By: Don Campbell
May 5, 2010
Millions of high school and college graduates will hear commencement speeches this month in which they'll be exhorted to greatness and told they have the power to change the world. Unfortunately, some of them will then wander off into a financial jungle -- a world they will neither understand nor be equipped to cope with, much less change.
FICO and fraps
It will happen because most of our schools -- and parents like me -- are not teaching young people about the basics of personal finance. They can write essays on the Peloponnesian War, but they don't know the difference between a FICO score and a frappuccino. I realized this recently when our daughter was explaining how personal finance was introduced to her high school class on "senior day." A local banker came and delivered two messages: Avoid overdrafts on your debit cards and start saving now for your funeral "because funerals are very expensive." That was the sum total of our daughter's exposure to financial literacy in the 14 years since she entered pre-K.
Only 13 states make personal finance courses a high school graduation requirement, and only nine require testing on the subject. The excuses vary: Schools can't afford them; they're not important enough; who will teach them? This about a subject that affects every graduate, no matter her career path.
Such courses should be fun and relevant, not boring. I'd give each student $2,000 in play money and reward those who made the smartest investments. I'd have them create budgets for variously modeled families with fixed incomes, and then make daily, weekly and monthly spending decisions. This would immerse them in real-world issues: how to set spending priorities, how to build and protect a good credit score, the joys of saving and the pitfalls of borrowing, renting vs. buying a home, mortgages to avoid, investing wisely for retirement, buying insurance, etc.
Act on lessons
But financial literacy isn't worth much if it's not put into practice. Our Visa bill arrived last week with the new federal requirement that credit card companies reveal the consequences of making only minimum monthly payments. This is Congress paying lip service to financial literacy, and it's an eye-opener. We use the card a lot, but we pay it off each month. The latest bill was several thousand dollars, but well below five figures. So how long do you think it would take to pay off our bill if we made only the minimum payment monthly and never used the card again: My wife guessed eight years; our daughter guessed 10. The answer: 27 years.
But what about Congress, the maker of rules for others to follow? It has a nearly $13 trillion credit card balance, called the national debt. At our expense, Congress elects to pay the minimum -- the annual interest -- and finance the rapidly growing balance.
How long will it take to pay off $13 trillion? I've no idea, but here's a good bet: When the children and grandchildren of this year's seniors gather to watch their children and grandchildren graduate decades from now, they'll still be paying it off, and $13 trillion will be recalled, if at all, as the bargain of the century.
Don Campbell teaches journalism at Emory University in Atlanta and is a member of USA TODAY's Board of Contributors.