Mandatory Financial Literacy Courses Needed in America's High Schools

"If you think education is expensive, try ignorance;" this old wise adage is an apt description of the crisis facing this nation's youth and the astonishing expense of financial illiteracy. High school graduates in the United States are inadequately prepared to make financial decisions necessary as adults.The ability to manage personal finances is a vital skill to master: lack of preparation and education leaves our society subject to a high percentage of people who lack financial success. The National Endowment for Financial Education (2002) defines financial literacy as:

"...the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy." (National Endowment for Financial Education, 2002, p. 4)

If today's youth are tomorrow's future, it is expedient to provide a good understanding of basic principles and the role personal finances play in the American economy. Teaching youth to manage finances should make up as much of the high school curriculum as math and grammar; financial matters affect them throughout life: it impacts the ability to purchase a car or home; provide for a family; and prepare for retirement. The earlier students are taught skills to manage personal finances and debt, the less likely they are to encounter devastating problems later in life. Insufficient debt management skills lead to late payment or loan default, poor credit, tax seizure, wage garnishment, legal action, and even bankruptcy.

Personal financial education should be started early in a child's life; however, the curriculum must be presented in a way to keep children interested and active participants: it must appeal to what interests the child at their specific stage in life (Varcoe, Martin, Devitto, & Go, 2005). The Jump$tart Coalition for Personal Financial Literacy surveyed 5,775 high school students nationwide; the study revealed high school students are graduating with limited knowledge and skills in personal finance, the knowledge and skills necessary to make informed financial decisions. The average high school student scored 52.4%, meaning that the majority of students were unable to answer basic financial questions regarding credit, savings, interest, and insurance. (Jump$tart Coalition for Personal Financial Literacy, 2006)

According to the Charles Schwab Teens & Money 2007 Survey, over half the teens surveyed believe they are well educated about personal finance; however, when asked specific questions about the handling of money teens evidenced sizeable breaks in understanding. Nearly 90% of teens report they dislike being in debt, but one-third report being in debt prior to high school graduation holding an average debt of $300. Additionally, one in ten teens report owning a credit card; one-third of teens prefer making purchases with credit cards; and "most teens (51%) agree that it is easier to make purchases with a credit card rather than with cash" (Charles Schwab, 2007, p 4).

Deficits in financial literacy lead to unwise usage of credit cards and poor debt repayment habits that carry into adulthood. Students are receiving and opening credit card accounts prior to graduating from high school, establishing poor credit ratings at an earlier age than in previous years. Nellie Mae (2005) reports freshman year as the prime time to obtain credit cards, with the primary source originating from solicitation by direct mail. College graduates report owning a mean average of three credit cards, with a reported $2,169 average in credit card debt. (Nellie Mae, 2005) Illustrating poor repayment practices: 21% of undergraduates pay the balance due on credit cards each month; 44% pay a little more than the minimum payment, but still carry a balance to the next month; and 11% do not pay the minimum monthly payment. As college students near graduation, credit card expenditures and the number of cards held increase. Regardless of the fact that the majority of college students do not hold a full-time job, credit card vendors and student loan companies continue to extend credit. (Nellie Mae, 2005)

College graduates in their twenties and thirties, referred to by the media as "Generation Broke," are graduating from college with enormous amounts of student loan and credit card debt. In 2001, individuals under 25 years-old were the largest group filing for personal bankruptcy, with the total ringing in at an astounding 150,000. One reason given for the bankruptcy explosion is the credit card company's aggressive marketing in an oversaturated market, targeting high school and college students. Another possible contributor to the rising rates of youth bankruptcies is the ever increasing college and university costs: the cost of attending a four-year institution has risen an astonishing 66% in the last decade alone. The Senate Banking Committee reports three out of four college freshmen have used student loans to pay off credit card and various other debts. (Smillie, 2004)

Teens convey the desire to learn more about finances from their parents, but report their parents do not discuss financial matters or budgeting with them. Teens express concern about their parent's finances and ability to financially support them while attending college. Thirty-six percent of teens believe their parents worry about being able to repay debts. (Charles Schwab, 2007)

Lim (2005) states that parents need to start teaching their children at a young age how to earn and budget money, including how to value money, and parents should give their children a budget. Lim believes that parents should share financial statements with their children to teach the concept of compound interest at regular monthly meetings; parents need to show children how to save; and teach them to be responsible with money. (Lim, 2005)

In an ideal world, Lim's solution to financial education for today's youth would be the perfect method of instructing children in the matters of personal finance; however, many parents do not even disclose the state of their financial affairs to their spouse. The fact remains that financial matters remain shrouded in mystery for many adults; the state of the family's finances are perceived to be private and intimate; and many parents do not want their children to know the family's financial welfare for a variety of reasons: perhaps the parents feel they are drowning in debt, and do not want their children worried or encumbered by this burden; perhaps the parents do not want their children to know they truly can afford the latest gadget the child has requested; there are many other possible reasons that could be added to this repertoire.

What could be a more significant reason children are not being taught personal finances at home: "children learn what they live," and the lessons learned at home may not be in the child's best financial interest. The parental age group, adults 35-64, makes up 68% of individuals who filed for bankruptcy in 2006. What message is this sending to teens and young adults? Obviously, today's youth are not being taught how to make sound financial decisions at home. So, where should these lessons in personal finance be taught? Parents cannot teach what they do not understand themselves. (Linfield, 2007)

Financial literacy classes differ from standard economics classes. Financial literacy classes teach students about money management, personal finance, credit reports, and credit cards; whereas economics classes teach economic concepts and relationships on national and international levels. While requiring courses in economics is better than nothing, they do not teach the day-to-day living skills necessary for financial success in today's society. Mincer states that "parents, educators, and legislators across the country are voicing concerns that many, if not most, young people are ill-prepared to manage their finances" (2007, p. 2). While some states are on the forefront of requiring high schools to educate students in personal finance and economics, much remains to be done. Prior to graduation, only 17 states require a course in economics and only seven states require a course in personal finance.

Progress in educating students about personal finance is slow, because teachers need to be educated first and educators are having difficulty including the new subject around present course requirements. (Mincer, 2007) Meanwhile, today's youth are entering the labor force unable to function effectively and without practical knowledge of how the world works. The need for improved, extensive financial literacy instruction is urgent and critical. Personal bankruptcy and credit card debt continue to increase at an alarming rate. Today's youth have poor investment and savings comprehension; little or no understanding of international economic change; and it is clear that we as a nation cannot afford to make personal finance an option in our schools. Creating a nation of people who have the understanding, knowledge, and skills to make informed economic choices begins with students who are taught how to be responsible savers, investors, and effective consumers in a global economy.

References

Charles Schwab. (2007). Charles Schwab teens & money 2007 survey findings: Insights into money attitudes, behaviors and concerns of teens. http://www.aboutschwab.com/teensurvey2007.pdf

Jump$tart Coalition for Personal Financial Literacy. (2006). Financial literacy shows slight improvement among nation's high school students: Jump$tart
survey reveals modest gains. http://www.jumpstart.org/fileuptemp/2006GeneralReleaseFinal%202.doc

Lim, P. J. (2005). Kid stuff. U.S. News & World Report, 139(22), 55-58.

Linfield, L. E. (2007). Who went bankrupt in 2006? A demographic analysis of American debtors. Institute for Financial Literacy, Inc. http://www.financiallit.org/news/white/WWBR.pdf

Mincer, J. (2007). Your money matters (A special report): Family money; teach the children: Fearing financial illiteracy among kids, states are requiring
students to learn about money matters. The Wall Street Journal, (Eastern Edition), July 9, 2007, R. 7.

National Endowment for Financial Education (NEFE). (2002). Financial literacy in America: Individual choices, national consequences: The state of financial
literacy in America-Evolutions and revolutions. http://www.nefe.org/pages/whitepaper2002symposium.html

Nellie Mae. (2005). Undergraduate students and credit cards in 2004: An analysis of usage rates and trends. http://www.nelliemae.com/pdf/ccstudy_2005.pdf

Smillie, D. (2004). Bankrupt by 25: People under age 25 make up the fastest-growing age group filing for bankruptcy. Easy credit, bigger student loans, and
financial illiteracy are fueling the trend. New York Times Upfront, 136, 16-17.

Varcoe, K. P., Martin, A., Devitto, Z., & Go, C. (2005). Using a financial education curriculum for teens. Financial Counseling & Planning, 16(1), 63-71.