blog.weProsper.org

Across the country, millions of American families are gathering up their W-2s and 1099s and sitting down to the task of filing their tax returns. Although many of us gripe about the task, this yearly ritual affords an opportunity to teach young people some valuable financial skills.

Remember your first official paycheck? You probably spent a fair amount of time counting up the hours you had worked and calculating how much money you’d make based on your hourly wage. Ten hours a week for two weeks, at $12 per hour, means $240!  We bet you were surprised when you opened the envelope and discovered a completely different, lower figure. You weren’t expecting that someone would be giving away your hard-earned money without your permission.

Few teenagers know what exactly their employers are withholding from their paychecks. State and federal income taxes, social security, unemployment insurance, workers’ compensation… all of these deductions add up to less cash in the bank. Without understanding where the money is going, this can be a frustrating—and confusing—experience.

Teach a young person what to expect from his or her paycheck by explaining the different types of deductions, and discussing the pros and cons of taxes. They might feel a little better about the whole process when they learn that the taxes they pay are funding public schools, paying for repairs of roads and bridges, and keeping their favorite parks green.

This weekend the New York Times asked, how will our financial crisis affect the generation of children being born and coming of age in these hard economic times? Will the children growing up now be more risk averse in the future, as the generation born into the Great Depression was before them? Will a sense of civic duty and public service increase in the young adults who face a job market bereft of opportunities in the private sector?

It’s certain that the current economic climate will force the next generation to be much more aware of their financial responsibilities. No one knows how or when we will emerge from this recession, but it is clear that a heavy burden will be placed on our children to pay off the staggering debt that we have accumulated. The era of mass consumption and spending on credit has come to an end, and the behaviors we have honed as a country over the past two decades must now change.

Here at weProsper, we are committed to providing youths with the strongest possible foundation on which to build their financial future. The road ahead is a long one, but if we equip our children with the skills and tools they need to take control of their finances, they, and the country, will prosper once more.

Listening to a pair of economic analysts from NPR’s Planet Money explaining the banking crisis in plain language on This American Life this weekend, one anecdote stuck in my head long after the radio program ended. It was a snippet of a conversation with David Beim, a former banker and current professor at the Columbia Business School, who described how much debt Americans owe compared with the total U.S. economy.

Traditionally, consumer debt has represented less than 50% of our gross domestic product. But in 2007, the amount of debt, including mortgages and credit cards, equaled $13 trillion—or 100% of the country’s GDP. Only one other time in American history has our household debt reached the same level of our GDP. And that was in 1929.

For all the blame being heaped on Wall Street, banks, and toxic assets, Beim asserts that our problems today go much deeper: “The problem is not the banks, greedy though they may be, overpaid though they may be. The problem is us.” We have overborrowed, Beim says: “We’ve been living very high on the hog. Our living standard has been rising dramatically in the last 25 years. And we have been borrowing much of the money to make that prosperity happen.”

Simply put, Americans have too much debt. We have become a nation of spenders, not savers. And the only way out of this mess is to drastically change our ways. Beim, and the guys from Planet Money, don’t hold back when they say it’s going to be painful. There’s no easy fix for the banks, or for our society. Breaking old habits is going to be hard, but the government is not going to be able to solve this economic crisis on its own. We’re all in this together.