Call it what you will: financial literacy, financial capability money sense. Studies show that many young adults leave home without it.
The White House outlines the seriousness of the issue in the resource Every American Financially Empowered: A Guide to Increasing Financial Capability among Students, Workers, and Residents in Communities (May 2012). "From saving for retirement and higher education to better understanding credit card, student loan, [and] mortgage debt, personal financial decisions have important ramifications for families and children, as well as implications for our nation's economy" the report says.
A 2009 Financial Industry Regulatory Authority (FINRA) survey of Americans revealed that about half of the respondents say they have trouble keeping up with monthly expenses, have no money saved for emergencies, and do not save for retirement. Forty-one percent report they have no savings for their children's education.
Junior Achievement's 2012 Teens and Personal Finance survey reveals how young people age 14–18 think about financial matters. Thirty-four percent of youth report that they do not budget or manage their money, compared to 10 percent who said the same thing in 2011. In 2012, 24 percent of teens reported learning how to manage money in school or from teachers, compared with 58 percent who reported the same in 2011.
There's a financial skills gap to fill. It's up to everyone—parents, teachers, policymakers, business leaders—to help youth understand the value of planning financially for the future.
Making Cents of Money
"As a society, we are seeing a rise in credit card debt with young people between the ages of 20 and 24 among the fastest growing group to declare bankruptcy, according to www.DoSomething.org," says Susan Nuna-maker. "Teaching young students to be financially responsible citizens gives them the skills to take hold of their own future financial situations."
Nunamaker, a National Board–certified 3rd grade teacher, created a financial literacy-focused classroom management system to teach her students real-life money lessons. She is the president and founder of the Money Cents For Kids program.
Nunamaker says students are treated as professionals in a real-world classroom setting. They are paid classroom money each week based on their behavior choices in the classroom. With the money, students run their own businesses; rent or buy homes; pay taxes, credit card bills; and cover "Life Happens" incidents.
The financial literacy activities help Nunamaker make connections across the content areas. "When we study multiplication or making change in math, students have already realized the importance of such topics in their own business ventures. When we study persuasive writing, students create commercials and persuasive pieces based on their own stores," says Nunamaker. "When the Great Depression hits in the spring semester and students lose all the money they have been saving in the class bank, there is pandemonium in the classroom. It is a historical event that stays with the students."
Nunamaker says her best success stories have come from students who would be considered children of poverty. "Last year Isis was in my class. She struggled in reading and math. She finally found her place in the classroom when she saved up to open her own business, a styling salon. She was so gifted when it came to braiding hair that she had to place a waiting list on the side of her desk. Once Isis found success in the classroom, she set a goal to open a real salon in the future," says Nunamaker.
"We need to focus on finding students' talents and showing them a purpose for school at a young age. All people have dreams and goals, no matter how young they are. It is also important to model the effects of positive financial choices in the classroom for students who may view poor financial choices at home. The younger we can reach students, the better," says Nunamaker.
Getting Cash for College
College is expensive. It's just a fact. Increasingly, parents are unable to shoulder the burden—for a number of reasons, ranging from rising college price tags to their own underemployment to a lack of planning for their children's education. As a result, young people are borrowing more than they were in the past.
In the United States, student loan debt totals $870 billion, which is higher than credit card debt ($700 billion) and other consumer debt in the nation.
The March 2012 report High Debt, Low Information: A Survey of Student Loan Borrowers asked respondents carrying high levels of debt about their levels of loan literacy. Conducted by NERA Economic Consulting on behalf of the youth advocacy organization Young Invincibles, High Debt, Low Information found that about 65 percent say they misunderstood or were surprised by aspects of their student loans or the student loan process.
Respondents were asked open-ended questions about their borrowing experiences. "Looking back, I wish I had asked a million more questions than what I did, but at the same time, I don't think I knew what to ask," says one borrower who owes $150,000 in private and federal loans.
"Unfortunately, we don't provide students with the tools up front to fully understand how much interest will add to their monthly payments, or, for example, how different terms of the loan will affect the amount they pay," says Jen Mishory, the deputy director of Young Invincibles. Mishory also notes that a large number of the respondents say they don't fully understand the difference between federal and private loans.
What advice would Mishory give to young borrowers? "Fill out the FAFSA [Free Application for Federal Student Aid], do a comprehensive search of grants available before turning to loans, [and] almost always max out on federal loans before turning to private loans," she says.
In light of Mishory's recommendations for students to maximize federal aid, it's important to note that nearly 2 million low- and moderate-income undergraduates do not submit a FAFSA to apply for federal aid, even though many of them may be eligible for PELL Grants, according to Every American Financially Empowered.
"As students and families start to look at various schools, they should be asking probing questions of the financial aid offices about their financial aid packages. But frankly, there aren't a lot of great resources out there that really break it down—at least not many that are both comprehensive and easy to navigate," says Mishory. She adds that her organization is in the midst of creating some basic resources, like loan fact sheets and a glossary of financial aid terms. Mishory also recommends www.finaid.org for comprehensive financial aid information.
But what can be done about students wading through high-interest loan payments? "We're really hopeful that the [Consumer Financial Protection Bureau] will play an important role in cracking down on predatory practices," says Mishory. "On the prevention side, we need more standardized and clear loan documents, better education up front, and better information available to incoming and graduating students and their families."
Decline of Financial Education
Survey of the States: Economic and Personal Finance Education in our Nation's Schools, 2011, which was conducted by the Council for Economic Education (CEE), shows that over the past two years, the number of states making economic or financial education a requirement has decreased.
Twenty-two states require that students take a high school course in economics, which in addition to being less than half the nation is also a decrease by three states since CEE's 2009 study. Only 14 states require that schools offer a course in personal finance.
Why has financial education failed to make the education priority list, despite its being perceived as an essential 21st century skill? "It's hard to say why," says Nan J. Morrison, president and CEO of CEE. "The focus on Common Core State Standards leaves so little time and money for professional development. And if teachers don't have the core content knowledge or training, then it is harder to integrate [this information] into the classroom."
Morrison says financial literacy, at its root, is really about recognizing and evaluating choices and developing a habit of thoughtful discussion around money choices. And it's important to develop these skills at a young age.
What will help states make financial literacy a priority? Having accessible professional development resources for teachers and making it easy for teachers to do, says Morrison. CEE has created lessons that can be linked into state standards where appropriate, says Morrison. And she encourages educators to tap into CEE's PD and web resources to make sure that their lessons and content are standard-ready.
CEE is upgrading a set of benchmarks to help gauge students' capability with financial literacy information and skills at the 4th, 8th, and 12th grade levels. The knowledge areas include earning income, buying goods and services, using credit, saving, investing, and protecting against risk.
"We think every state should pass a requirement with a test so that it is integrated into the classroom," says Morrison. Morrison says CEE offers advocacy help at the local and state levels to help communities push for financial education to be implemented in their schools.
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ADDITIONAL RESOURCES
Money Cents For Kids: <LINK URL="http://www.mc4k.com">www.mc4k.com</LINK>
Council for Economic Education: <LINK URL="http://www.councilforeconed.org">www.councilforeconed.org</LINK>
High Debt, Low Information survey: <LINK URL="http://www.younginvincibles.org">www.younginvincibles.org</LINK>
"Australian Educators Focus on Financial Literacy," an Education Update online feature: <LINK URL="http://www.ascd.org/eu-aug12-australia">www.ascd.org/eu-aug12-australia</LINK>
Also, get a list of free financial literacy resources at www.ascd.org/eu-aug12-financial.
