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High Schools Failing in Financial Education?

In a recent New York Times story, reporter Tara Siegel Bernard calls for more personal finance education in the nation’s high schools — understandable as only 13 states currently require it.

There are two problems with that. First, high school’s too late. By the time they are 15 years old, $4,000 a year is spent by or for the benefit of the average teen. No surprise, teens were the first consumers to come charging back from the recession, rewarding retailers like Abercrombie & Fitch and manufacturers like Billabong with strong sales gains. Why? Parents, feeling guilty over their inability to outfit their children with the latest in sneakers and short-shorts last season, put the first of their new discretionary dollars into the hands of their offspring.

Second, public high schools are in the business of teaching their students to pass state tests in core subjects. Preparing the students for those exams leaves little room for added material. Even in the 13 states that do have a financial education mandate, there seems to be no comfortable home for the curriculum. The economics departments say it doesn’t fit; besides economics is not always required. The math departments already have too many tests to cram for. Eventually it tends to fall into consumer economics — what we used to call “home ec” — where it is offered as an elective and doesn’t make it into every student’s schedule.

It’s also not as if the teens that don’t get the financial education they need during the school day will pick it up at home. One of the challenges facing today’s financial literacy advocates is that parents feel decidedly unqualified to teach their own kids. How can you teach your children to delay gratification, to spend less than they make, to avoid credit card debt when you’ve been unable to do those things yourself?

So what’s the solution? Start school-based education earlier. Although middle schools have state-testing requirements of their own, they are nowhere near as common or rigorous as those that high school educators face. That leaves room for financial education. The high school dropout rate makes a middle school option even more compelling, says Laura Levine, Director of the Jumpstart Coalition for Personal Finance Education. By waiting until high school, some of the students who need the information most, don’t receive it. Plus, there is new evidence that the information makes a greater difference when offered to younger students than it does later on. A 2009 study from the FINRA Investor Education Foundation showed that playing The Stock Market Game (designed to teach financial literacy by having students manage imaginary portfolios), had a greater impact on students in grades 4 through 6 than on those in grades 7 through 10.

Once the education is delivered, it should be followed with incentives to make sure it sticks. One idea: Add 20 personal finance questions to the driver’s license permit exam. As the parent of a 15-year-old son whose friends are already starting to drive, I know that there are few things teens want more than their permits. They’d learn the middle names of all the presidents or commit King Lear to memory if that’s what it took put them behind the wheel.

Next, encourage auto insurers to offer discounts to students who score particularly well on this section of the test. This makes sense; they’re already doing almost the same thing for adults by giving cheaper rates to those with excellent credit scores. Involving the insurers is a way to bring parents into the process, too. We parents know that adding teen drivers to the family policy is likely to boost our quarterly premiums into the stratosphere. I’m sure I wouldn’t be the only mom pushing my son to ace the “fin-lit” section for a carrot of 15 to 20 percent off. The same sort of testing could be repeated on credit card applications with the prize being a lower interest rate or waiver of an annual fee.

Naysayers may wonder if 20 questions are enough. I suspect they might be. In 2007, Wells Fargo conducted an experiment where they offered college students who applied for their credit cards a small premium — a phone card worth about $1 — to take a 15-minute online tutorial. Then Wells Fargo tracked the behavior of the students who took the course against a control group. Despite using their cards more, participants maintained lower revolving balances and were 40 percent more likely to pay their bills on time and stay within their pre-set spending limits; precisely the sort of responsibility financial literacy education tries to instill. Fifteen minutes. Add some education in the middle grades and we may have a shot at a money-smart generation after all.

By Jean Chatzky

>Even in the oil rich UAE – Schools need money lessons

>There is certainly a lot to learn about money than just counting paper bills. But financial illiteracy still affects a lot of young and old people alike. The thing is, money management skills are not even taught in most schools.

According to the fifth annual Future of Retirement study of HSBC, 62 per cent of people in the UAE have never accessed any form of general financial education. Only 38 per cent feel they understand their short-term finances very well, while only about 19 per cent have a clear idea of what their long-term finances look like.

“Money is probably the most important thing in adult life we simply cannot live without it. So, it is beyond comprehension that we are not taught about money, budgeting, insurance and investment at school. How can a school be happy to let children leave education with an excellent knowledge of Latin and literature, but no idea of how to manage their money,” notes Darren Ashley, managing director of Candour Consultancy.

That is why educating children about personal finance and managing money should start early. There are a lot of ways a child can learn about the basic concepts of finance, and video games are just one of them.

“[Educational videos] could certainly help, but these games have to be as attractive as the platform games and first-person shooters it will be competing with,” says Ashley.
Gurnos Stonuary, business services director for the Nexus Group of Companies, agrees, saying that “anything that gets children to start thinking and learning about personal finance is a good idea.”

“Video games and educational tools are very well able to support good financial planning and can play an important part when they are incorporated into an overall plan to teach children about money,” Stonuary says.

However, he points out that a child’s home remains the most important learning environment for shaping an individual’s attitude and values towards money. He notes that it is in the home where children learn how adults spend, borrow, save, give and invest their money.

“In view of this, it can be hugely beneficial for children to be included in family discussions about money from an early age. This helps them start to understand how income is used and the financial goals the family has identified to work towards,” Stonuary says.

Ashley suggests that parents assign children some jobs to do, to earn their pocket money. This will make them think twice before wasting what they’ve earned on unnecessary stuff.

“Also, get them involved in the family finances. Do not be shy about money. If they know what income the family has and how much goes on the mortgage, paying the utility bills, and why there are bills, they will learn that money is finite and the parents are not simply being unfair when they do not give them more. They will also learn about paying bills and start to understand mortgages,” he adds.

It is also a good idea to start a savings plan to save towards the child’s future education. It is necessary that the parents get the children involved, make them aware what has been contributed to the savings plan, what the value is, where the money is invested in and why the value is going up or down.

“Not only is this going to benefit the parents and child when it comes to having to pay for secondary or higher education, it will teach them about both saving and investing,” Ashley points out.
Stonuary also recommends giving children some allowance or pocket money. The allowance should cover perceived necessities, with an extra amount to encourage them to learn to save and invest.

“Providing children with their own regular allowance at the beginning or the middle of the week encourages them to learn how to stretch their money and to be in a position to enjoy things at the coming weekend. Parents should not come to the rescue every time a child runs out of money or they will never learn money management,” Stonuary advises.

Guidelines

“When children receive money, for example as a gift, parents should help them set guidelines on how it will be used. If it is a large gift for say a birthday, encourage children to invest some of the money. In addition, identifying money to be set aside for charity can influence a child to develop a concern for others,” he says.

He also suggests creating a money plan with the child. The goal is to encourage the child to consider how much money has to be spent, how much can be saved and given to others in the form of gifts, charity donations. It should also encourage the child to think about what he wants to achieve with the money, what the financial goals are and how much he needs to spend to pay for what he wants and reach his goals.

“It is never too late to help children appreciate the value of money and with last year’s unfortunate current economic downturn, even children who have enjoyed a high quality of life in the UAE can start to appreciate that financial plans can suddenly change,” Stonuary says