One of most captivating jobs I ever had was working for Consumer Credit Counseling Service of Seattle (CCCS) in the 1990’s. I was a “financial educator” which meant that I conducted money management and credit seminars for CCCS clients to help them get back on track financially. I also spent a great deal of time doing “life skills” seminars at high schools throughout Puget Sound. Over the years I’ve spoken with literally thousands of young people about basic budgeting and credit, the cost of owning and operating a vehicle and I even taught students how to be a thrifty grocery shopper. I always thought that if I could help even a small percentage of the students understand how to manage their financial lives better, I was doing my part in making the world a better place. As it turns out, the U.S. school system should start cloning more people like me because the schools seem to have forsaken financial literacy programs in the 21st Century. It’s ironic, because money management and financial services have become far more complicated than they used to be. Why are we seeing statistics like this?
A recent study by the International Journal of Business and Social Science which looked at financial literacy and credit cards on five American Universities reveals some disturbing facts. Did you know?
- 70% of American college students have credit cards
- 5 of every 6 of those students do not know their card’s interest rate
- 75% of them do not know their late payment charges
- 70% do not know what their over-balance-limit fees might be
- 90% of college students who hold credit cards are carrying a balance on their card
And if that’s not disturbing enough, nearly all of the 725 students who took the survey were business majors! Oh, and here are two more “fun” facts:
College seniors who graduated in 2010 owed an average of $25,250 in student loan debt, up 5% from 2009. And even though the Credit Card Act of 2009 does not allow those under 21 to have a credit card unless they have an independent income, college freshmen are bringing $1,585 in credit card debt to college.
How did we get here?
When I was doing the research for this post, I was struck by the fact that virtually EVERYONE (e.g. parents, teachers, business leaders, the Treasury Department and the kids themselves) feels that basic financial education is one of those “essential” life skills that should be taught in school. Yet, there are a lot of critics out there who claim that financial literacy education doesn’t work. Some say that there simply isn’t enough time to fit this material into an already over-filled curriculum. Others actually blame the Credit Card Act of 2009 claiming that it removes the incentive for 17-year-olds to learn about credit because, like pensions, they don’t have them and simply don’t care. And yet another excuse: Experts say today’s financial world is too complex for anyone to master! One of the most interesting studies that CreditCards.com found is that cardholder agreements are written at a 12th grade level. If you read that report you’ll discover that 4 out of 5 ADULTS can’t understand them.
Ultimately, the most obvious problem is this: In 2009, 15 states required a personal finance course to be offered in high school. Today only 13 states require a class in personal finance.
Wow, talk about “doom and gloom” on the financial literacy front! I honestly had to think long and hard about what the critics have to say. Are they right? Is teaching financial literacy in the school system a fruitless endeavor? Did I waste a lot of time an energy going out to the schools? In the end, is “financial literacy” really all that important?
The answer is YES! It’s incredibly important and as a country, we need to figure out how to do more of it, not less. Here’s what I think:
- I look at financial literacy as being more important than ever. It’s like taking a driver’s education class. Almost everyone drives and learning the rules of the road is crucial to the health and safety of everyone. Everyone has a financial life and we all know what happens when we have money problems…a lot of people suffer.
- The reason why financial literacy classes don’t work is because the teachers in whose lap these courses fall have no expertise or even relevant life experience to teach them. I can’t tell you the number of times I marched into a classroom to discover that the educator him/her self had a mountain of credit card debt, student loans and hardly a clue about solving their own problems.
- Look, when only 25% of the states require financial education in high schools, how can we expect this sort of literacy to have any traction in our society? It’s analogous to immunizing large populations against particular diseases. I believe financial literacy is one of the best possible “antibiotics” against the disease of financial illiteracy. The problem is, not enough of the herd is being immunized.
- We need to start being more honest with ourselves about navigating in the financial world of the 21st Century. Many young adults today are experiencing financial problems because they never learned about managing their personal finances in school or from their parents. It’s simply absurd to believe that we all don’t pay the price when other people default on their loans and can’t pay their debts.
- And yes, parents need to make sure they have “the talk” with their kids about money. I’ve often thought that it’s the parents who should attend financial literacy classes rather than their kids. It remains one of those taboo subjects that people don’t like to talk about, and yet it’s one of the most important things our children need to understand.
In the end, making everyone more financially literate is one of the most effective, least expensive ways of ensuring our economy functions properly. Financial literacy doesn’t happen through osmosis. As a society we need to renew our commitment to teaching young people how the world really works and start offering more opportunities to learn these basic skills.
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