By: Tara Siegel Bernard
April 10, 2010
Most Americans aren't fluent in the language of money. Yet we're expected to make big financial decisions as early as our teens -- Should I take on thousands of dollars of student debt? Should I buy a car? -- even though most of us received no formal instruction on financial matters until it was too late.
All of this raises the question: What's happening inside our classrooms? And how many schools even broach the topic? As it turns out, for a country that prizes personal responsibility, we're doing very little.
''We need to teach the basics of economics and finances so people can make financial decisions in a changing world,'' said Annamaria Lusardi, economics professor at Dartmouth College and a research associate at the National Bureau of Economic Research. ''It's the compounding of interest, the problem of inflation. These are the principles. And these are really scientific topics.''
While more states are beginning to require some sort of personal finance instruction, there aren't enough that do, financial literacy experts say, and there is little consistency in the quality of the education. Just 13 states require students to take a personal finance course or include the subject in an economics course before they graduate from high school, up from seven states in 2007, according to the Council for Economic Education. Meanwhile, 34 states (including those 13) have personal finance within their curriculum guidelines, up from 28 states in 2007.
But that doesn't guarantee that the subject will be taught. It's no secret that state budgets are tight, and courses not seen as core are more likely to be cut than added.
''The adage 'if it isn't tested, it isn't taught' is unfortunately true in this case,'' said Gary Stern, former president of the Federal Reserve Bank of Minneapolis and acting president of the Council for Economic Education, which provides economics and personal finance educational programs.
But that hasn't stopped enterprising teachers like Mathew Frost, who teaches 11th and 12th graders American history and economics at Sunset High School in Dallas, from working the topic into his student's school day. The Texas economics curriculum carves out time for personal finance, but it doesn't test students on the material.
Mr. Frost says it's just too important to ignore. So he tries to bring the lesson to life for his students by pairing them up as married couples and giving them a couple of children. The students must then create a budget based on the average income range for their neighborhood, or about $21,000 to $40,000 a year. As in the board game ''Life,'' the students are dealt real-world circumstances. Mr. Frost has them randomly pick ''chance cards'' from a bag, which might tell them they need new brakes for their car, broke an arm, suffered a death in the family, or found $20.
''I try to make it a realistic as possible,'' he said. ''We talk about building budgets, expenses, investing money,'' he added, as well as ''how to use credit wisely, insurance and careers.''
One of his students later wrote about the experience. The 11th grader, who simulated life with a wife and two children on $21,000 a year, told of balancing needs versus wants, trying to find an apartment in a safe neighborhood that fit the family budget and the effect of an unexpected rent increase on their savings.
''I first learned that real life isn't going to be as nice as this game,'' he said. ''I also learned that good budgeting has to be maintained throughout a person's life no matter the income, no matter the living conditions.''
Research shows that this type of financial education tends to resonate with the students later.
Michael S. Gutter, an assistant professor of family financial management at the University of Florida, studied the issue in 2009, after he surveyed 15,700 students at 15 universities who came from states with different (or nonexistent) personal finance schooling requirements. The study was financed by the National Endowment for Financial Education, a nonprofit organization in Denver that provides financial education curriculums.
''College students who came from states where there was a course required were more likely to budget, were more likely to be saving, and were less likely to have maxed out their credit cards in the last year and were more likely to be paying off their credit cards fully,'' Professor Gutter said. But his research also suggested that ''social learning is also very powerful as well,'' he said. ''What your parents tell you matters.''
Parents can help, but many don't know the answers. In fact, part of the challenge is that many teachers don't either. ''We should develop a national standard for teacher training,'' said Ted Beck, chief executive of the endowment, which recently conducted a study that found that 64 percent of kindergarten through 12th-grade teachers (in states with financial education guidelines) reported feeling ''not well qualified'' to teach those standards.
The standards most commonly referred to were developed by the JumpStart Coalition for Personal Financial Literacy, which provides the outlines of a recommended personal finance curriculum. The topics cover everything from income and careers to credit and debt, savings and investing to risk management and insurance. Many educators and financial literacy experts agree that smart, comprehensive course materials already exist (You can find a sample in the online version of this story). The challenge is delivering them to classrooms, and then encouraging states to mandate that it's taught. And ideally, it would start much earlier than high school.
''It's hard because there is no silver bullet to get this into every school,'' said Matthew Yale, deputy chief of staff to Education Secretary Arne Duncan. ''It's not as simple as saying, 'We're going to institute this in the 100,000 public schools in America.' But our plan for reauthorization does make room for financial literacy in schools, which is a really big, big deal.'' Mr. Yale was referring to the Obama administration's plan to revise the Elementary and Secondary Education Act, commonly known as No Child Left Behind.
He said the Department of Education's next step is to work with districts and teachers and help them find the money they need, whether it's through the many literacy-minded nonprofits or the private sector. Mr. Yale also said that department officials were working on competitive grant programs, which would allow schools to compete for money to pay for the financial literacy programs. As a joint effort with the Treasury Department, the Education Department is currently running the National Financial Capability Challenge, an online exam for high school students that measures financial know-how and recognizes outstanding performers, to help raise awareness.
President Bush created the first Advisory Council on Financial Literacy in 2008, and President Obama plans to assemble his own team. In its annual report, the first council recommended that Congress or state legislatures mandate financial education in all schools for students in kindergarten through 12th grade. But will the new administration follow through with that recommendation? Mr. Yale said education officials were ''not interested in introducing unfunded mandates.''
So what can we do? According to Scott Truelove, who teaches personal finance as part of a work-study program for seniors at Chesterton High School in Indiana, ''It will take a parent movement.''
Mr. Truelove has already seen the power of financial education in his schools' hallways, where a student told him and another personal finance teacher that she set up a Roth I.R.A. given what she learned in class.
''That, to me, is huge,'' Mr. Truelove said.