March 28, 2006

COLLEGE STATION – Remember those three ‘Rs'?

The first two – reading and writing – may be the keys to a child's future success. But that third ‘R' – arithmetic – is the key to his or her financial future, said a Texas Cooperative Extension specialist.

In fact, so important is this knowledge that beginning with the 2006-2007 academic year in Texas, "all high school students will be required to take a course that includes personal finance education as a condition for high school graduation," said Nancy Granovsky, Extension family economics specialist. The law, House Bill 492, passed the Texas Legislature and was signed by the governor in 2005.

"People need to know about money and how to avoid mistakes, establish financial goals, live within their means and build wealth," she said.

And since financial literacy should begin at an early age, April has been designated Financial Literacy for Youth Month.

"You're never too young to start," Granovsky said.

Even children too young to have jobs probably receive money – perhaps an allowance – from their parents or grandparents, Granovsky said. If children start learning to save money while they are still young, and keep at it, they might find themselves in better financial shape than expected when they are a little older, she added.

Learning to save isn't always easy, Granovsky said.

"They have to determine how to use their money to meet their needs," she said. "What are their needs and what are their wants? How do they get the most bang for the ‘bucks' they do have? They have to make their money last to meet their needs and not just their wants."

Opening a savings account can help.

"It's always good to have a savings account," Granovsky said. "If they determine what their future goals are, a savings account (is a good way) to start saving toward that goal – maybe college, a vehicle, car insurance or a class trip."

Savings accounts are not the only way young people can learn about managing their own money, she said.

"An increasing number of younger people have checking accounts as well," Granovsky said. "They can be an effective tool in helping manage finances."

Whatever kind of account is used, having ‘money in the bank' – or credit union – is the first step toward a lifetime of financial literacy, Granovsky said.

"The idea is for young people to start seeing that their money is something they can plan the use of. They can plan what it is for, how it is spent, the results they get from spending it. They are in command of their money, it is not in command of them."

Young people old enough to have paying jobs – whether full- or part-time – might want to consider opening a Roth IRA with part of their job earnings, she said.

"But make sure the teen has received a W-2 or Form 1099-MISC to substantiate the earnings."

The difference between starting one of these accounts as a young person, or waiting to open one as a middle-aged adult, can be thousands of dollars in retirement savings, Granovsky said.

And the benefit of a Roth IRA is that the money grows tax free, she said. Regular IRAs and 401(k) accounts are tax deferred, which means once money is withdrawn, income tax must be paid on those funds.

"With a Roth IRA, no taxes are due when money is withdrawn," Granovsky said. "A kid who started saving at age 15 (with a Roth IRA) could grow a $1 million tax-free income."

Children might not be all that enthusiastic about arithmetic, Granovsky said, but "most kids are passionately interested in money. This is a great time for them to start understanding important money principles in the world of investments, risk management and credit."

Gaining this knowledge benefits more than the children directly involved, she said.

"It's in society's best interest to have people who have financial self-sufficiency, who are building wealth and who manage their debt prudently, are not over-extended," and who use their available resources wisely, Granovsky said.

Information about Texas Jump$tart Coalition for Personal Financial Literacy is available on the Web at http://www.jumpstart.org/ .

Or visit Extension's Family and Consumer Sciences Web site at http://fcs.tamu.edu and click on the links to "Money" and "Youth."

Extension offers a free curriculum enrichment program for high school students, the "NEFE High School Financial Planning Program," Granovsky said. Order forms for teachers are available on Extension's Web site.