A recent financial literacy survey aimed at high school and college students included the following sample questions. Just for the fun of it, see if you can answer them correctly.1. If your credit card is stolen and the thief runs up a total debt of $1,000, but you notify the card issuers as soon as you discover the theft, what is the maximum amount you can be forced to pay according to Federal law?
a) $500
b) $1,000
c) Nothing
d) $50
2. Which of the following types of investments would best protect the purchasing power of a family's savings in the event of a sudden increase in inflation?
a) A 10-year bond issued by a corporation.
b) A certificate of deposit at a bank
c) A house financed with a fixed-rate mortgage
d) A 25-year corporate bond
3. Which of the following savings programs is not protected by the federal government against loss?
a) A bond issued by one of the 50 states
b) A U.S. Treasury bond
c) A U.S. savings bond
d) A certificate of deposit at a bank
(answers at end of column)
On the surface, these seem like questions we should all be able to answer easily. If you did, that's great. But chances are you didn't learn this type of information in school. I know that I didn't, although I did learn how to sew a button.
The 2008 results of the biennial survey - released last week by the Jump$tart Coalition for Personal Financial Literacy - showed that students have an alarming lack of financial knowledge. High school seniors answered only 48.3 percent of the 31 questions correctly, down from 52.4 percent just two years ago. College students, who were included in the survey for the first time this year, fared slightly better with a score of 62 percent.
These aren't encouraging numbers, especially in the face of current economic difficulties. And unfortunately only three states require students to take a course in personal finance (Missouri, Tennessee, Utah), with another 15 insisting that financial education be incorporated into other courses.
At the same time, everyday money management is becoming more and more difficult.
From credit cards to mortgages to saving for college, people are being asked to make complex financial decisions with very little preparation. Plus, with the proliferation of self-directed retirement accounts, current poor financial education is going to translate into a lot of future difficulty for generations to come.
When you add the reluctance of many people to even talk about money to this general lack of formal financial education, whether from feelings of insecurity, superiority or even a lack of interest, the problem is compounded. But the good news is there are some signs that the national psyche is shifting.
Here's what's being done on a national level to help stem the crisis of financial literacy, plus some things you can do personally to aid in this important effort.
NATIONAL PROGRAMS THAT ARE MAKING A DIFFERENCE
The recently established President's Advisory Council on Financial Literacy is a major step in the right direction, and I'm proud that my father is taking a leadership role in this important council. I'm equally encouraged by the initial efforts being made. So far the group has:
- Approved a new curriculum for middle-school students called "MoneyMath; Lessons for Life."
- Started a pilot program to help people without bank accounts connect with financial institutions.
- Created a Financial Literacy Corps of volunteers to advise those in financial trouble. They are trying to recruit 25,000 volunteers around the country. If you're interested in volunteering, go to volunteer.gov for more information.
The Council also has programs for high school students and employers in the works as well as reward programs for outstanding financial literacy. No doubt that it's a long road ahead, but there's definite progress being made.
PERSONAL WAYS YOU CAN HELP
As with so much in education (and in life, for that matter), ideas are only meaningful if we translate them into action. This is where you come in. Not only should financial literacy begin at home, but the earlier you start the better. There are many ways you can introduce financial ideas to your kids and get them personally involved depending on their ages.
As I've mentioned in previous columns, here are a few good places to start:
- Young children: Start an allowance and help them make real purchases; include them in buying trips and help them comparison shop.
- Middle-school kids: Help them create a budget and have them pay some of their own expenses with their allowance.
- Teens: Open a checking account and teach them how to manage it. Co-sign a low-limit credit card and let them practice handling debt.
- At every age: Set up a regular savings program, open a savings account and teach them about earning interest.
Most importantly, don't be afraid to talk about money. Be frank about your family finances and let your kids see how you manage wisely. The more they learn at home, the more open they'll be to ideas presented at school, and the more information they'll be able to share with their peers.
As Financial Literacy month comes to a close, I can't help but reiterate how personally important it is to educate young people about finances. It's an ongoing challenge, the significance of which is only emphasized by the Jump$tart survey.
I hope you'll join me in making Financial Literacy more than a one-month focus. With a united year-round effort in our homes, our schools and our national programs, we can all work toward raising those survey scores as well as the financial confidence of all of us. Only then can we create the futures we want and deserve.
