There was an article in the New Yorker[i] recently titled “Greater Fools” by James Surowiecki about financial literacy in America. All of us in the Personal Financial Planning department, as well as the Office for Financial Success and Missouri Council on Economic Education, are very passionate about financial literacy, so these types of articles tend to make their way into our inboxes.
We are always glad when we get these articles and feel good knowing that we are teaching students and community members to become financially literate.
While you can read the full article via the link below (and we encourage you to do so) here are a few excerpts from the column:
“The depth of our financial ignorance is startling. In recent years, Annamaria Lusardi, an economist at Dartmouth and the head of the Financial Literacy Center, has conducted extensive studies of what Americans know about finance. It’s depressing work. Almost half of those surveyed couldn’t answer two questions about inflation and interest rates correctly, and slightly more sophisticated topics baffle a majority of people. Many people don’t know the terms of their mortgage or the interest rate they’re paying. And, at a time when we’re borrowing more than ever, most Americans can’t explain what compound interest is.
“Financial illiteracy isn’t new, but the consequences have become more severe, because people now have to take so much responsibility for their financial lives.
“The government’s new consumer-protection agency has the authority to “review and streamline” financial literacy programs, but that’s not enough. We really need something more like a financial equivalent of drivers’ ed.”
While we are seeking to improve financial literacy, we realize there is still much work to be done. Nan Morrison, President & CEO of the Council for Economic Education, has some follow-up thoughts to Surowieki’s article and some ideas for improvements and steps we can take:
“James Surowieki’s financial page piece “Greater Fools” unfortunately quite accurately diagnoses the depths of America’s struggle with financial literacy and its costs to society. And without significant changes, our children may face an even worse fate than their parents. Nellie Mae reports that on average, incoming freshmen now bring an average of $1,585 in credit card debt to college.
“Yet despite the extent of this problem, according to a CEE / State Farm survey, only 21 states require an economics course to be taken in K-12, and only 13 states require a course in personal finance. Even fewer require testing of these concepts. But requirements need trained teachers, and to make matters worse, as a society, we are not preparing teachers to deliver this vital content with confidence. In a recent survey by the National Endowment for Financial Education (NEFE), less than 20 percent of teachers reported feeling competent to teach basic personal finance topics. Furthermore, even many teachers of high school economics have taken two or fewer semesters of economics in college.
“In our eyes, the real question is ‘How, as a society, can we improve our economic and financial literacy and what benefits might we see in future generations as a result?’
“Our answer at the Council for Economic Education (CEE) – equip and enable teachers to educate our children in basic personal finance and economic concepts in school from kindergarten through 12th grade. Why? Good habits are built early, just like brushing your teeth.
“America is about economic opportunity – our kids need to be financially fit and economically literate to grasp that opportunity. As consumers, investors, entrepreneurs, and voters we all make decisions that involve finance and economics every day. If every parent, school and state, made economic and financial education a priority in schools from K-12, perhaps more Americans would be able to ensure their financial well being in a changing and complex world. Improving our collective economic and financial literacy is vital to our economic growth, job creation, and prosperity. Many in government, education, and financial services, across our nation support those goals, as they are good business and good citizenship well as essential ingredients in a stable financial system.”
We will continue to train students and high school financial planning teachers in Missouri, but more needs to be done. If you live in a state where financial education is not required we encourage you to contact your local legislators and share these types of articles with them. Encourage them to require personal finance classes in schools.
If you are a parent be sure that your children are not financially illiterate. Even if your child is required to take a course in personal finance at school we encourage you to have discussions with them, at a very young age, about finances. Help them open their first checking and savings accounts, teach them about interest (both paying and earning it), help them learn to balance their checkbooks, live on a budget, understand credit, etc. Find out what they are learning in their financial classes and discuss it with them.
Together we can make a difference and hopefully reverse this growing trend of financial illiteracy.
Ryan H. Law, M.S., AFC
Department of Personal Financial Planning
Office for Financial Success Director
University of Missouri Center on Economic Education Director
239E Stanley Hall
University of Missouri
Columbia, MO 65211