Q: My high school son is terrible when it comes to money. He has no idea the difference between a savings and debit account and he spends all his money as soon as he earns it. Do you think we need classes to teach students how to handle money?
Our children absolutely need us to educate them when it comes to what we call financial literacy. It’s a travesty that they can receive a high school diploma − our “seal of approval” for a quality education--yet they can’t even manage their own money.
The problem isn’t always that they are merely bad at making monetary decisions. Often it’s that they are fundamentally ignorant of how to do so, and that fault falls, in part, on our educational system.
Take, for example, the fact that nearly one-third of Americans pay the minimum due on their monthly credit cards, according to FINRA. If you have a child at home approaching the age where he can have his own credit card, ask him why that’s such a bad idea. Chances are he’ll scratch his head and shrug. Apparently they don’t teach credit card debt in drama class or on Fortnite.
But it’s an important skill because paying the minimum balance every month can be financially devastating. According to NerdWallet, the average household with credit card debt will pay $1,292 per year just in interest. There’s a lot one can do with $1,292 besides donating it to a bank. Do you think the average student is aware that if he were to invest that $1,292 in an IRA from age 21 to 65, he’d earn approximately $203,770? If he does, he probably didn’t learn it in school.
Carrying credit card debt can also hurt one’s credit score. But does that matter to our recent graduates? Most millennials don’t even know what a credit score is. According to a study by the National Endowment for Financial Education, “Millennials are overconfident and underprepared when it comes to managing their money.” They believe that they know a lot more about finances than they actually do.
That study found that only 24 percent of millennials had basic financial literacy skills with a mere 8 percent demonstrating a high level of knowledge. However, when asked to assess their own financial aptitude, 69 percent gave themselves a “high” designation. And then everyone got a trophy (just kidding).
Educational leaders spend a lot of time talking about the effect of poverty on student learning. But at least some aspects of poverty can be blamed not on lack of income, but on lack of sense. If you can’t afford for your children to eat three meals a day, is it really an economically sound decision to buy $200 sneakers or a $1,000 Smartphone? Some people think it is, and that kind of decision-making can lead to crippling debt.
I am not blaming the victims. I am one myself. After high school I didn’t know anything about money. My father tried to teach me, but I was too dumb to listen. I wish I had been made to take a class that taught me what a mortgage is, how to buy a car, and what a 401k does. If I was going to be graded on it, I would have been more motivated to learn.
Unfortunately only 17 states currently require high school students to take a course in personal finances, according to the Council for Economic Education. More than half don’t even require students to take a basic economics course.
But the benefits of such a requirement would be a great boon for the hordes of financially illiterate graduates that we kick into the real world every year. A 2014 Federal Reserve report found that students who were given education in personal finances had higher credit scores than their counterparts. In some states the average difference was as much as 29 points.
So there are a couple of wise options. One would be to mandate a financial literacy class for graduation. Another would be to integrate personal finance skills into existing math courses. Both of these ideas have proven to be effective in states where they’ve been enacted.
I’m not a person who thinks money is everything, and I don’t like how everything we do seems to revolve around its earning potential. I believe, like Thoreau, that “a man is rich in proportion to the number of things he can afford to let alone.” But what happens is that when people don’t manage their money properly, their debt, in one way or another, often falls on the shoulders of someone else. In many cases it falls on all of us as citizens. That isn’t right. And if we can fix it simply by teaching our children some basic financial precepts, then that’s what we should do.
How we choose to do it is up for debate, but clearly it would be better to do something rather than nothing. And “nothing” is the amount of money that students are going to have in their bank accounts if we don’t start teaching them financial literacy. Like Ben Franklin said, “An investment in knowledge pays the best interest.”