As advisors, we expect our clients to save for their own retirement, use credit wisely and manage their money. Cross the threshold into the millennial generation—a generation riddled with an increasing amount of debt, financial ignorance and sometimes, I dare say, a sense of entitlement—and you have an untamed new breed of consumers that need even more guidance than those before them. We, as advisors, parents and members of society, not only sat back and watched it happen, we had a hand in creating it.
This dilemma has become the perfect storm: an emerging society of millennials in financial distress while simultaneously the government is transferring the accountability of savings and sound financial decision-making to a group of individuals faced with the threat of diminishing Social Security and non-existent guaranteed retirement payment programs. We have now shifted the burden of financial responsibility to the very group of people who don’t know what they don’t know because we haven’t mandated, up until now, that financial literacy be taught in our school systems.
Current State Of Affairs
Millions of American teenagers graduate from high school every year without a basic understanding of how to manage their money. As they venture out from under their parents’ protection for the first time, what awaits these young adults is an increasingly complex society that asks them to make immediate and sometimes irreversible financial decisions—decisions that will likely impact their livelihoods for years to come (about student loans, lease agreements, relocation/job offers). They are unprepared by teachers or parents to make those decisions, and the consequences have already proved quite severe whether you’re low, middle or upper class. No one is immune.
Today’s students need a strong foundation in personal finance to help them budget and manage their money. Many students work during high school and some even have credit cards in their own names. After high school, young people making uninformed decisions hurt their credit ratings with high debt-to-income ratios. It is not until they try and rent that first apartment or buy that first car that they come to understand the consequences. Only with newly mandated curricula in our schools can we lay the groundwork for a new group of contemporaries who are competent, confident and financially informed adults.
What has been required in our schools up to this point has been a moving target. Irrespective of the state you live in, or whether it’s private or public education, schools have only been encouraged to supplement their syllabi with financial literacy programs. Unfortunately, these programs have failed. The small amount that was taught in the classroom does not seem to have projected itself into the home. If you think about it, the most common support offered to families is crisis management: debt reduction, college loan debt repayment and consumer credit counseling—which are all Band-Aids for the real issue.
Teachers have not been properly educated in teaching behavior change, particularly in economic subjects. And the learning methods of millennials are far different from those of previous generations. They are intrigued by gaming. They are “surface seekers” who require little detail. So we need to move away from the static data and take into consideration the style of the learner. For millennials, the traditional education of rote learning and memorization needs to be abandoned in favor of task-based approaches that are student-centered and focused on the students’ lifelong needs and self-expression. Instead of spending class time listening to the teacher lecture, students should spend that time having the theories reinforced with interactive labs and discussions about economics.
Our technology trends require the restructuring of coaching and learning styles. But educators have problems modifying their curricula and adapting to different approaches because it takes repeated practice and discussion to be successful. Yet one could argue that you can’t afford not to redesign when the lack of financial savvy among millennials is causing a detrimental trickle-down effect in society.
To compensate for that gap in our school systems, dozens of well-intended organizations have emerged. Here are a few:
Junior Achievement. These are volunteer programs for those in kindergarten through the 12th grade that foster work-readiness, entrepreneurship and financial literacy skills and use experiential learning to inspire students to dream big and reach their potential.
The National Endowment for Financial Education. This is the leading private nonprofit 501(c)(3) national foundation dedicated to inspiring empowered financial decision-making for individuals and families through every stage of life.
Jump$tart. This is a coalition of diverse financial education stakeholders whose organizations work together to educate and prepare our nation’s youth for lifelong financial success.
These organizations in the corporate and philanthropic community realize the gravity of our society’s financial illiteracy. They have reached out to millions of people who would not otherwise have been served. But while they are admirable endeavors, they are not enough. We need to tackle this problem in our schools.
The Council for Economic Education’s “2014 Survey of the States” has revealed little or no growth in the financial literacy in our schools. A majority of the public school students in the United States are still not exposed to economics or personal finance education despite the lessons of the recent recession.
Only 22 of the 50 states require high school students to take an economics course and only 17 states require high school students to take a personal finance course. Just six require the testing of personal finance concepts, the survey found.
There Is Hope
Nan J. Morrison, president and CEO of the council, has taken a stand and acknowledges that the Great Recession put a spotlight on the dangers of a financially illiterate society. She affirms that we need to do a better job of helping our policy makers and educators ensure that students nearing adulthood gain an understanding of economic and financial concepts.
The council strives to get course requirements for economics and personal finance into high schools in all 50 states and the District of Columbia, so that all students will have core skills for college and career readiness. To support advocacy efforts at the state and local levels, the council has developed an online “Advocacy Tool Kit.” The kit includes useful information on general advocacy, basic facts about economic and personal finance education in the U.S., ideas for interacting with elected officials, a guide for partnering with other organizations and sample legislation and rules from those states with end-to-end requirements in economics or personal finance.
The council’s lessons from selected publications are now aligned to the Common Core Standards, a set of high-quality academic standards in mathematics and English language arts and literacy. These learning goals outline what a student should know and be able to do upon completion of each grade. State education chiefs, governors and teachers in 48 states created the guidelines to ensure all students graduate from high school with the skills and knowledge necessary to succeed in college, career and life, regardless of where they live.
On June 25, 2013, President Obama also signed an executive order to establish the President’s Advisory Council on Financial Capability for Young Americans. This council includes the secretary of the Treasury, the secretary of education, the director of the Consumer Financial Protection Bureau and up to 22 non-governmental members. If you look them up, there’s a great deal of star power there, which makes it clear the administration is serious about tackling the financial education problem.
In order to contribute to the nation’s future financial stability and increase upward economic mobility, it is now the policy of the federal government to promote financial capability among young Americans and encourage building the financial competence of young people at an early stage in schools, families, communities and the workplace.
It’s unfortunate, but there has been much debate about the Common Core Standards, even following the executive order. In more than 40 states, the sole power over the standards is held by elected or appointed state boards of education. These panels meet publicly, but are little known outside professional education circles. In the other states, decision-making authority lies with the state superintendent or commissioner of education, or is shared by a variety of officials or entities, such as the state board, commissioner, the department of education and legislature. In recent news, legislative efforts to shift that authority have drawn some resistance.
In an effort to test new ideas and stimulate thinking about financial literacy in schools and how best to teach it, the United States Treasury Department has announced the Financial Empowerment Innovation Fund (or “Innovation Fund.”) This was designed to support the development and evaluation of new strategies to promote financial access and financial capability among all Americans. In fiscal 2014, the Treasury Department seeks to award up to $6 million for research contracts that test and evaluate promising practices for students during the formative school years and beyond.
I recently spoke with the former chair of Junior Achievement in Richmond, Va., who discussed her own children’s levels of financial literacy in relation to the amount of education they had received on the subject. One of her older adult children did not have the benefit of a literacy program in her school. She consistently spends $5 on this, $10 on that and can’t seem to crawl her way out of debt. She has no concept of how to pay rent for an apartment, what expenses are associated with renting or what unanticipated expenses may lurk in the real world. The younger adult child, in contrast, had taken an economics class in high school that had been adopted by their state. This child is successfully saving—saving because she is both aware and motivated to set realistic goals.
There is real confusion about all the financial literacy initiatives out there. The states have most of the control over education, but every state has its own requirements, and the federal government exerts its own control. Sometimes it doesn’t seem as if the right hand knows what the left is doing. The approximately 14,000 local school districts in our country then not only interpret those higher government requirements differently, but add their own.
Financial capability must be woven into the fabric of our lives—into our homes, our schools, our workplaces and our communities. We should focus on school-based financial education policy for two reasons: First, most Americans are poorly prepared to make informed financial decisions; second, school-based financial education has the potential to reverse the current trend of poor financial preparation among future generations of Americans. By having a basic understanding of money management from an early age, our young people will be better equipped to tackle more complex financial decisions in adulthood—when the critical decisions about financing higher education and saving for retirement can have lasting consequences for financial security.
Film and television often use adult children moving back home—or never leaving—as fodder for funny and poignant stories. It’s far from humorous. These “boomerang kids,” as they are sometimes referred to, don’t want to share a roof with you any more than you want to lose the peace and quiet to which you just became adjusted.
Whether you’re a parent or not, there are many ways you can make a difference as a financial professional. You can learn about programs in place for your state and find schools that are ready to implement a new financial literacy program, if they haven’t already done so. Review the resources provided by the Council for Economic Education and ask how you can help mentor the teachers in their efforts. It’s a win-win. If the students learn more about economics and financial literacy in school, that may develop their interest in economics as a career path. It’s truly an investment in society as well as our industry’s future.
Catherine M. Seeber, CFP, is a principal and senior financial advisor with Wescott Financial Advisory Group, with offices in Philadelphia, Boca Raton, Miami and San Francisco. She can be reached at (215) 979-1642 or via e-mail at [email protected].