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Did your state flunk personal finance?

When it comes to teaching money skills to our kids, we're not making the grade. But can PF be taught successfully?

By Donna_Freedman Aug 5, 2013 9:51AM

Teenage boy behind a stack of books (Jupiterimages, Brand X Pictures, Getty Images)The Center for Financial Literacy at Champlain College recently graded the 50 states on their personal finance education options. Only seven states received an "A" grade: Georgia, Idaho, Louisiana, Missouri, Tennessee, Utah and Virginia.

Which states get an F in PF? Alabama, Alaska, Arkansas, California, Connecticut, Delaware, Hawaii, Massachusetts, Nebraska, Rhode Island and Washington.  (To see where your state ranks, visit the Champlain website.)

The grades were based on data from the National Conference of State Legislatures, the Jump$tart Coalition and the Council for Economic Education.

High school is "where personal finance education belongs," according to center director John Pelletier. Many U.S. residents don't go to college, he notes, and relatively few colleges offer personal finance anyway, either as an elective or a graduation requirement.

This report comes shortly after the U.S. Consumer Financial Protection Bureau released "Transforming the Financial Lives of a Generation of Young Americans," a white paper calling for a stronger focus on youth financial education. According to the report, consumers too often "learn about managing their finances by making mistakes."


"Many young people transition to adulthood without having developed the basic financial knowledge, skills and behaviors that are critical for establishing healthy financial futures," the report notes.

But will personal finance education actually work? Some say "no."

A study cited by Forbes magazine suggests that "mathematical ability, not financial literacy, predicts economic success." Researchers used three data sets to compare the finances of students from before and after mandatory classes were established and found no discernible effect on investment income, financial assets or home equity.

However, they note that one extra high-school math class reduced the chances of foreclosure and bankruptcy and also meant the former students were less-often delinquent in credit card payments.

Currently almost two dozen states require PF classes or economics classes that include at least some aspects of personal money management. J.D. Roth, who founded the hugely successful blog Get Rich Slowly, excelled in a high school PF class. Yet within five years he had "the beginning of a debt habit," and ultimately wound up some $20,000 in the hole.

That's why Roth believes that personal finance education should not be just about money. The psychology behind our spending is just as important.

'A chain of bad behavior'

"It's not a lack of financial literacy that holds us back, but a chain of bad behavior," Roth says. "More and more, experts are seeing that our economic decisions aren't based on logic, but on emotion and desire."

A curriculum can show why it's vital to spend less than you earn, to build an emergency fund, to save for retirement. Knowledge alone isn't enough, Roth says; there needs to be an emphasis on "behavioral finance," i.e., the reasons for our bad behavior and how to learn smarter ways of handling money.

My bet is that a fair number of high-schoolers won't pay attention no matter what is taught in PF class -- and I say this without malice or condescension. When adults tried to influence your choice of high-school fashion, language, music or romantic partner, did you really listen?

What's more likely is that you tended to let your peers and mass media decide what radio stations you'd listen to, what clothes you'd wear, what slang you'd use, and whether or not a certain boy or girl was the right one with whom to hang out or attend prom.

Today's young people are much more media-drenched and tech-savvy, and want the same e-gadgets, fashions and entertainment that their classmates and media heroes extol. They're also filled with the eternal optimism of youth and lacking real-world money experience.

That said, there's no reason not to try to reach them. In fact, I believe that personal finance class should be mandatory. Why do we have to take PE but not PF? It's a cinch that no one will ever play pickleball as an adult, but everyone will need to know how to pay the bills and save for retirement.

A greater impact

No doubt plenty of teens will tune out PF class. But not all of them will. Others may do well in the classes but go off the financial rails anyway. If/when they come to their senses, some of what they learned could be supremely helpful.

Put another way: We teach a lot of stuff that some students will neither retain nor use. (Pop quiz: Who wrote "To The Lighthouse"? What is the chemical symbol for gold? What is a gerund?) But we keep teaching it anyway.

Sure, a student might ace his grammar tests yet go on speaking and writing in the vernacular. The point is that we've given him the tools to get along in the world. Speaking colloquially among family and friends is OK, but saying "I done well in school" could torpedo a job interview or a first date.

As for math skills, that Forbes article suggests that the better you are with numbers the less likely you'll have financial problems later. Thus we should insist on at least three years of mathematics starting in middle school or junior high. But let's not make it an either/or situation.

Give our youth the chance to focus on numbers and personal finance techniques. The two will have a greater practical impact on their lives as adults than knowing the answers to the pop quiz. (Which are, by the way: Virginia Woolf, Au, and a verb form that ends in -ing and is used as a noun, e.g., "swimming.")

Do your kids have the option of taking PF classes? Do you think it will make any difference?

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Aug 6, 2013 3:47AM
My state (IL) fkunks personal finance bcause of the way our lawmakers have & are handling budgeting and pensions.
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