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The ABCs of dollars and cents

Teaching kids early the hard lessons about easy money

July2014-F1-FinancialLiteracy1-C1-Lising_REVMany young people have had years of sex education. They can tell you more about reproduction than you might care to know.

But ask them if they’ve been taught how credit works or what compound interest is and you’re likely to draw a blank.

That’s why, when the first offer of easy money comes in the mail in the form of an unsolicited pitch to apply for a high-interest, high-risk credit card, young adults are likely to bite, says Kevin Dorse, advocacy manager at Credit Union Central of Canada (Canadian Central). Credit gives them a chance to buy things that they may desperately want but really can’t afford.

“They see it as a spending opportunity. They don’t realize the trap that they’re falling into,” Dorse says. “That’s why we need to start financial education when kids are young. We don’t want their first interaction with the financial industry to be an unsolicited credit card.” So credit unions across the country, who define financial education as a principal part of their mandate, have started tendering and promoting financial literacy programs. They need kids to know that money isn’t magically produced by plastic cards or ATM machines.

To that end, credit unions are searching for best practices to educate young consumers – the next generation of credit union members – on handling money. Unquestionably, doing so fits the mandate of financial services cooperatives. Kate Martin, a policy analyst with Canadian Central, says the credit union ethos is all about financial literacy, with a view to giving working class people and the working poor command over their finances, ultimately allowing them to lend to one another. She says that financial education is one of the principles of the Antigonish Movement, begun in Nova Scotia in the 1930s. It combined adult education, cooperatives, credit unions and community development to help small villages survive in the Atlantic provinces.

Clamouring for help

Parents are clamouring for help from their financial services institutions. Nearly 90 per cent of those surveyed in a March 2014 Ipsos-Reed poll said they wished “financial institutions would take a more proactive role in educating youth in Canada about savings and debt.”

There is valid cause for all this concern. Government studies show that nearly 60 per cent of young working Canadians don’t follow a budget. Canadians are slipping more deeply into debt each year as our country has gone from a nation of savers to a country of borrowers.

Nearly 90 per cent of those surveyed in a March 2014 Ipsos-Reed poll said they wished “financial institutions would take a more proactive role in educating youth in Canada about savings and debt”

That’s another reason various levels of government and financial services institutions are actively trying to encourage Canadians to be more financially literate, best defined as having the competencies necessary to make good decisions about managing personal finances. “As consumers of financial products and services ranging from credit cards and mortgages to a wide array of banking services, Canadians must be equipped to make informed decisions that strengthen their own personal finances and support the economy as a whole,” Jane Rooney said when she was appointed Canada’s first financial literacy leader in April.

Dorse says the Credit Union Social Responsibility Committee, which was set up by Canadian Central’s directors, has been on the case since the beginning of 2012, when it asked a group of experts to determine the best ways of fostering financial literacy. This team examined programs that already existed, then tried to find new ways of encouraging Canadians to look seriously at how they handled their money. The study group used five criteria to identify the top 67 financial literacy programs, both for children and adults. To earn the highest grade, the best had to be targeted, interactive, accessible, scalable and effective, in that they modified behaviour in a way beneficial to the recipient.

A virtual family bank

Many of the programs that made the grade, such as Famzoo, promoted by Canadian Central, were created outside this country. Designed to help children typically aged five to 13, Famzoo describes itself as a virtual family bank that “prepares kids for the wild” by helping families teach their kids good money habits. It allows parents to set up automated allowances, rewards for chores and odd jobs, offer “payroll” withholding for saving or giving, parent-paid interest on savings, expense sharing, budgets, loans and much more.

Accessible via computers and smartphones, Famzoo was originally developed by Silicon Valley computer programmer Bill Dwight to help his own children manage their money and to teach them how long it would take to afford items they wanted, like iPods. He wrote a spreadsheet on his personal computer that he used to keep track of his kids’ money. After a while, he realized he could get the kids to manage their own money by building a site that allowed them to sign in and monitor their saving and spending. The site is now offered throughout the United States and by Canadian Central in Canada.

An interactive teaching tool

Canadians have created some high-quality online and classroom programs for young people, too. One is KOSMIKS™), an interactive financial online children’s game site produced and marketed to credit unions by Mindshape Creative Brand Marketing of Ontario. KOSMIKS is built around principles of budgeting, saving and the basics of smart money management. Mindshape signs up credit unions, which add their branding to the game and promote it among their members. Geared to kids from ages six to 10, the program is currently used by Saskatchewan’s Affinity Credit Union ($4 billion in assets, 81,000 members) and at least seven other financial services cooperatives.

The website teaches basic financial skills in plain language through interactive challenges. Players earn virtual dollars, called kubits. Users save kubits to buy appealing items such as rocket ships that allow them to visit a new world of games and challenges. Teachers and parents play an active role by registering their children or students in the game through participating credit unions and by helping children complete the online challenge.

Dave Brown, president of Mindshape, says KOSMIKS emphasizes the value of effort, links the concept of work with compensation and gives kids lessons in informed purchasing. “KOSMIKS came out of a deep understanding of the need to communicate financial literacy to young people,” he says, adding that it’s good marketing for credit unions to provide education on financial literacy to kids. More important, though, the children involved will ideally grow up to be good money managers. Mindscape is now working on KOSMIKS 2.0, which will have better graphics, improved games and a new audio component. Brown hopes the latest version will be ready by the end of the year.

Marianne Jurzyniec, community development officer of Affinity, says the credit union uses KOSMIKS to good advantage. “Quite young children try KOSMIKS and that kickstarts the family conversation around money,” Jurzyniec says. Affinity is also making KOSMIKS easier for families to use. Parents used to have to pick up a code card from the credit union to log onto KOSMIKS, but now a general code gives them access. The credit union is also expanding access to KOSMIKS to branches outside Saskatoon. “Right now, a lot of kids play it once or twice. [But] parents can build on that,” says Jurzyniec. “Starting that conversation is one of the most important steps toward financial literacy.”

Learning through mentorship

For those entering young adulthood, Affinity has also introduced the Individual Development Account Program for Saskatoon high school seniors. The program is aimed at marginalized kids who aren’t taught sound money management by their parents and may be at risk of dropping out.

Most of the program participants are Grade 11 students with jobs. They’re encouraged to save a portion of their wages every month and to keep the money in the credit union until the program is over. Local sponsors match the kids’ savings on a two-to-one or three-to-one ratio. Participants must save at least $40 a month and do not withdraw the money until the end of the program. They must stay in the program at least 10 months, work in the Saskatoon area and set a goal for savings, such as education, job training or housing. (Students are encouraged to save toward post-secondary education, but they can use the money for whatever they want.) Adults coach the young people on how to balance work and school and teach them how to budget and save.

“The kids may be students who don’t have role-model parents [or whose parents are] new Canadians who may not know the Canadian financial system too well,” explains Jurzyniec. “[The program] also helps young people to find their first job. Because they have a job and enjoy making money, they learn the value of work and realize how they need to be careful with money. We also have financial literacy workshops in the last five months of the program. It’s really about sharing [the expertise of the adult mentors].”

It makes sense for credit unions to run these kinds of programs, Jurzyniec adds, since the credit union movement was started to help people who are underserved by banks. Credit unions have always relied on the sharing of information to help make a stronger community. “Financial literacy should be more than just one person’s responsibility,” she maintains. “It’s not just the parents, not just the schools.”

Financial literacy in the classroom

For its part, First Calgary Financial ($2.9 billion in assets, 60,000 members) has created its own outreach program for students, called FrogskinU. Named after an old slang term for dollar bills and geared to children in grades five and six, FrogskinU dispatches volunteers to teach five one-hour classes in schools, focusing on the value of money, how to bank and ways of avoiding scams. Each module has a frog theme. In “Swamp Secrets Revealed,” children identify the emotional appeals that are used by marketers and are taught how to spot frauds, scams and schemes. Since the program began at the beginning of 2010, volunteers have visited 80 classrooms and taught financial literacy to 9,500 students.

FrogskinU was a joint project between First Calgary and the FrogskinU Educational Foundation, whose goal is to educate young Canadians – along with their parents – on ways marketing can shape our culture and lives, how to identify and steer clear of schemes and debt, and how to plan to support their goals while building a foundation for financial stability.

Dani DeBoice, director of corporate citizenship at First Calgary, says the program is designed to show students that money does not come from plastic cards. “We’ve aimed the program at kids this age because, by the time kids have reached the age of 12, they’ve developed their own financial patterns,” DeBoice says. “We wanted to develop a program that is memorable and fun for the demographic that it’s aimed at. It’s very interactive, and it’s designed to be quite engaging. It has scalable content for kids in different grades. And it helps kids avoid the pitfalls of ‘fringe banking’ perpetrated by payday-loan and cheque-cashing companies.

People teaching the sessions ask questions at the beginning of the class to see what the students know about financial literacy, then they ask the same questions at the end of the sessions to see what students have learned. The focus is on teaching kids how to carefully handle their money so they can save, spend and donate within a budget.

Measuring success an issue

Policy analyst Kate Martin admits, however, that today there are still some questions about how to drive home the importance of financial literacy to young people. “We found on the academic side that financial literacy is really an emerging field,” she explains. “What are the criteria for measuring success? Different provinces treat youth financial literacy in different ways. They may have a financial literacy course that’s stand-alone, or they may offer financial literacy as part of another course. There’s a debate over what is the best way to deliver that information. Is it best to have it alone or to include it, say, in a math course where you can use it practically, by calculating the interest rates?” she says.

However kids learn how to handle money, credit unions want them to have these skills ingrained by people who care about them, long before they’re offered a credit card in the mail and learn first-hand about the crippling power of compounding interest on debt. Doing so, they understand, will help all their members, young and old, in the long run. ◊