Financial capability is “the capacity, based on knowledge, skills, and access to manage financial resources effectively.”1 This can help youth achieve adult financial well-being, which happens when they can fully meet current and ongoing financial obligations, feel secure in their financial future, and are capable of making decisions that allow them to enjoy life.2 Financial education is one way youth can learn these skills and behaviors through a variety of resources and effective strategies. Financial education significantly increases financial skills and knowledge. When followed, the gains persist at least 1 year.3
Financial capability is developed over time and is marked by stepping-stones – milestones – on the path to financial well-being. Financial capability is an effective way to help youth, no matter their circumstances, avoid common financial vulnerabilities and build economic stability.4 Youth should be educated about finances early in life and at pivotal points in their development and financial lives.5 Having a higher financial literacy early in life is associated with:
- Reduced probability of borrowing with payday loans.6
- Shift to lower costs student loans from other types of borrowing.7
- Decreased likelihood of having a credit card balance.8
- For private loan borrowers, decrease in private loan amounts.9
- First gen and low-income students and public university students more likely to pay down balance 1 year after entering repayment.10
- Reduced 30-day delinquency rates, default, higher credit scores.11
- For those without a post secondary credential, increase in holding a bank account and in having at least $400 in savings.12
As they approach high school graduation, students and their caregivers will make important decisions about whether to pursue higher education and if so, how to face the reality of paying for it. Additionally, youth who do not attend college or trade school directly after high school will more quickly face financial responsibilities as adults.13 These early choices can have a long-lasting impact on their financial well-being.
Resources
Publications from the Consumer Financial Protection Bureau (CFPB)
This website provides a list of the CFPB’s bookmarks, handouts, guides, books, worksheets, and posters that can be downloaded or ordered in bulk. Many of these publications are available in multiple languages.
Consumer.gov
This website can help youth manage their money, understand credit, identify scams, and prevent theft.
Money Smart for Young Adults
The Federal Deposit Insurance Corporation (FDIC) offers Money Smart, a financial education curriculum designed to teach basic financial topics to people with low- and moderate-levels of income. Tools are available for different age groups and in nine languages. The Money Smart for Young Adults (MSYA) instructor-led curriculum provides participants with practical knowledge, skills-building opportunities, and resources they can use to manage their finances with confidence. Instructors can use it to deliver unbiased, relevant, and accurate financial education whether they are new or experienced trainers.
MyMoney.gov
This website contains financial education resources for young people, caregivers, and educators. It is organized around the My Money Five principles: spend, earn, save and invest, protect, and borrow.
Quick Tips for Managing Your Money (from the FDIC)
This web page provides strategies and practical guidance to help adults and teenagers with borrowing, saving, banking, and avoiding scams.
References
1 U.S. Department of the Treasury, 2010
2 Consumer Financial Protection Bureau, 2023
3 Mangrum, 2022
4 Consumer Protection Financial Bureau & U.S. Department of Health and Human Services, Administration for Children and Families, 2014
5 Center for Financial Security, 2012
6 Harvey, 2019
7 Stoddard and Urban, 2018
8 Stoddard and Urban, 2018
9 Stoddard and Urban, 2018
10 Mangrum, 2022
11 Urban et al., 2020
12 Harvey, 2020
13 McCormick, 2009
