. PF classes should be mandatory!

Simple Tam February 24, 2008 at 12:22 pm

I had to take a student loan when I was 21 and I did not fathom the seriousness of how big the amount was. Luckily, I am almost halfway through paying it within my first year out of school. Although my dad is a public accountant, talking personal finance and money at home was not common.

SJean February 24, 2008 at 1:17 pm

Thanks for the link! I sometimes feel quite stupid that I signed them, now that I’m so “good” about personal finance… But it is too late now. I’m going to try to get off them when she graduates (through her consolidating) but…

Anyway I wish i had a real pf class–or stumbled on pf blogs much younger

RacerX February 24, 2008 at 1:17 pm

Ouch. I really actually do blame the parents here. Yes you want your kid to go to college, but at the expense of another child?

THis is why we have a family monthly budget review. The kids all understand the money that we are paying back and all are learning the lessons we weren’t taught!

ms. m&p February 24, 2008 at 1:27 pm

I couldn’t agree with you more. I’ve definitely had to learn personal finance the hard way (albeit not through the same channels that SJean is learning) and I really wish that my parents or someone had talked to me about money. I still don’t know how my parents are doing financially and when I try to bring up what I’m doing (in hopes of opening up the conversation), I get cut off. I will never understand why money is a taboo topic. It’s just money!

SJean February 24, 2008 at 2:30 pm

Added note…. My parents (my dad, in particular) really aren’t very good with money and they didn’t mean to jeopardize me. I do blame them a little bit… But I also forgive them. It wasn’t intentional and they say if there are ever issues they will pay the loans. But legally, it is me who is on the hook.

Ron@TheWisdomJournal February 24, 2008 at 3:04 pm

I shouldn’t be surprised that siblings are allowed to co-sign loans, but I would think the banker should have asked some more questions and explained things better on the front end.

Andrew Stevens February 24, 2008 at 5:07 pm

Personal finance absolutely should be taught in schools; there should be at least one course required for all students to graduate. I do believe that Mrs. Micah’s speculations that parents don’t teach their kids is because so many parents don’t know that much about personal finance themselves. (I know vastly more about it than my mother does, for example. I have been advising her on personal finance since I was 18.)

fathersez February 25, 2008 at 7:05 am

It’s tough for many families as the collective pf knowledge in the family is not much. They try to do what they think is the best for the family.

Some members may end up getting hurt.

But like SJ herself says it was not a dastardly plot by the family.

I hope it all ends well.

Anitra February 25, 2008 at 10:37 am

This is the sentence that stands out to me:
“She trusted her parents to know what she should do.”

We all do this unless we recognize that we know more than our parents in this area – and most teenagers/young adults, even if they HAVE financial knowledge, may not recognize that mom & dad no longer “know best”. We may recognize warning signs, but not realize how serious they are (why can’t mom & dad co-sign? I’d bet it’s because they’re in serious debt as well).

The best example I can think of from my own experience: My husband’s parents thought they were “helping” him by taking out private loans in their own name for his schooling (with the expectation that he would be responsible for them), since he couldn’t get enough loans in his own name to pay for everything. That should have been a warning sign that he was taking on TOO MUCH DEBT, but he didn’t recognize it himself until the loans started coming due later on.

We need financial education at ALL levels – it’s best if parents can teach their kids, but too many parents out there don’t even know what they’re doing wrong themselves, and pass their bad habits on to their kids. I don’t trust that our schools will do a great job, either; the only PF education I got in school was directly from a credit card company – can we say “conflict of interest”? Those of us who understand PF should strive to be an example to all the kids we come in contact with.

Becky@FamilyandFinances February 25, 2008 at 12:51 pm

Parents should definitely be ultmiately responsible to teach personal finance to their kids, but as others have noted, many parents don’t know much about personal finance.
Therefore, I agree with Amanda that a PF class should be mandatory in school. My litle brother was a whiz with Calculus in high school, but *I* had to teach him how to write out checks and use a checkbook!

Money Blue Book February 25, 2008 at 1:32 pm

Mixing friends, family, and finances is rarely a good idea. Even a few hundred dollar loan between my brother and I sometimes gets uneasy. Co-signing for a sibling is not really a good decision either. Parents can do that because they have the overriding parental authority to take control (usually) but equally situated sibling don’t.

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