By Christopher M. Lee, CFP®
In many households, the topic of personal finances is taboo and rarely talked about and can be uncomfortable. Understandably so with such topics as: How much do you make? How much did/does this house cost? If we as parents or grandparents are not educating our future generation, then who is? Many of you may think it is being taught in the schools, but it may not be, as I will explain below.
But first, let’s talk about the importance of it and what’s at stake. When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in education or a home – we are condemning them to learning it largely and perhaps entirely on their own, if at all.
Above all, people need to know that there are a few big moments in their lives where they are going to confront specific decisions with potentially massive consequences, such as taking out a mortgage or student loan. Do you go to school here or there? Do you buy this house or that one? How much debt do you take on, and on what terms? Do you understand the consequences? These crucial decisions have huge ripple effects in your life, lasting for years. These are significant occasions where you can make a terrible decision by focusing on the wrong things or failing to gather enough information.
At a minimum, our young people need to understand which decisions are important and not to treat them casually. A key part of sound financial education is learning to distinguish the few large decisions from the many small ones, and to give those decisions a more appropriate amount of consideration.
We saw firsthand what poor financial decisions can lead to in our most recent recession (mortgage crisis) 9 years ago. Consumers made many bad choices because very often they did not know any better and unscrupulous businesses took advantage of those consumers. This neglect of financial education can certainly help ruin the basis that our nation was founded on; a regime of personal responsibility and organized around free markets. When it comes to building a knowledgeable society, we make sure to teach our young people many things, but then we leave them to learn about personal finances in the so-called “school of hard knocks.” This phrase is a facetious one, reflecting that this is no school at all, but a place where people will continue to make the same kinds of mistakes that others have made before them, with the same results and the same regrets. If we are not teaching our children personal finance in the home, then where are they learning it? Here in Connecticut, it is not a graduation requirement to take a personal finance class, like some other states have incorporated (as seen below):
Source: Survey of the States, February, 2014, Council for Economic Education (CEE)
Year after year, more and more states have begun adopting having a personal finance class as a high school graduation requirement (the most recent being Florida) and the total is now up to 17 states.
As some of you know, this topic is near and dear to my heart, so much so that I have volunteered and am currently president of the Connecticut Jump$tart Coalition www.ctjumpstart.org, which is a non-profit organization with individuals and organizations representing business, government and education who have joined together to improve the personal financial literacy of Connecticut’s youth.
In a survey conducted in 2012 (through the FINRA Foundation’s National Financial Capability study1) 89% of American parents surveyed thought that a course in personal finance should be a requirement for high school graduation AND according to Charles Schwab’s 2011 Teens & Money Survey2 86% indicate they’d rather learn about money management in a class before making mistakes in the real world. With that being said, CT Jump$tart has been pushing for CT legislation to require a personal finance course for high school graduation. We envision a world where our young people understand budgets, savings, investments, and credit. Our children need to know why we have bank accounts, why we keep track of our bank balances, why we should all check our credit reports regularly.
We are intent upon teaching them that worms are classified as annelids but we do not teach them why it is important to save for retirement. If we teach them subjects like science, history, and math but do not teach them anything about personal finance, then we need to understand that we are making a conscious choice to release them into a financial world where they have to fend for themselves.
CT Jump$tart believes that the groundwork is being built in CT for a bill that proposes just that thing. In this current legislative session, Senator Ted Kennedy, Jr. (D-Branford) proposed Senate Bill (SB) 319. As of now, the bill does not have a “lot of teeth in it” as its Statement of Purpose is to ensure that students of public high schools and public institutions of higher education in this state receive instruction in financial literacy. It is nothing close to a mandate, but none-the-less, it is a start – they are talking about it at the Capitol, which is a good thing! Currently, the groundwork in Connecticut has already started, as 90% of the public high school systems currently OFFER a personal finance class. The problem is that it is an elective and the classes usually fill up quickly and are limited to 20-30 students. With that being said, 10% of public high school systems don’t even off a personal finance class, which is a shame. On the positive side, 8 cities/towns (or 6% of the public high school systems) have already made it a graduation requirement (Cheshire, Groton, Middletown, Montville, New Fairfield, North Stonington, Seymour, and Simsbury). Kudos to them! Since we are still a way off (at least in CT) to making a mandate for a personal finance class in high school, my next article will discuss ways at home that you can teach personal finance basics to your kids or grandkids – since chances are they are not learning it at school!
1 Council for Economic Education http://www.councilforeconed.org/resources/local‐affiliates/
2 [Charles Schwab, 2011 Teens & Money Survey, April 2011, http://www.schwabmoneywise.com/public/moneywise/calculators_tools/Families_money_surveys/teens_money_survey?cmsid=P‐4579457&lvl1=calculators_tools&lvl2=families_money_surveys]