Financial Literacy: Taking Responsibility for Our Future

Wouldn’t it be nice if all Americans were more financially literate?  We’d make better financial decisions, have less debt, save more and be better prepared for retirement.  We may even have avoided much of our current economic plight by not getting as far into debt or by getting into mortgages that we couldn’t afford.

Sadly, the problem is that parents, the expected and trusted source of that learning often don’t have the skills to pass it on to their children.  That’s because they didn’t learn from their parents.  In fact, a survey by the Networks Financial Institute found that less than 30 percent of American adults view their financial knowledge as very good (http://www.networksfinancialinstitute.org/thoughtleadership/publications/Pages/default.aspx).  It gets worse.  Another study by Dartmouth Prof. Annamaria Lusardi (http://www.dartmouth.edu/~alusardi/policy.html) found that only 18 percent of 1,700 adults in their early 50s could correctly answer a question about compound interest.  And another survey for found that parents would rather talk to their kids about the birds and the bees rather than money management (http://www.businesswire.com/portal/site/schwab/index.jsp?ndmViewId=news_view&ndmConfigId=1010973&newsId=20080326005384&newsLang=en). 

Money management has a lot to do with our personal value systems and sense of responsibility.  And teaching some of these concepts is more complicated than mathematics, and involves understanding people, their motivations and their psychology.  Understanding money means understanding that it is one of the most powerful motivators in life.

So why not teach the subject in schools so that we can all eventually become smarter?  It is true that the number of states requiring some sort of financial literacy instruction is growing.  The problem for the schools is that they are already facing time and budget pressures to deliver on current offerings and many teachers do not feel they have the financial savvy to teach such a course.  Most important, consistent academic standards for teaching such a course do not currently exist. 

Learning these skills early is important because adults with financial skills and knowledge are better at keeping more of the money that they earn through better saving, retirement planning and avoidance of debt problems.  We are also living in a time in which financial products are both more complicated and more available than ever before. 

Educating high school seniors or incoming freshmen about money and financial topics would capture the current generation at a very teachable moment.  Not only are they just gaining their independence and being sent off into a world with more complex financial products and choices, they are also reaching a time in their lives when they will be asked to make important financial decisions that can follow them for the rest of their lives – and most are not aware of the financial impact.  For example, they are being provided with credit cards at a time when few are aware of the impact of high interest rates on outstanding balances or of the consequences of failing to make timely payments on their own credit history.  Yet five out of six college undergraduates have credit cards and about half of those carry more than four credit cards.  In addition, student debt is rising faster than starting salaries for new graduates.  According to the Project on Student Debt (http://projectonstudentdebt.org/newsroom.php?type=project), the average student debt of the Class of 2007 was $20,098, up six percent from the previous year.  Also, student loan default rates are rising rapidly and are expected to reach 6.9 percent for fiscal 2007.

Not only are we not providing young adults with the appropriate skills to navigate their financial lives, but they are leaving school at a time when jobs are difficult to obtain, potentially hobbled with debt loads that will be difficult to overcome.  The good news is that any number of surveys indicate that today’s students recognize the fact that they need to acquire money skills. 

Government also recognizes the problem. More and more states are requiring some sort of financial literacy education at the high school level.  The challenge is to develop academic standards and agreement among educators on what is necessary to include in such courses along with some training for the teachers. 

Thanks to the internet, other sources are becoming available.  For example, the Financial Industry Regulatory Authority’s site delivers basic information and has a section on saving for college (http://www.finra.org/Investors/SmartInvesting/SmartSavingForCollege/).  And the AARP has a new site called LifeTuner (http://www.lifetuner.org/) to provide information about important financial decisions.

However, reaching the generation going to high school and college today requires a more targeted approach.  MoneyU®,(www.moneyu.com) a game-based online education course designed to build core financial skills and acumen in young adults, is such an answer, and it comes in a form that appeals to today’s digital generation. In addition to providing an entertaining approach that maintains student interest, the online course also contains both pre- and post tests to gauge learning.  On the average, students enter the course with a D and earn a B+ by the time they have completed it.  Not only do they learn the concepts, but students who have completed the course have also reported that they’ve opened savings accounts, looked up their credit scores and one even went home to lecture her mother about credit card use. The game is being offered free to qualifying schools through next June.  The only associated cost is a $4 per learner fee that goes to support the storage infrastructure needed to host the online course to manage an influx of student learners.

Indeed, we need to pay more attention to providing the future generations with the tools to make better money decisions in the future.  It’s in our own best interest.