Financial Literacy Month

Financial Capability: A Foundation for Fiscal Responsibility

Susan Tanaka Financial Capability: A Foundation for Fiscal Responsibility

By Susan Tanaka, Senior Policy Advisor, The Peter G. Peterson Foundation

 

As someone who has spent most of her professional life analyzing, developing, and understanding the budget of the United States government, I applaud efforts to improve the financial capability of Americans. While there are, of course, significant differences between individual finances and the nation’s fiscal affairs, there are enough principles in common to recognize that a more financially capable population would also bring significant civic benefits. People who take charge of their own finances will be better prepared for the budget and fiscal questions facing our nation. And unfortunately, there are major questions that must be answered.

This year, federal spending represents about $11,400 per American, while federal revenues – taxes, mostly — are about $9,900 per person. The difference between those two figures – $1,500 per person – will be added to the more than $40,000 in public debt already borrowed on behalf of each of us. In 10 years, if our policies don’t change, annual deficits will continue and debt/person is projected to grow to nearly $61,000.

These are large numbers. Because the United States has the world’s largest economy and vast resources, we’re okay for the time being. However, the real challenge is coming. Those who understand basic finances know that when debt rises faster than income, it quickly becomes a serious problem as interest costs compound and grow. (There’s a reason why compound interest has been called the most powerful force in the universe!) In fact, according to Congressional Budget Office estimates, interest costs alone are on track to rise to $5.6 trillion over the next 10 years, becoming the third largest federal ‘program’ – that’s fully three-fourths of the more than $7.2 trillion in projected deficits over the next 10 years. If we don’t change course, in 20 years, interest will claim more than 22 cents of every dollar the federal government collects in revenues—up from 8 cents today. Surely there are better uses of those funds!

Becoming financially savvy allows each of us more control over our personal finances. The same is true in our role as citizens. As informed voters, we should understand where the government gets its money, where those funds go and why growing debt matters. Eventually, there will be serious consequences to our budget and economy if we continue to urge our elected representatives to keep federal spending high but our taxes low. As citizens, we can take charge over the nation’s financial future, helping to ensure that our economy remains strong and able to provide resources for future national needs.

When it comes to financial problems, denial hardly ever works. That’s as true for the federal government as it is for individual wallets. Understanding the facts, acquiring budgeting skills and exercising financial discipline will help ensure that our scarce resources are used to take better care of our nation, our communities, our families and ourselves—now and in the future.

Learn more about the federal government’s finances and the connection between fiscal health and economic strength here and here.

 Happy Financial Literacy Month!

POSTED: April 24, 2015 | BY: Daniel Thompson | TAGS: , , , ,

“Career and Life Readiness” Require Financial Fitness

Arkadi Kuhlmann “Career and Life Readiness” Require Financial FitnessBy Arkadi Kuhlmann, Founder and CEO of ZenBanx, Founder and Former CEO of ING Direct

 

The lunch table conversation was light and collegial, focused on the upcoming weekend activities until my colleague burst the jovial bubble by asking if everyone had fully funded their 2014 and 2015 IRAs. Squirming ensued. All of the 20 and 30 something Silicon Valley tech professionals were clearly outside their comfort zone. One young woman shared that she started the process but stopped when she learned she needed to choose investments for the money. “I can write Code, but have no idea about finances and investments, she confessed.” A teammate jumped in commenting, “My wife’s parents keep asking us if we are saving for a house, but we’re too embarrassed to tell them we don’t even have a budget or a savings plan set up.”

In Silicon Valley, where over half of the 2014 Harvard Business School MBA class moved after graduation,[1] not one of the eight professionals at the table had an IRA, nor did they contribute to the Company’s 401k plan.

I’d like to say I’m shocked, but that emotion occurred years ago when I first understood the dismal state of our nation’s financial fitness, joined the Council for Economic Education and became an advocate for Financial Literacy curriculum in our schools.   Despite surveys and focus groups that consistently reveal that students required to take a financial literacy class in high school are significantly more financially responsible, more averse to debt, and more likely to pay off credit card debt on time than their peers who did not, only 22 states mandate an economic education course as a pre-requisite for graduation and only 17 require a personal finance course.[2]

As parents, employers and mentors, we can talk about needs versus wants and the value of savings versus spending. That is if we, as parents and employers, are ourselves financially literate and managing our savings, spending and debt, and investing for our retirement and healthcare needs. As employers, we can offer 401k incentives to encourage financially responsible behavior, but without the understanding of economics, those are grains of sand and Band-Aids.

Lacking a financial fitness foundation, young adults are assuming college loans with no understanding of the cost or process to repay them. Students and work-force ready young adults graduating high school without any foundation in credit scores, credit cards or mortgages, charge forth into life and debt, and resort to credit cards to fund their fun.

While a handful of states recognize the importance of economic and financial literacy education, all states need to do so in order to positively impact future generations.   Each of us can help our youth navigate life to the best of their abilities by encouraging our state and local representatives to designate economic education as a subject of critical importance that should be taught to every student before graduating from high school. Navigating the future will require our youth have a toolbox complete with job skills, an understanding of personal finance and budgeting, along with flexibility, fortitude, and compassion. Let’s make certain the toolbox is full.

Arkadi Sig 150x116 “Career and Life Readiness” Require Financial Fitness

[1] http://www.businessinsider.com/harvard-business-school-graduates- move-to-silicon-valley-2014-7

[2] http://councilforeconed.org/wp/wp-content/uploads/2014/02/2014-Survey-of-the-States.pdf

POSTED: April 23, 2015 | BY: Daniel Thompson | TAGS: , , , ,

Working to Advance Financial Education in Schools

Richard Cordray 264x300 Working to Advance Financial Education in Schools
By Richard Cordray, Director of the Consumer Financial Protection Bureau

 

As we observe National Financial Literacy Month, let us all continue our efforts to ensure children and youth develop the skills and habits that will help them to make better financial decisions as they become adults. There is not a single good reason – none – that should prevent any American from gaining the knowledge and skills needed to build a healthy financial future.

With a growing number of committed public, private, and nonprofit organizations working to advance K-12 financial education, no one needs to go it alone. Just recently, the Consumer Financial Protection Bureau (CFPB) developed a resource guide to support leaders interested in advancing K-12 financial education by connecting them to ongoing conversations and providing access to information, tools, and resources. The guide includes a framework, case studies and strategies on how best to lay the groundwork, build the initiative, and extend the impact of K-12 financial education. The resource guide is called “Advancing K-12 Financial Education: A Guide for Policymakers” and is available for download.

When I served as the Franklin County Treasurer in Ohio a decade ago, we formed a local committee on personal financial education to help further the vision of a society where everyone could strengthen their financial skills. We gathered information about school programs for young people and community programs for adults, and we matched people up with those available resources. With the support of a broad coalition we created an impetus for what is now an Ohio state law that requires personal financial education for all high school students through the integration of economics and financial literacy within social studies classes or another class. Ohio is one of 17 states to require that high school students take a personal finance course in order to graduate.

Achieving meaningful and lasting change will require bold and innovative approaches. The CFPB resource guide is a bridge to connect leaders with tools, information, and insights to help them enhance K-12 financial education efforts. As policymakers continue to explore options to incorporate financial education throughout the K-12 experience, I hope that everyone who is interested in financial education for our nation’s children will use this guide and share it with others.

Benjamin Franklin once said, “An investment in knowledge always pays the best interest.” This may be most true in the case of financial education. Starting early with age-appropriate and relevant financial education and consistently reinforcing those lessons throughout the K-12 school experience can help children and youth develop positive habits and skills that can make a lifetime of difference in their financial well-being.

POSTED: April 22, 2015 | BY: Daniel Thompson | TAGS: , , , ,

More Must Be Done to Position Young People for Success in the Future

Raymond McDaniel More Must Be Done to Position Young People for Success in the FutureBy Raymond W. McDaniel, Jr., President and Chief Executive Officer, Moody’s Corporation

April is Financial Literacy Month. It’s also the time when high school seniors begin to focus on their plans beyond graduation. For those who are college-bound, the economic realities of preparing for college—applying for student loans, financial aid and credit cards—begin. And for all students, the realities of taking on adult responsibilities, such as managing their own personal finances, come into focus.

Yet, more than half of all US states have no financial literacy requirements for pre-high school education programs, and only seventeen states mandate personal finance classes in high school. This leaves a critical skills gap for students. Consider the following:

  •  A recent study by FINRA (the Financial Industry Regulatory Authority) concluded that a large proportion of young Americans today are less likely than older Americans to be financially capable, due to a lack of understanding of fundamental economic principles.
  • A similar TIAA-CREF study showed that people with a high degree of financial literacy are more likely to plan for retirement and will have more than double the wealth of those who don’t.

It is clear that more must be done to enable young people to make sound personal financial decisions that will help position them for success in the future. That’s why Moody’s strongly supports The Council for Economic Education’s (CEE) work to expose young people to economic and financial education early in their academic careers. CEE’s advocacy and actions are critical to the development of innovative workshops, courses and materials for educators and will help lift the economic awareness of young people across our country, particularly those entering college this fall.

With support from CEE and its partners, students will master concepts like saving, investing, credit, insuring and earning income. Understanding these concepts at an early age is critical and will help them make the best choices in the future. By developing these new skills, they’ll be more confident and more likely to succeed, both academically and financially, and have more options available to them as they consider their life after graduation.

POSTED: April 21, 2015 | BY: Daniel Thompson | TAGS: , , , ,

Money Math Mondays: Earning Income

BTM Money Math Mondays: Earning IncomeWelcome to our third “Money Math Monday.” This week children will learn about ways they can earn income. We all know kids who make a few extra dollars by providing services like walking the neighbor’s dog or mowing the lawn. How about earning money for helping someone name their pet? Bedtime Math has found all kinds of creative services that people will provide for $5 on the website Fiverr. Click here to see Bedtime Math’s examples of people earning income by putting their talents to use in unusual ways:

EconEdLink.org features numerous lessons focused on earning income and exploring career choices for students in grades K-12:

econedlink logo 300x71 Money Math Mondays: Earning Income

 

 

 

Grades K-2
We Can Earn Money (or) Working Hard for a Living
This lesson introduces young children to the work grown-ups do to earn money. Students also explore tasks they might do at home to earn money.

Grades 3-5, 6-8
Do I Look Like I’m Made of Money?
One of the most common replies given by parents when their children ask for money is “Do I look like I’m made of Money?” This lesson is designed to educate students about the need for money as a generally accepted medium of exchange. The students will also learn how money is earned. Finally, the students will research potential career options.

Grades 6-8
Hey, Get a Job!
This lesson has students choose a job or business to engage in during non-school hours. They then devise a strategy of whom to target and how to begin pursuit of their chosen endeavor.

Grades 9-12
Wages and Me
Students explore the reasons for differences in the wages for several occupations. Then students are guided through the Bureau of Labor Statistics website to find information about their potential careers and wage rates nationally and in their own states.

POSTED: April 20, 2015 | BY: Daniel Thompson

Incorporating Economics in the Elementary School Curriculum

ohagan Incorporating Economics in the Elementary School CurriculumBy Kathleen O’Hagan, Special Representative at the UFT, Former 4th Grade Teacher, 2014 Alfred P. Sloan Foundation Teaching Champion Awardee

Today’s public schools are tasked with so much to teach that it isn’t surprising that many essential skills are over-looked with the current focus on reading and math scores and standardized tests. What is often missed in this narrow focus is the impact that these other essential skills can have on reading and math instruction. The curriculum in the elementary school where I taught was of both high rigor and high caliber but it neglected economics to concentrate on reading and math. With this in mind, I recognized the need to bring this subject to our students, the majority of whom were English Language Learners (ELLs) or former ELLs. After the economy was hit hard in 2008, I wanted my students to learn more about saving for their futures and the many long-term benefits, versus the costs, of college but I didn’t know how to bring this instruction into my elementary classroom.

OHagan in the Classroom1 300x167 Incorporating Economics in the Elementary School CurriculumThe Council for Economic Education showed me how to incorporate these ideas into my classroom. It began when I took their course on how to create a mini-economy. With this training, I was able to make our class a place where students learned (as part of their math curriculum) how to keep bank accounts, act as bankers and store clerks, open pencil-loaning businesses, and also experience the real-life issues of rent, tickets, co-payments, unexpected expenses and price inflation. Then in the next year, my next class moved beyond just being consumers in a mini-economy to being producers by utilizing a three-dimensional printer to create the store stock and in the process began to investigate the issues of supply and demand in their mini-economy. Imagine their excitement when they were featured in an article about their mini-economy, not just the first class, but two classes, two years in a row! Talk about underscoring the importance of the economics they were learning!

Not surprisingly, the students’ reaction to this instruction was enthusiastic and they were utterly engaged. What was surprising was the powerful response from the parents who were delighted to have their students learning economic vocabulary such as deposit, withdrawal, expenses, goods, consumer, etc. and the real-life experiences of keeping a financial log and having to learn about delayed gratification if they wanted to save up their money for larger purchases in the future.

In addition to all of this economic instruction, we eventually added the element of debate, around economic topics which included: “Should the Penny Stick Around?” and in so doing, incorporated elements of reading and writing. My students learned the importance of research, interviews, and public speaking in addition to developing an understanding of the need to save for the future, but not just any future, THEIR future. The mini-economy was a success at getting even the most reluctant student out of the sidelines of learning and into the heat of debate. For example, my most reluctant writer would always have his essay ready so that he could be on one side of the debate when it was time to start talking about economic issues.

The mini-economy even outgrew our classroom and spread to other classes on the grade, including inter-visitations for debates. Most importantly, it empowered the students to feel confident about making financial decisions, understanding the importance of saving, and it even made the most reticent students outspoken about the importance of economics in their life. Economics instruction ultimately became embedded in the very math and reading skills that originally seemed to have no room for anything more and in so doing, equipped my students with the traditional skills taught as well as essential economic skills.

POSTED: April 17, 2015 | BY: Annamarie Cerreta | TAGS: , , , , ,

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