Maurice Jones is president & CEO of the Local Initiatives Support Corp—LISC—the country’s largest social enterprise investment nonprofit. He previously served as secretary of commerce for the state of Virginia. LISC supports 87 Financial Opportunity Centers across the country.
When I was growing up on my family’s farm in southern Virginia, Saturdays were the day my grandparents and I would drive the 10 miles to Kenbridge, the nearest town, to run errands. We’d visit the hardware store, the five and dime and, before heading home, the bank. My grandparents would do farm business, and if I had money in my pocket, I’d make a deposit into the account they had helped me open. All the way home, I’d savor the balance stamped in my small paper passbook.
Apart from being a highlight of my Saturdays, those bank visits were an early course in financial management that proved as important in preparing me for adulthood as learning to read or play football or write a legal brief. It was practice in handling the reins of my own economic life.
The truth is, most Americans don’t get that kind of early training and have trouble with basic financial literacy. Studies have shown that even many retail investors lack an understanding of how compound interest or inflation work. The losses that result are estimated to set our economy back by some $10 billion a year.
For millions of young Americans, the pitfalls of financial illiteracy can be devastating, leading to burdensome debt and poor credit which in turn throw up barriers to housing and jobs. And, very few have a clear path to the economic education they need. There are an estimated 5.5 million disconnected youth in the country, 16- to 24-year-olds who are not in school or working. Half of all young Americans are unbanked, and few know how interest rates work or how to calculate a mortgage payment, according to the National Longitudinal Survey of Youth.
The good news is that financial education has proved to be an extraordinary opportunity to set up our youth for success and stoke the wider economy in the bargain. Even the seemingly basic act of opening a bank account can be an essential, positive step: adolescents with an account in their name, even if it is rarely used, are six times more likely to go on to higher education than youth without one.
Indeed, adolescence is when we develop the skills and habits of the mind that set the stage for a lifetime of professional, social and spiritual growth. Through many seasons of growing and harvest, my grandparents taught me how markets worked and how to read an invoice. And I came to understand that balancing profit and loss, sticking to a budget and having some savings for emergencies were the foundation of the farm’s—and my family’s—wellbeing and progress.
Fortunately, more and more organizations are stepping in to fill the financial education gap where demand is high. On Milwaukee’s south side, for example, our partners at Journey House, a large neighborhood center, offer job training and a high school equivalency program through the nonprofit YouthBuild, paired with one-on-one financial and career coaching. Young people learn how to build positive credit, track personal spending, and plan for the future they want—at the same time they acquire the skills and certifications that land them living wage jobs in growth industries like construction and health.
But it’s going to take policy change and purposeful investment to make this kind of support available for every young person at risk of falling through the cracks of our system. We need to make it more attractive—and easier—for the private sector to partner in these efforts, to take on the role of coach, readying young people for a life of financial empowerment.
By 2024, there will be 16 million middle-skill jobs in search of talent—jobs that require young workers with savvy about the new economy, and with financial knowhow. These shifts demand public investment in, and incentives for building the infrastructure required to bring our youth up to speed and connect them to a workforce and an economy that can compete on an international scale.
And that includes financial education. Financial literacy must be the purview of every young person, not just of those college graduates heading into banking careers. Or for that matter, of someone like me, who was fortunate enough to learn the ropes on the family farm.