The case for high school financial literacy

Why are we focused on high school personal finance education in high school this month? Because, according to a comprehensive report by Champlain College’s Center for Financial Literacy, high school is our last, best hope for preparing tomorrow’s adults to be financially healthy for the rest of their lives.

Why high schools?

According to the report:

“Personal finance education should start early at both home and school. Ideally, personal finance concepts should be taught in elementary, middle and high school, and should continue into college. In mathematics, you start with counting, move on to addition and subtraction, and then move on to division and multiplication. You need to learn letters before you can read. Personal finance education should be a cumulative process, with age-appropriate topics taught each school year. The reality is that many states and school districts do not provide any substantive personal finance education until high school, if at all.

“The basics of personal financial planning-teaching young people about money, its value, how to save, invest and spend, and how not to waste it-should be taught in school as early as elementary school. But too many school districts teach personal finance for the first and only time in high school.”

The case for high school financial literacy

Specifically, the report surveys recent studies and news that look at the benefits and challenges of high school personal finance education. Following is an excerpt; the full article can be found here. 

Personal finance education in high school provides students with the knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. Here are just some of the reasons our young people need to learn about personal finance:

• The number of financial decisions an individual must make continues to increase, and the variety and complexity of financial products continues to grow. Young people often do not understand debit and credit cards, mortgages, banking, investment and insurance products and services, payday lending, rent-to-own products, credit reports, credit scores, etc.
• Many students do not understand that one of the most important financial decisions they will make in their lives is choosing whether they should go to college after high school, and if they decide to pursue additional education, what field to specialize in.
• Kids are not learning about personal finance at home. A 2017 T. Rowe Price Survey noted that 69% of parents have some reluctance about discussing financial matters with their kids. In fact, parents are nearly as uncomfortable talking to their children about sex as they are about money. Only 23% of kids surveyed indicated that they talk to their parents frequently about money, and 35% stated that their parents are uncomfortable talking to them about money.
• On an international financial literacy test of 15-year-olds, the U.S. ranked 7th out of 15 countries, trailing China, Canada, Russia and Australia, and was just slightly better than Poland — what a “Sputnik moment.”
• A 2016 survey indicated that only 31% of young Americans (ages 18 to 26) agreed that their high school education did a good job of teaching them healthy financial habits.
• Most college students borrow to finance their education, yet they often do so without fully understanding how much debt is appropriate for their education or the connection between their area of study and the income level that they can expect upon graduation. Many students attend college without understanding financial aid, loans, debt, credit, inflation, budgeting and credit scores.
• At many colleges, financial literacy education is largely composed of brief, federally mandated entrance and exit loan counseling for students. Student feedback indicates that most do not comprehend the information presented, and view it as one more requirement of the financial aid process rather than a learning opportunity.
• Student debt can be very high for some recent college graduates and large debt variations exist from state to state. According to a recent study of 2016 four-year public and private college graduates, these students left college with average student debt that ranged from a low of $20,000 in Utah to a high of $36,350 in New Hampshire. The percent of these students graduating with debt ranged from a low of 43% in Utah to a high of 77% in West Virginia. According to the U.S. Department of Education, 11.5% of students who graduated from college in 2014 have loans in default.
• Employee pension plans are disappearing and being replaced by defined contribution retirement programs, which impose greater responsibilities on young adults to save and invest, and ultimately spend retirement savings wisely. If they fail to do this, they could become a significant economic burden on our society.
• A 2014 study indicated that only 24% of Millennials (ages 18 to 34) surveyed could answer four out of five questions correctly in a financial literacy quiz. By comparison, 48% of Baby Boomers (born between 1946 and 1962) were able to answer four out of five correctly. While Boomers should be more knowledgeable, our young citizens are dangerously illiterate in this area.
• Credit scores are a difficult concept for many young adults. The economic cost of low (or no) credit score is very high. One’s credit score and borrowing history impact one’s daily life: applying for a credit card, purchasing a home or car, renting an apartment, buying insurance, signing up for certain utilities, and even getting a new job. Having an excellent credit score could save a consumer in excess of a $100,000 in interest payments over a lifetime (see: Credit.com’s Lifetime Cost of Debt Calculator).