A group in California is hoping to make financial literacy a requirement in high school:
The plan is to make all high school students, as a condition of graduation, take at least a one-semester class in financial literacy.... Petition organizers said Tuesday that they are submitting nearly 900,000 signatures to county registrars across the state to qualify the California Personal Finance Initiative for the November election.
I've got nothing against financial literacy, but this would join media literacy and computer literacy in our current fad to make kids "literate" in the business of daily life.
But what I really want to know is whether there's any evidence of a growing problem with financial literacy. I can't find any. There are no long-term tests of financial literacy that I can locate, and overall financial indicators aren't flashing any red lights. Over the past few decades, both mortgage delinquency and credit card delinquency are down. Retirement accounts are up. Installment loan balances are down. Foreclosures and bankruptcies are down. Savings are up. Overdrafts are down.
Maybe I'm missing something, but I just don't see any special evidence that financial literacy is in some sort of crisis state. Nor am I convinced that a financial literacy course would actually change the habits of ordinary human beings, who mostly do dumb stuff because they feel like it, not because they're unaware it's dumb. So why is this necessary?
Show me the evidence or gtfo.
It's not necessary.
But that's not really the question. The question is "should we create one more hurdle that will threaten a student's ability to graduate and thus create all sorts of expensive workarounds so that the school doesn't get dinged for a low graduation rate?"
Remember, there are lots and lots of kids who fail multiple classes every year, and have to take them the next year. The more classes you require, the fewer slots they have to take classes again, the more they end up in summer school, and all of this costs lots of money.
Let's eliminate all graduation requirements, then we can close schools and kids can graduate for free!
Home economics did that back in the day...
I was in school "back in the day." Home ec was about cooking, sewing and other feminine domestic arts, not balancing a checkbook, saving for retirement, inflation, interest rates, etc.
Back in the day it was _definitely_ about balancing a checkbook.
I took home ec in the 60s. Finances were not discussed. But I did learn how to wash dishes.
I'm a decade behind you. Um, I mean a decade ahead of you. The 70's is what I mean.
You have to go back to the 60s for that. In the 50s and earlier they were teaching women how to stretch the budget and handle the domestic budget. And in the late 70s, (outside the south and western meichgan, they were stressing the economics in home economics.
My home ec class was about 401ks and mutual funds, which are basically scams so richer people can steal the fees and combine other people's votes to help their buddies.
Hmm. We invested in a money market mutual fund starting in grad school. This was at a time when they were paying 17% and passbook savings accounts were barely keeping up with inflation. Seven years later, we'd saved enough for a 20% down payment on a house, avoiding mortgage insurance. I don't think we were scammed.
Depends on which mutual funds you buy, which is a matter of financial literacy. The best ones like Vanguard have very low fees and are a great deal for small investors.
I'm not keen on more school requirements either, but there is a heck of a lot of ignorance about personal finance out there, even among some of my highly educated contemporaries. Lots of misunderstanding of what insurance is and what it it for, for example (it's protection, not an investment). And I am consistently amazed at how few people understand how marginal tax rates work (you don't lose money by moving into a higher tax bracket).
Kevin would change his mind if the first lesson in the financial literacy class was “ALWAYS adjust for INFLATION!”
Good idea! Let's start a petition for a class in inflation literacy!
Maybe the question you should ask is WHY NOT?
Kevin doesn't think things should be improved unless they're already in the "crisis" stage.
A financial literacy requirement would make an excellent replacement for both foreign language and algebra, neither of which anyone remembers after high school unless they continue to use them in college, work and life. At least financial literacy -- if taught in ways accessible to students -- would be one thing that >50% of students would have the opportunity to use regardless of whether they attend college.
The problem is: What do you do a whole semester about this topic: It's really easy and no worth a whole class as Mr. Micawber has explained (I am translating to modern American currency): Earn 100 dollars, spend 99.99 and you are fine. and 100 dollars and spend 100.01 and catastrophe is upon you!
... as if anyone is actually required to take a foreign language in high school. Kids certainly can take a foreign language in high school (unless the Rs have defunded their school district to the point where foreign language courses are no longer offered) but I seriously doubt many public schools require this.
My kids public high school requires 2 years of a foreign language. One of those years can be taken in 8th grade. This appears to be a state curriculum requirement.
Congratulations on what sounds like a great public high school! I took 5 years of French from jr high through high school, which was all there was. None of it was required though and that was about a zillion years ago. My kids both took languages but it was required for them either.
A foreign language was not required to graduate from high school but for me and my college-bound peers, it was made clear that it was a requirement for admission to the University of California . . . and presumably any colllege we’d want to go to.
I remember my high school algebra from the 80s but only because I took calculus in college. Now THAT I don’t remember. But I have a theory that as adults we remember the math one level below what we took in school. That’s because we needed to fully understand that previous level to even attempt the next. We live in a world where even basic math skills seem to be hard to come by. Ever watched adults try to figure the percent for a tip in their head? So I think it makes a lot of sense to get every high school student thru algebra just to make sure as adults they can do simple math that comes up in everyday life.
And you know what? Even as someone in a non STEM field I still occasionally break out the old algebra to figure out something.
👍👍
I've used basic 8th grade algebra all my adult life. Differential equations, not so much.
This. I use algebra fairly frequently, but can probably count the times I've used calculus post-college on one hand.
(and, fwiw, I'm a lawyer by trade. I think making kids learn math is useful even if it isn't "useful")
" But I have a theory that as adults we remember the math one level below what we took in school. "
That is a corollary of the fact that to remember something non-trivial you have to use it. So you remember the minus-1 level because you used when learning the highest you learned.
True for any subject, not only math. This is the reason why schools need to try to teach more than the pupils actually will need in life.
Move the decimal one place. Leave 'em that if service was so-so. Leave 'em twice that (or more) if you were really pleased. Leave 'em nothing if you're Republican. Yell for a manager if you're karen. Simple.
So I leave $200 for so-so service of my $20 meal, $400 for great service. Thanks for the tip!
Literally you need Algebra to understand basic home finances.
All students at some level should understand basic finance, how to swim, and learn some social dance.
Social dance? You must be my age. We learned social dance in 8th grade.
You mean, uh, square dancing? Which was what we did in the sixth grade.
Arthur Murray style. Fox trot, cha cha and a couple others I can’t remember.
Same. It's how I met my future wife.
you could probably get 90% of the value by adding those types of problems into the math curricula
'if johnny puts $1000 on his credit card that charges 25% interest and only makes the minimum payment of $25/month, how much will he owe at the end of 10 years?'
'johnny puts $1000 in an s&p 500 etf; assuming a real return of 6% per year, how much will he have when he retires in 40 years?'
Good point. It'd be easy to insert some of that in the algebra class.
Totally agree. Another way to put it is the daily life finance is 90% basic math
You can find that out using the calculator app on your phone. The more important point is - are students taught to even know the importance of the questions.
Can't ask a calculator the right question if you don't know the question to ask.
Some of this could be tied in with civics, e.g.: social security is an insurance program not a retirement program. It was set up that way so it could start sending out benefits immediately to those in need. The "pay as you go" method means it typically does not build up huge reserves in the trust funds, but changes under Reagan (?) to extend the life of the trust funds meant it did build up reserves that are being drawn down now. By law, any reserves must be invested in US gov't securities, so the government owes itself a lot of money--which kind of hides the deficit. As the reserves are drawn down (baby boomer retiring), the deficit will increase.
There wouldn't be any worry about social security solvency if republican scum hadn't killed Clinton's plan to invest the trust fund in the stock market.
Huh? Wasn’t investing SS In the stock market the R plan? That Clinton opposed?
Wall St was salivating over this because of the fees.
But in 1999 it sure was easy to convince yourself that putting the funds (or any money you had) into stocks was a good idea. For a while those people convinced themselves that they were stock-picking geniuses, then they went broke in 2002.
Back in the dark ages, when I went to elementary and high school, we learned how to balance a checkbook and fill out a 1040, along with addition and subtraction and multiplication and some mumbo-jumbo about someone named Pythagoras. And in college, I had an English class that taught about advertising jargon, slant in news (we compared the coverage of the Kitty Genovese murder by three NY newspapers), etc. Nobody called any of it "literacy." It was just an education. And, to be honest, I haven't balanced a checkbook (checkbook? Is that still a thing?) in decades, but I still remember sohcahtoa and I can find the length of any side of a right triangle given the length of two sides, or the length of one side and either the adjacent or opposite angle. Even without fulfilling any "literacy" requirements. So there.
Filling a 1040 is not financial literacy, it is bureaucracy literacy! The IRS knows everything you put in it already. There is no point in everybody filing except it's good business for H&R Block and Co.!
Except if you are very rich. For that case there are tax layers!
"The IRS knows everything"
Well, then, how come it doesn't know the basis of each of the stocks I've traded?
Probably because rich securities traders paid off enough legislators to keep this from the IRS. Tax Cheats Unite!
The IRS does know the basis on the sale of securities bought after 1/1/11 (1/1/12 for mutual funds). In 2008, Congress passed a law requiring it for things bought after those dates.
If you sell real property, the IRS doesn’t know the basis or the adjustments to the capital gain, including whether it is your personal residence.
If you run a business, the IRS doesn’t know most of your costs and some of your income.
If you itemize, the IRS doesn’t know your charitable contributions, many of your medical expenses, and may not know your state and local taxes.
I prepare tax returns for a few hundred people at the local senior center every year. I’d estimate that 80% of them have only information that has already been reported to the IRS. That number increased when the Trump tax law basically doubled the standard deduction.
Um... as much as I appreciate a good rant about filling out tax returns, that was *not* the point of my post. I was saying that way back in the sixties, we got a pretty balanced education, even without mandates that we be literate in this, that, or the other thing. And at the time, that included filling out a tax return.
You don't think the state was telling school boards back in the 60s some of what you should be taught. In Michigan they've been doing that since the 1830s.
As republicans succeed in making everyday more precarious than it was in the past, yeah, financial literacy could become more important in the 21st Century than it was for much of the 20th. I mean, it’s hard (for decent people anyway) to argue that “everyone is responsible for their own decisions” and “everyone gets what they deserve” if people aren’t trained to plan for their own financial futures, especially as society becomes more and more complex and safeguards against total financial ruin - from one bad decision you make or one employer you trust lays you off - are stripped away by the GOP and neoliberals. Even I, with a master’s degree, struggle to understand how I’m supposed to plan for my own retirement or do my own taxes and claim all the credits or deductions I’m entitled to. How fair is it to both make everything really complex and then also not give people the tools to deal with the complexity, so they can be preyed upon by corporations?
republicans view the proper role of government as standing on your neck while their business cronies steal your wallet and drain your bank account
Planning for retirement? Yeah save as much as you can for as long as you can, every bit helps. Put it into low cost index funds in a Roth IRA if you qualify, get your employer match, select the least terrible fund in your 401K plan put in more if you can and the plant isn't terrible. Also realize no matter how much you've saves 50 percent of all seniors will need long term care and you will drain all your assets to pay for it then maybe end up on medicaid if you are lucky.
Not me. The day I start to really lose my marble is the day I check out. My mother had early onset Alzheimer's and there's no way I'd wish that on anyone, including me, myself, and I.
I think a well-done financial literacy program would have been useful to me as a quite unworldly 17-year-old. It would have been useful to develop some acquaintance with the various forms of insurance one needs, retirement systems, real estate transactions and financing, landlord-tenant law, leases, income taxes, real estate taxes, health insurance plans and costs, etc.
I probably would have ignored much and retained little, but it would have at least raised my awareness level above zero.
Yes, this. And if you had your PDF, you could refer back to it as you matured and actually needed to rent a place, set up a bank account, take out a loan, buy a car. Which, contrary to grizzled old corporate geezers like Mr Drum, are not things a kid right out of high school intuitively knows how to do ... and often, her parents aren't very good at, either.
Something not being worse than in the past doesn't mean it can't improve. Why do we have to only react to things getting worse rather than just look for things that could be better?
amen
Seriously Kevin, why does everything have to be a gd crisis before we try to improve it?
The problem with financial literacy in high school is that it's largely irrelevant to kids who mostly don't have financial responsibilities beyond managing their fun money. Until I was ~20 I didn't have a credit card, pay rent, or invest. Makes a lot more sense to teach this stuff in college. If you teach it too early, they will forget.
Not everyone goes to college, and the kids who won't be going to college are the ones who need personal finance instruction the most. High school is where this needs to be.
I agree. And it doesn't need to be a semester. It needs to be a couple of weeks as part of a larger Life Skills class.
I watched an interesting video a few months ago that had the premise that we should not give everyone basic financial literacy because there needs to be losers. If everyone was astute enough to save, invest in index funds, sign up for their 401k and not get into credit card debit then the economy would collapse because not enough fools could be parted from their money.
Or it could be folded into math class. That would be my preference.
A high school graduate these days doesn't need just "financial literacy" per se, but rather just a basic course in data and statistics for daily life so that, yes, they understand what it means to "adjust for inflation" but also how compound interest works, or why you'll never win the lottery, what the unemployment rate means, or what progressive tax brackets are about.
They won’t get it anyway so don’t bother.
I mean, during the student loan "debates" you had a bunch of people who took out 100K worth of student loans and never understood how interest (that x% per year!) and payment schedules (interest first, principal last).
People really don’t get how mortgage loans work either.
It’s almost like banks make this as opaque as possible to take advantage of suckers.
I ran the numbers for my husbands kids when we talked about houses. A $450k house with 20% down actually costs $874k over the 30 year life of the loan. In some places, the value of the house may exceed that after 30 years, but you can do just as well skipping buying the house and putting that money into index funds. That's the kind of education people need - own if you are a "house" person but don't assume it's the best investment vehicle.
The problem I foresee is that, given the paltry resources of public schools these days, pretty quickly this will become Financial Literacy™ by Charles Schwab.
That said, I have a reputation among my friends for knowing a little about money because I've read a bit amount about it, and I fairly often have a friend ask me "Can you explain to me how to invest for retirement?" and my first question is "Do you know the difference between stocks and bonds?" and I have not yet encountered anyone who understands the difference.
I'm shocked by how many highly-educated, culturally-sophisticated people take the view that "you just give your money to Morgan Stanley and pay them to deal with it" and haven't the slightest idea how much that is costing them.
Because we have no tests for financial literacy that means nobody is failing the tests and that means there is no reason to teach it!
This is brilliant.
Some people would benefit massively from a basic financial literacy education.
I think of a friend from years ago: level-headed in most respects, and quite intelligent, but really terrible at managing money. She was a family therapist, which meant that her income, though well above the annual median, was highly irregular, varying wildly from month to month. And she was completely incapable of maintaining the savings she needed to get through the occasional lean month, and thus leaned hard on her credit cards during those times, and paid absurd interest to pay them off in the next fat month.
I'm pretty sure she's not unusual.
People are stupid. It doesn’t matter if you teach them anything “useful” or “useless” they won’t remember it, won’t care about it, and wouldn’t understand how to apply it even if they did remember or care.
I’m starting to be anti mandatory school because there’s no real helping it.
It is so necessary. We are nation of illiterate financial people. It astounds me. I also find it odd anyone would oppose a simple semester or two of financial legacy. It is legitimately one easy thing to do.
We had to take such a course when I was in high school. I took a test to challenge it (pass without taking the classes) just because I could. Strongly support this concept though. Kids need to know how to manage their money, save, buy houses, deal with insurance, understand taxes, etc. Plenty of material to fill a quarter or semester, at least.
And the rest of the year should be on logical analysis and fallacies, and analyzing information independently. We had that, too, but I think it was an elective.
Our Home Ec class was exactly this. We took it as we prepared for the state mandatory math test.
Coming to this one very late. Full disclosure: I taught a year of financial literacy to 7th graders in a Los Angeles Middle School.
Students were more engaged with this subject than any other classes I have taught in 18 years. There was more parent interest than I could handle, quite frankly.
Along with the economics and finance, the students did career research and played three rounds of an excellent stock market game where teams invest $100K and compete against each other and other schools in the area. The stock market curriculum in particular was pretty dense with information. I told them if they recall and apply 10% they will be ahead of their peers.
I am retiring at the end of this school year, but if someone offered me the opportunity to teach financial literacy to 11th graders, I'd go for one more round. It was a fun class to be part of.
In addition to all the information, it is an applied math class. I recall when one student one day yelled out, "Hey mister, this is like algebra, right?"
I teach both Economics (required class) and Personal Finance (an elective). There is definitely enough to fill a semester. To address Kevin’s concern about dumb decisions, I start the class with a behavioral economics unit explaining why people do dumb things with money. The students’ seem pretty engaged, and we cover a lot of things that will keep kids from getting in a financial hole at the beginning of their lives.
Just mandate that compound interest be taught in some already-required math course.
I taught undergraduates the difference between subsidized and unsubsidized loans and calculated the difference in accrued interest for the two forms of loans. That 4/5 of them didn't know the difference between loan type, or the long-term impacts of choosing one or the other, was shocking to me.
xkcd,
https://xkcd.com/2501/
New Jersey has a required semester of financial literacy for graduation.
I actually think this is an excellent idea and happily signed the petition. Our son took a basic financial literacy class in high school (since dropped) and he said it was the most valuable class he had ever taken. It change his thinking on college and the morass that is student loans.. He ended up going to school locally, living at home the first three years, and he had two nice paying internships, so that he graduated with a fair amount of cash in the bank instead of loans that would dog him for life. Now, I preached thrift and thought I explained compound interest, but advice from me did not have the same weight as this class. This financial literacy class set him on the road to be financially secure for the rest of his life. If there is a class that can do more than that, let me know what it is.
This actually came into being in NC this year as part of a new "Economics and financial literacy" class. My son actually seemed to get some benefit from it. He's investing almost all of his earnings from his part-time job into index funds.