Today's
financial crisis is a prime example of why the next generation
needs financial literacy.
Braun Mincher, Christian Science Monitor, September 23, 2008
FORT COLLINS, COLO. - Why does the school system require classes
such as math, English, and science, but not basic personal
finance?
We force students to learn trigonometry, yet how many of us ever
use it again after graduation? In contrast, how many
transactions involving money will we each conduct on a daily
basis for the rest of our lives?
Think about each time you purchase something with a credit card,
make a car payment, reconcile your bank account, or pay taxes.
Even though these transactions are a daily occurrence for most
consumers, we receive very little financial education on them
from our school system, or even our parents.
Now think about how huge a decision it is to rent or purchase a
home, apply for a loan or mortgage, make a contribution to your
IRA or 401(k), shop for insurance, or get married. How do we
expect to make wise financial decisions when we have little
education on even the basics?
According to a 2007 survey commissioned by the National Council
on Economic Education, only seven states currently require high
school students to receive financial education in the school
system. What about the other 43 states?
We need look no further than the daily news headlines about the
mortgage meltdown, the stock market crisis, the housing slump,
or the rising cost of oil to see how relevant financial literacy
is.
Rather than waiting for the system to correct itself, we need to
educate our future generations to make smarter financial
decisions.
Just 20 years ago, personal finance was significantly less
complex than it is today, and in many cases, parents
supplemented what the schools did not teach.
Fast forward to present day, and we now have hundreds of
different home mortgage options and the burden of retirement
planning is shifting from the government and traditional company
pension plans to consumers through investment vehicles such as
IRAs and 401(k)s.
Because of their own financial woes, in many cases, parents are
no longer comfortable with talking to their children about the
touchy subject of money and personal finance.
Sadly, research shows that financial illiteracy has reached
epidemic levels with no end in sight.
Much has been done to bring awareness to other growing crises
such as childhood obesity, the need to wear sunscreen, and the
dangers of drug and alcohol abuse, but why has something as
important as financial literacy been largely ignored?
Results from my recent online consumer survey,
FinancialLiteracyQuiz.com, show that:
•Only 50 percent of those who took the survey know that property
taxes and mortgage interest are tax deductible
•Only 40 percent know that their liability for credit-card fraud
is limited to $50.
•Only 33 percent know what "annual percentage rate" (APR) means.
•Only 32 percent know what required deductions are taken from
their paycheck.
So, why should Americans care? These are basic pieces of
information that are critical to financial decisions. And the
better job we do of financially educating the next generation,
the more financially independent they will be. This will not
only mean breaking free from ongoing support from parents or
destructive financial habits, but it could potentially save a
lot of money.
Our school system has an obligation to prepare students for
success in a fast paced global economy. Personal finance is a
subject that will affect all consumers for the rest of their
lives, regardless of age, education level, or income.
Financial literacy is a fundamental life skill that needs to be
properly taught in the school system, alongside traditional
math, English, and science.
The public needs to put pressure on lawmakers to mandate this.
Parents and students need to be vocal locally.
In the meantime, consumers need to accept personal
responsibility and invest in themselves to get financially
educated. They can start by reading a book, attending a seminar,
or getting coaching from a trusted adviser. But they have to
start now. The future of our financial lives depends on it.
• Braun Mincher
is the author of "The Secrets of Money: A Guide for Everyone on
Practical Financial Literacy."
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