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Tuesday, Aug 9, 2022
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Why Financial Literacy Needs to Begin Early

In the world of finance, we often talk about the importance of financial literacy. As a society, we have a general understanding of why it’s critical to know how to manage one’s finances. However, few have the knowledge needed to make informed financial decisions, and many learn this skill when it’s too late. I’m constantly reminded of a key financial mistake my family made that could have been avoided and that led to a traumatic period in our lives. 

Amid the ’90s housing boom the Valley experienced, my father, an immigrant from India, was determined to provide his children a better life. So, he boldly seized the opportunity to buy a comfortable home and we moved to the Valley. Once we arrived, our family poured all its energy into making the house a home, but soon, the life we built crumbled.

My father, who had limited knowledge of the American financial system, signed up for an adjustable-rate mortgage (or an “ARM” as those in the financial profession refer to them) without understanding the implications. These types of mortgages fit specific time horizons and require you to evaluate if they fit your goals. However, in our case, it did not. Eventually, the mortgage payment doubled every month and my father, who had a modest job at a furniture store, was scrambling to pay without the possibility of refinancing.

Eventually, he could not make the payments, and the property was foreclosed. His lack of financial literacy and naivete about the nuances of interest rates led to a situation we had never imagined. At a moment’s notice, we had to vacate our home, one filled with cherished memories, and move into a cramped two-bedroom apartment that a family friend offered. We were lucky he knew my father and his work ethic because otherwise, we would have not been able to rent in the open market. 

Even now, when I drive by our house, I shed a tear reflecting on the blissful moments of my childhood. Suffering an economic loss did, however, have some benefits. My father dedicated time to becoming financially savvy. He persisted in asking others for advice, rebuilt his credit, and eventually purchased another home that he proudly paid off in seven years. His knowledge was generously shared, which laid my financial foundation and motivated me to build my own financial acumen. My parents could not afford to pay for me to attend college, so I worked at a bank that provided tuition assistance through a college reimbursement program. A mentor helped me tremendously by explaining tuition reimbursement, a provision that saved me thousands. The salary I earned helped me pay my expenses and save. 

Having my childhood home foreclosed at an early age impressed upon me the importance of educating future generations ― specifically at the high school level. Institutionalizing financial education can help families avoid pain and suffering, and the sooner you start, the better. In addition, beginning at an early age can help adults make better financial decisions. 

As the economist and former chair of the Federal Reserve Board, Alan Greenspan, stated, “Financial education is a process that should begin at an early age and continue throughout life. This cumulative process builds the skills necessary for making critical financial decisions that affect one’s ability to attain the assets … and improve economic well-being.” Children and teenagers encounter money not as adults but during their adolescence, so educating them about finances at a young age is essential. 

Parents and caregivers are vital companions on young ones’ financial journey and can help them make more intelligent choices with their money. They can create an optimum learning environment and use real, meaningful situations from their kids’ everyday lives to teach financial literacy. Learning how to be smart with money enables them to handle their first paycheck properly and not fall into debt later in life. 

Those who are well versed in managing finances must mentor future generations. The dangers of not doing so can be disastrous. For example, according to the Financial Industry Regulatory Authority’s Investor Education Foundation, young adults who had state-mandated personal finance courses in high school are less likely to borrow high-interest loans than those not required to take such courses. 

Educating children on finances early on is paramount to promote financial stability for future generations. Having witnessed these pitfalls first-hand and seeing the gravity of this societal challenge here in the Valley, I try to do my part by volunteering my time at local high schools to teach students about financial literacy. Because I do not want others to go through what my family went through, I am now an active participant in the financial education of others. We must all do our part as caregivers, educators and community leaders to support the financial literacy of future generations.

Jaspreet “Jesse” Puri is executive director and branch manager of UBS in Sherman Oaks.

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