Financial Education - The Future Generation: educators, scholars, and Financially Ignorant

Did you know that over half of young people between 15 and 29 years in debt?



It is alarming news that came out in one of the major newspapers in Chile a few days ago:



The results of the Sixth National Youth Survey - Injuv 2009, reveal a high level of debt in this age group. (El Mercurio, Santiago de Chile, September 2, 2010).

The survey conducted by the Injuv (National Institute of Youth) also reveals that the highest level of borrowing, for women, the youth of middle socioeconomic sectors of urban and young people with technical education level.

In addition, almost 60% of young people are behind on debt payments, and of these, over 30% due in commercial houses.

The following article describes the situation of a young student of 23 years, who received a credit card from a well known multi-shop with just present your student certificate. Soon he was so indebted that he could not cancel the minimum monthly payment. Speaking to the store to resolve your problem, it referred him to a home collection, which will collect the debt, commitment and a lot of interest.



This story is just a small sample of an alarming reality. Beyond question the ethics of business houses and financial institutions that seem to have found a promising target in the younger segments of the population, I would go straight to the root of the problem: the lack of financial literacy in young today.



The fact that over 50% of young people are in debt tells me that something failed in educating them. Not enough to fill the heads of our youth with skills that will give you the ability to generate an income as adults, we must also teach them what to do with that money once it is in their hands.



There are several options:



Option A: Spend the money seems to be, for many, the first option.



Option B: Once the money is spent, the next step is to borrow.



Most people, young and old alike, manage their finances according to these two options: spend and borrow.



Why would a young person who is just starting his adult life, you want to throw the tremendous burden of debt on top?



This debt will delay their ability to succeed tremendously. Not only for the interest you will pay, but rather by the interests of winning will not have their money spent wisely.



There is the option C: harness the awesome power of compound interest, even with a minimum amount of own money.



Most young people do not even know this option. Compound interest, one of the best inventions of man according to A. Einstein, is a completely unknown to them.



They ignore, for lack of financial education, which can accumulate a considerable sum of money through the power of compound interest. A young person has a great advantage to the elderly: their age. Their youth gives them long life during which compound interest can work for them.



What exactly, compound interest?



According to Wikipedia:



Compound interest is the cost of money, benefit or use of initial capital (PV) or main interest rate (i) during a period (t), in which the interest taken at the end of each period of investment is not removed but is reinvested or added to the initial capital, ie capitalized. (Http://es.wikipedia.org/wiki/Interés_compuesto)



In other words, compounding allows money to multiply and have children, grandchildren, great grandchildren, and so on.



In practice it works:

In the hypothetical case of a young person has a debt which has to pay $ 200 a month, if you take that same money and invest it at 12% in a mutual fund in 25 years would have more than one million dollars.



$ 200 a month are $ 50 per week. There is a tremendous amount of money to earnest young person making the decision to earn some extra money in your spare time. I personally know several young students who generate income as a DJ (disk jockey), selling snacks, working as waiters, making assistantships, etc..



It is not impossible to achieve. The support and instruction can come home. Parents may arise as a goal that your children leave home with an investment portfolio under his arm.

Compound interest is widely applied in the financial system. In all banks make loans regardless of their form, use the compound interest. Why do we keep our youth ignorant of a system that could be of tremendous help to the old they are, instead of exploiting them and drown them financially?

According to The Mercury

The economist and academic at the University of Santiago de Chile (Usach) Francisco Castañeda raises the need for "minimal regulation" in this matter, because they are drowning financially without having income. "It can not be indebted to no income as yet, there exists a market failure," he said. (El Mercurio, Santiago de Chile, September 2, 2010)

I would add that apart from regulating the market in the financial sector would be a boon to prepare our children for the future with a solid financial education to protect them from making unwise financial decisions.