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Lack of Financial Education Puts Children at Risk

May 8th, 2010 Posted in Uncategorized

Young people are plunging themselves into unmanageable debt because they not being adequately educated on how to handle their finances, moneysupermarket.com has claimed.

The price comparison site said the failure of Britain’s schools to offer education on money matters is putting a generation of young people at financial risk.

“Financial education has been on the agenda so many times but we haven’t really got a proper financial education in place here in the UK,” a spokesperson for the site said.

“That could be targeted more.”

He added that the lack of financial education is “worrying” as it leaves young people at risk of being exploited by unscrupulous finance providers offering credit cards and loans to young people who don’t know how to use credit responsibly.

financial education, responsible credit

High Schools Failing in Financial Education?

May 8th, 2010 Posted in financial education in schools

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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

financial education

>The Global Approach to Financial Education

March 17th, 2010 Posted in financial education, financial literacy

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The Global Approach to Financial Education

Several countries, listed below, most of whom are members of the Organization for Economic Co-operation and Development (OECD), have developed and implemented national strategies on financial literacy.

Australia: In 2005, the government established the Financial Literacy Foundation (FLF) to implement a national literacy strategy. The creation of FLF was a key recommendation put forth a year earlier by the country’s Consumer and Financial Literacy Task Force.

The FLF worked to integrate financial literacy into the educational system; to develop resources and support for teachers; and to provide financial literacy materials for the workplace.

In July of 2008, all of FLF’s functions were transferred to the Australian Securities and Investments Commission, in order to consolidate the Australian government’s financial literacy response under the Commission and to strengthen its role in safeguarding Australia’s economic reputation and well-being.
Ireland: In 2007, the country’s Financial Regulator embarked on a major study to assess the financial capability of Irish consumers. Largely based on the U.K. Financial Services Authority’s survey, the face-to-face Irish survey took place between October 2007 and January 2008.
Although they were still in the early stages of their work, the regulator issued a Preliminary Report on Financial Capability in Ireland in June 2008. The final report has not yet been published. The broad objective of this work is to establish a baseline measure for financial capability, against which future research in this area can be compared.

Concurrently, under the supervision of their National Steering Group on Financial Education, Ireland has developed a Financial Competency Framework.

The Netherlands: Under the working title CentiQ, wijzer in geldzaken (Sensible with Money), around 40 partners from the financial sector, the government, information and consumer organizations and science, signed an agreement, in 2006, to work together on financial education. Together, the partners will carry out a strategic agenda that includes programs and projects aimed at improving the financial knowledge and skills of consumer and stimulating an active attitude, so that consumers can make conscious financial choices and become financially competent.

In 2007 and 2008, CentiQ carried out a number of studies and inventories in order to form a basis for the strategic agenda and the CentiQ Action Plan. All CentiQ programs are based on several strategic starting points, including:
•Household finances – These form the basis for all of the programs.

•Prevention is better than correction.

•The program is based on easily accessible and practical resources.

New Zealand: A Crown agency, the Retirement Commission, led the development of New Zealand’s National Strategy for Financial Literacy, in 2008. The agency has also undertaken comprehensive “financial knowledge surveys”, with the most recent being completed in 2009.
The New Zealand Retirement Commission also created Sorted (http://www.sorted.org.nz/), an independent government-funded organization dedicated to helping New Zealanders manage their personal finances, throughout their lives. In 2009 the Ministry of Education also took over all responsibilities for financial education in schools.

Singapore: The national financial education program, MoneySENSE, was launched in October 2003 to bring together industry and public sector initiatives in financial education, to create a long-term, sustainable program to enhance the basic financial literacy of Singaporeans.

The first National Financial Literacy Survey was conducted in March 2005. The survey found that, in general, Singaporeans have fairly healthy attitudes towards basic money management, financial planning and investment matters. Through its national MoneySENSE program, the Government of Singapore continues to support initiatives that enhance the basic financial literacy of consumers.

The United Kingdom: The Financial Services Authority adopted a National Strategy for Financial Capability in 2003. This strategy included a long-term, complex plan to target young people through new curricula, and savings accounts, to provide generic advice to the population at large, and to create new public programs for retirement savings.
Under the awareness portion of its National Strategy, the Authority has reached 8.4 million people, as of November 2009.

The United States: In 2006, the Financial Literacy and Education Commission created “Taking Ownership of the Future: The National Strategy for Financial Literacy”. In addition to the 26 “calls to action” it published in its 2006 Strategy, the following year the Commission developed six new calls to action, where it wishes to concentrate its efforts.
In 2008, the President’s Advisory Council on Financial Literacy was formed. In December 2009, the Departments of Treasury and Education outlined the first step in their efforts to promote financial capability among the nation’s youth. Based on the findings of a new national financial capability survey, the National Financial Capability Challenge (http://www.challenge.treas.gov/) was created. This is a national award program, which aims to encourage financial education in schools across the country and recognize high-performing teachers, students and schools.

The OECD: In 2005, this 30-member group of countries published the first major international study on financial literacy.47 The study defined financial education, outlined the benefits of increased financial literacy and identified a life cycle of key decisions. In 2008, the OECD launched the International Gateway for Financial Education, which serves as the first global clearinghouse on financial education. It seeks to raise awareness; ensure a wide dissemination of research, best practices and guidelines; and build a worldwide network of government stakeholders on financial education.

Key Links

Australia

http://www.understandingmoney.gov.au/

Ireland

http://www.financialcapability.ie/

The Netherlands

http://www.wijzeringeldzaken.nl/

New Zealand

http://www.financialliteracy.org.nz/

Singapore*

http://www.moneysense.gov.sg/

The United Kingdom