The financial facts of life: Hard times offer a ‘teachable moment’ on safe spending—and saving
By:
Scott LaFee
Here’s part of a survey given regularly to high school students to assess their financial literacy. Answers follow the questions.
1. Many savings programs are protected by the federal government against loss. Which of the following is not protected?
a) A bond issued by one of the 50 states
b) A U.S. treasury bond
c) A U.S. savings bond
d) A certificate of deposit at a bank
2. Which of the following statements is true?
a) Your bad loan payment record with one bank will not be considered if you apply to another bank for a loan.
b) If you missed a payment more than two years ago, it cannot be considered in a loan decision.
c) Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed.
d) People have so many loans it is very unlikely that one bank will know your history with another bank.
3. Retirement income paid by a company is called:
a) Rents and profits
b) Social Security
c) 401k
d) Pension
4. Karen has just applied for a credit card. She is an 18-year-old high school graduate with few valuable possessions and no credit history. If Karen is granted a credit card, which of the following is the most likely way that the credit card company will reduce its risk?
a) It will charge Karen twice the finance charge rate it charges older cardholders.
b) It will start Karen out with a small line of credit to see how she handles the account.
c) It will make Karen’s parents pledge their home to repay Karen’s credit card debt.
d) It will require Karen to have both parents co-sign for the card.
5. Kelly and Pete just had a baby. They received money as baby gifts and want to put it away for the baby’s education. Which of the following tends to have the highest growth over periods of time as long as 18 years?
a) A U.S. government savings bond
b) A savings account
c) A checking account
d) Stocks
Answer key:
- A bond issued by one of the 50 states. (Percentage of high school students who got this question correct: 28.6.)
- Banks and other lenders share the credit history of their borrowers with each other and are likely to know of any loan payments that you have missed. (70.9 percent).
- Pension. (37.7 percent)
- It will start Karen out with a small line of credit to see how she handles the account. (55.3 percent)
- Stocks. (14.2 percent)
Source: Jump$tart Coalition
OK, so how’d you do?
If you did well, good for you. If you didn’t, well, join the crowd. Not only do most high school students fall short in terms of their financial literacy—that is, what they know and understand about how to manage money effectively in modern society—but so too do their parents and other adults.
According to the National Council on Economic Education, half of all U.S. adults receive a failing grade in their knowledge of basic economic concepts. Yet various surveys indicate the vast majority of the nation’s students say they learned most of what they know about money management from their parents.
That’s not a bad thing, of course. All parents should spend some time teaching their children about money and how to save and use it wisely, but clearly home schooling isn’t enough. The numbers make that clear:
Fewer than half of high school and college students have regular savings plans, according to the American Savings Education Council. Only one in four sticks to a budget; one in three doesn’t even keep track of personal spending.
Almost immediately after high school, significant numbers of young people begin acquiring debt. Forty-five percent of college students are in credit card debt; the average amount owed is $3,000, according to Pamela Erwin, president of Wells Fargo Foundation California and creator of the “Hands on Banking” education program.
“They’ve learned to focus attention on earning money, even more on spending it, but little on managing it,” says Erwin, a former teacher, principal and school administrator.
These are not good times to not know how to manage money wisely. The nation is struggling to climb out of a deep recession, arguably the worst since the Great Depression of the 1930s. We may have bottomed out—something that remains to be seen—but for much of the country and millions of American families, a continuing poor economy means real economic struggles.
“And that makes this a teachable moment,” says Paul Golden, a spokesperson for the National Endowment for Financial Education, a private, nonprofit organization based in Greenwood Village, Colo., that promotes the financial well-being of Americans through outreach programs to students and consumers.
“Everybody is feeling the effects of this recession, including kids,” Golden says. “Parents are losing jobs, maybe even homes. Families are making concessions, changing their lifestyles, and children see all of it. They feel the effects. They have questions and fears. The current economy makes this a perfect moment for parents to communicate with their kids about responsible financial behavior.”
It’s a moment schools should seize as well, say financial literacy educators and advocates, for as much as many folks would like to think and insist that money lessons should strictly be a family matter, the reality is that it’s a subject most families discuss very little or not at all.
“Parents are more likely to talk to their kids about sex than finances,” says Ellen Towers, an economics teacher in the San Diego Unified High School District. “Money seems to be a real issue of privacy for some people. It makes them uncomfortable—for lots of reasons—and so they just avoid talking about it, even with their children.”
That’s not good for either the students or society in general. There is little argument that teaching students how to manage money wisely and better navigate the increasingly complicated world of credit and debt, mortgages and other loans, and savings and retirement plans is beneficial. A NEFE study estimated as few as 10 hours of classroom instruction can be enough to persuade students to improve their spending and saving habits.
And yet financial literacy education in public schools is relatively rare, especially as a stand-alone, singular classroom subject. Only eight states in the nation officially mandate distinct financial literacy courses as part of their high school curriculum and graduation requirements. California is not one of them.
“California has not adopted financial literacy standards, nor mandated a financial literacy course,” says Kristen Cruz, education programs consultant in the California Department of Education’s English Learner and Curriculum Support Division. “However, there are aspects of financial literacy interspersed in the state frameworks for history-social science, mathematics and health.”
The state does maintain a list of supplemental instructional resources that schools and teachers can use, according to Cruz, programs and lesson plans on financial literacy, developed primarily by nonprofit groups. Most of the programs are free.
But that still begs at least two questions: Is that enough? If financial literacy education is left as an option to be pursued only by interested districts, schools and teachers, does it have much or any chance to effectively alter and improve the relevant critical thinking skills and knowledge of students?
Different places
“In light of the problems that have arisen in the subprime mortgage market,” Federal Reserve Chairman Ben Bernanke told a financial literacy conference last year, “we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace. Choosing a credit card, saving for retirement or for a child’s education, or buying a home now requires more financial savvy than ever before.”
In other words, Bernanke said, make the investment now or pay the price later.
“Some states are, in fact, doing amazing things in promoting financial literacy, while others can’t get much traction,” says Nicole Chinadle-Wanago, project director of Family Economics and Financial Education, a University of Arizona-based program that promotes and trains teachers in financial education.
For example, she points out, a few states in recent years have looked seriously at requiring financial literacy education. New Jersey politicians are pondering a three-year pilot to include financial literacy courses in six high school districts. Similar legislation is under consideration in Virginia, Illinois and Maryland. Wisconsin runs an annual conference to teach financial literacy education to teachers.
These states, however, do not presage any tidal wave of advocacy for new financial literacy standards and school requirements in the United States. It’s more like a trickle, and financial education legislation has a long pipeline.
“It takes years to get things done,” says Laura Levine, executive director of the national Jump$tart Coalition, a Washington, D.C.-based group that promotes financial literacy education kindergarten through college by providing advocacy, research, standards and educational resources.
The time frame is much longer, in fact, than people realize, according to Leslie Linfield, founder and executive director of the Institute for Financial Literacy in Portland, Maine.
“The term ‘financial literacy’ is maybe 11 years old, but the concept of teaching it goes back to the 1840s, to Catharine Beecher, the older sister of Harriet Beecher Stowe, [the] author of ‘Uncle Tom’s Cabin’,” Linfield says.
In 1842, Catharine Beecher published a book called “Treatise on Domestic Economy for the Use of Young Ladies at Home and School.” In the book and for the rest of her life, Beecher staunchly advocated instruction in wise money management, with some success. The Massachusetts Board of Education, for example, adopted her book for school use in 1845, and its concepts have broadly evolved over generations into classes and courses variously called “home economics,” “consumer and family science” and, most recently, “financial literacy.”
But wholesale implementation of financial literacy courses has always been an uphill battle. The subject is traditionally viewed as useful but extracurricular, not really an essential part of any core curriculum. “It’s not reading, writing and ’rithmetic,” Linfield comments.
And while hard economic times may create the conditions for a teachable moment, Chinadle-Wanago says they also make it simply harder to do: “A bad economy makes it more difficult for schools to add to their teaching load. No one is going to mandate new courses when districts are cutting to the bone to make their budgets.”
In California, financial literacy has largely consisted of public encouragement and suggestions. Anything stronger has tended to stall in political or bureaucratic limbo or simply fail. Last year, for example, Gov. Arnold Schwarzenegger vetoed a bill that would have required the State Board of Education and the Curriculum Development and Supplemental Materials Commission that advises it to ensure financial literacy lessons were included in appropriate subject areas in the future.
Explaining his veto at the time, Schwarzenegger said: “While I acknowledge that teaching students the importance of financial literacy is meritorious, school districts already have the flexibility to incorporate money management into their lesson plans. Moreover, the State Board of Education-adopted content standards are developed by a diverse group of experts and are intentionally broad in order to allow coverage of various events, developments and issues. I continue to believe that the state should establish rigorous academic standards and frameworks, but refrain from being overly prescriptive in specific school curriculum.”
Two new financial literacy bills have been introduced this year. The first—Senate Bill 223—would require the Curriculum Commission to vote on whether to include a unit on financial literacy in proposed changes to the 2015 history-social science framework. Assembly Bill 448 would require the director of Consumer Affairs to create programs that improve financial literacy.
Sacramento-watchers say neither bill stands much chance, if any, of becoming law.
Taking action
Advocacy for new or expanded financial literacy programs in schools tends to come from a handful of sources, say experts. It can be part of a political platform or agenda. It can be initiated by nonprofit or business interests. It can be the result of individual districts, schools or teachers simply wanting to act on their own.
A combination of the last two occurred in San Diego, where four years ago a group of local businesspeople, banks, even a bankruptcy court judge approached the San Diego Unified School District and proposed developing a required course in financial literacy with interested teachers and district staff.
The result—developed, tested and revised by teachers like Towers—was launched about a year ago. It involves nine lessons embedded into the 12th-grade economics class.
“The reason we chose to incorporate it into economics is that economics is already required in this district to graduate,” Towers says. “It wasn’t as important to us to create a course that could stand by itself as much as [to] make sure it was part of a course every student would take.”
Linfield, at the Institute for Financial Literacy, agrees: “Financial literacy doesn’t have to be part of the formal curriculum. It doesn’t have to be created by the district if they don’t want to or have the resources. There are lots of ways to teach financial literacy and lots of people to help. Districts can work with local businesses, or in partnership with PTAs, or with groups like Jump$tart, NEFE or Junior Achievement.”
But with dozens of financial literacy education programs available, how do districts, schools or teachers know what’s best for their students? Any good program will cover the basics of money management, Towers points out, from checking accounts and credit cards to income taxes, loans and long-term financial planning.
Karen Anderson, chair of the California chapter of Jump$tart, says it’s important to sniff out hidden or unintentional biases.
“A program created by a credit card company, for example, probably isn’t going to dwell much on the downside of credit cards,” she cautions. Better bets may be free programs developed and offered by private nonprofits or by government institutions like the Federal Reserve.
Perhaps most important of all, says NEFE’s Golden, there should be proof the program actually works.
“Has it been field-tested and shown to produce benefits?” he asks. “Can you look at the program in operation and assess its impact? Is it not only producing a demonstrated change in what students know, but also a behavioral change? Are the lessons life-changing?”
These are difficult questions to answer. Many programs, despite attractive designs and good intentions, have not undergone any independent evaluation or assessment. Researchers are only now beginning to delve deeply into the efficacy of financial literacy curricula, to determine what works and what doesn’t, says the Jump$tart Coalition’s Levine. Hard, comprehensive answers may not be known for a few more years.
In the meantime, it’s up to educators to seek out what’s best for them, assuming they want to tackle the subject of financial literacy at all.
Not everybody does, observes Levine. Some may be loath to add duties and costs. And there’s a real discomfort level among many teachers, who generally don’t have any formal training in the subject of financial literacy.
“There’s an old joke: What do you call an economics teacher?” Levine asks, pausing before the punch line: “Coach.”
The problem, of course, is that poor financial literacy isn’t a joking matter. Whether this is a teachable moment or not may really not matter. This may simply be the moment to get serious about money and get serious about teaching children how to handle it wisely.
Scott LaFee is a regular contributor to California Schools.
Dollars and common sense
Many government agencies and groups independently promote financial literacy through products or programs of their own—although “A program created by a credit card company, for example, probably isn’t going to dwell much on the downside of credit cards,” as Karen Anderson, chair of the California chapter of Jump$tart, warns in our main story. Some disinterested resources include:
California Department of Education
www.cde.ca.gov/eo/in/fl
This CDE Web page has a list of financial literacy resources for grades K–12 that schools, teachers and students can download or use for free.
California Council on Economic Education
www.ccee.org
The CCEE Board of Directors and Advisors includes state Superintendent of Public Instruction Jack O’Connell, CEO, California Business Roundtable President and CEO Bill Hauck and California State University Chancellor Charles Reed.
Jump$tart Coalition for Personal Financial Literacy
www.jumpstartcoalition.org
This Washington, D.C.-based group that promotes financial literacy education kindergarten through college also has a California chapter: www.cajumpstart.org
Family Economics and Financial Education
http://fefe.arizona.edu
This program of the University of Arizona “is dedicated to improving the money-management skills and financial confidence of consumers of all ages through the development and support of research-based educational outreach programs.”
National Endowment for Financial Education
www.nefe.org
This Colorado-based national organization calls itself “the only private, nonprofit, national foundation wholly dedicated to improving the financial well-being of all Americans.”
U.S. Federal Reserve Education
www.federalreserveeducation.org/fred
This online resource of the Federal Reserve System has teaching tools aligned with the National Council on Economic Education’s Voluntary National Standards in Economics.
—Brian Taylor