The educational system in our country is incredible, but according to experts like Dan Schatt, it fails students in one critical area…understanding banking. Banking and finance are a critical part of the economy, and yet, we don’t make it a priority to teach teens about money.
Money is not taught in our schools, and as a result, students fall behind their foreign counterparts, who often understand how the system works before they graduate high school. Here are some key banking concepts that all teens should understand before graduation:
A bank is a business like any other
A bank sells two things: services and money.
When you walk into a bank, they aren’t giving away money (the dollar bills in your wallet were loaned to you by your friendly neighborhood bank). Banks make their profits by making loans and charging for those loans. A good banking system has enough people borrowing money at high-interest rates so that there is enough left available for people who are saving it.
The most valuable thing you have is your credit score
If you apply for a loan, the bank will run your credit report to determine if they should give you a loan and its terms. Your credit score determines what interest rate you will be charged—the higher your credit score, the lower the APR (Annual Percentage Rate). Therefore, even if you have no intention of borrowing money, it is important to establish a solid credit history early on. Then, when you need to borrow money in the future, you can get it at fair terms.
A bank makes money when you borrow money
When you take out a loan, the bank will charge you interest for that privilege. So make sure that the benefit of borrowing the money (a new car coming to mind) outweighs the cost (the interest rate). If not, perhaps you should save your pennies until you have enough saved to buy whatever it is that you want.
A bank loan is not free money
When you get a bank loan for college, your parents need to realize that their money to help pay for school was borrowed by them and will be due upon repayment. According to experts, while we throw around phrases like “paying back your student loans,” in reality, it is a parent loan that they will need to repay.
Banks are heavily regulated for your protection
Banks pay huge fines when they violate federal regulations. As a result, they go above and beyond the call of duty to ensure that their customers (you) are protected. Still, it is important to read the fine print of any banking agreement you enter into.
You need to know your legal rights as a consumer
The Consumer Financial Protection Bureau has helped ensure that consumers are better protected against fraud and unfair lending practices. For example, while banks have every right to charge fees for overdrafts or the use of an ATM, they are not allowed to charge exorbitant fees for those services. In addition, they must disclose the terms of the relationship with their customers, and you have every right to read that contract (yes, even if it is in fine print) before authorizing any banking activity.