Nearly three-fourths of American teens admit they do not feel confident with their current knowledge about personal financial matters. Even more alarming, nearly half of the teens surveyed said they turn to social media first for financial guidance even though they – as an overall group – rank social media as the least trustworthy source available to them.

The results come from a national survey of more than 1,000 teens ranging from 13 to age 20 conducted by Greenlight Financial Technology “to better understand the state of financial literacy among teens in the U.S,” according to their report.

In the survey, teens indicated failure in four critical areas of financial literacy:
• 49 percent have never made a budget
• 46 percent are unable to correctly identify the definition of a 401 (K) plan
• 41 percent do not know if they are required to pay taxes
• 32 percent cannot correctly identify the difference between a credit card and a debit card

Social Media Probably Sending the Wrong Message

The fact that teens turn to social more readily for advice on a variety of issues – including money-related questions – concerns financial advisors.

“Teenagers (and adults) are prone to spend a significant portion of their time on social networks. A lot of the content shared on social media revolves around lifestyle and self-image, whether it is vacations, gadgets or clothing,” remarked Jack Kirshenbaum, founder of Starlight Wealth Management based in Monsey, New York. “This can create tremendous pressure, especially with young adults, to impress others to feel like they are on par with the latest trends. As a result, many people are making poor financial decisions in their ability to buy certain items. Teenagers and adults need to understand the long-term benefits of making proper financial decisions, resulting in them not falling victim to social pressures.”

Despite social media’s potentially negative influence on the financial literacy of teens with its focus on consumption versus savings, there is some news on the social networking front that financial advisors might consider good.

It took video gaming to make it happen, but this “good” showed up because of the GameStop short squeeze in January 2021 in which the company’s stock price – over the course of two weeks – increased 1,500 percent by January 27. On January 25, more than 175 million shares of GameStop stock were traded representing the second largest total in a single day, according to data from the Dow Jones. The January 29 high of $325 plummeted to $53.50 by February 4 creating massive losses for investors – including teens who took notice.

According to a Versta Research survey conducted on behalf of Wells Fargo & Company, nearly half of the teens (45 percent) interviewed indicated they were more interested in investing in 2021 specifically because of what happened with GameStop. Boys (53 percent) were more interested than girls (40 percent), but that is consistent with other statistics comparing the percentage of boys playing video games versus girls. Input from parents and guardians was also included making this survey somewhat unique in its ability to characterize teen opinion as viewed by both the teens and their associated adults.

Teens Say They Want Financial Education

On a hopeful note, the Greenlight survey spotlighted the fact that the economic challenges of COVID-19 have prompted teens to want improved and more financial education.

While 45 percent of the teens said they have not begun investing because they (and their parents) do not have enough knowledge, 86 percent said they would like to begin making financial investment in savings for the future.

That lack of knowledge – and the overwhelming perception on the part of teens that they do lack necessary information – also concerns financial advisors.

“The importance of financial literacy cannot be stressed enough,” said Paul C. Ragone, founder and president of Integrity Wealth Services located in Knoxville, Tennessee, an accredited wealth management advisor and asset management specialist. “I believe this is where our education system is badly broken.”

Ragone cannot fix the education system himself, but his group has fostered teen financial literacy by producing a video series posted on the firm’s blog. The videos are short, geared to the younger generation, and address pertinent financial concepts.

“On a positive note, there is a trend emerging where younger people are taking it upon themselves to learn about investing via online forums and apps,” he said. “What’s missing is good advice, but it’s a start.”

Should be a No-brainer…Yet …

Kimberle Dyer, co-founder of Keystone Capital Management Group, LLC, in Glendale, Arizona, is surprised by the lack of teen financial education in the United States.

She notes that teens are not taught some of the “simple” issues regarding checking accounts, credit cards, and credit history. She believes it leaves them vulnerable to not-so-well-intended actors within the financial industry.

“Young people are vulnerable to companies offering credit – and before they (teens) know it, they have negatively impacted their future without understanding how it happened,” Dyer told Advisors Magazine. “They need to understand their credit scores and how that score impacts the rates they get on insurance and for home loans, etc.”

She also suggests that such concepts as bank account reconciliation, invoicing, revolving credit card statements, and what financial documents to retain and for how long as necessary for teens to understand.

One encouraging spot for Dyer includes the work she and her firm have taken up to educate teens and young adults regarding the power of compounding interest.

“We have been providing young adults with information about what setting aside $10,000 will look like when they are 65,” she explained. “It is rewarding to see them respond to the knowledge and set in motion tools that will change their lives.”

In The Meantime

According to the most recent Survey of the States conducted in 2020 during the height of the pandemic, only 21 states required high school students to take a course in personal finance, and only 25 states require students to take a course in economics to graduate.

As the nation’s school districts grapple with how to get students back in class as COVID-19 concerns remain in place, it appears systemic change regarding financial literacy for students will remain compromised for the time being.