article

11.24.08

A College Sophomore Solves the Financial Crisis

Maybe one reason we're in this financial mess is because we force our high school students to learn Latin but not how to properly use a credit card.

With the economy dominating the headlines, few Americans have the background to understand what they're reading. Maybe this is because no one ever bothered to teach them a thing about it.

One of my biggest complaints about my high school education—and there were many—was the absence of a home economics class. I don’t mean home ec in the baking-and-ironing sense. I mean a class that teaches young people to responsibly handle their personal and family finances.

I went to a school that prided itself on its commitment to the value of a "classical education," and required every student to take two years of Latin. At the same time, the faculty was all too happy to send kids off to the lion's den of adulthood without any knowledge of credit cards, student loans, the stock market, or how to purchase a car.

The failure of the schools to teach kids about money has done more to perpetuate the status quo than any lobbyist in Washington could ever dream of.

I didn't suffer for it because studying the world of business was my biggest hobby. But I was concerned for the long-term welfare of my classmates. A home economics class with a focus on finance and budgeting would have been one of the most useful classes I can imagine.

What should a home ec class teach? Resisting temptation would be a good start. From the time they turn eighteen, students are bombarded with credit card offers. Without the education to understand how to read them, they’re at risk for financial mistakes that can haunt them for the rest of their lives. The average college senior owes $2,600 in credit card debt, often at high interest rates, stunting their economic maturity before it begins.

Longer-term, the societal shift from defined-benefit pension plans toward defined-contribution 401(k)s has put Americans more in charge of their financial futures than at any point in history. Home ec classes should create curriculums that take this shift into account, and teach kids how to plan for the next fifty years—something even their parents might not know how to do.

High school is also the perfect time to teach students about the rights and responsibilities of home ownership. According to a 2004 Federal Reserve study, the average renter had a net worth of $4,000, while the average homeowner's net worth was $184,000. But students also need to be educated about the risks associated with excessive leverage and gimmicky loans. We've learned the hard way that real estate agents and mortgage brokers cannot be trusted to provide that information, and neither can bankers, car salesmen or insurance providers. Schools present the best opportunity for students to receive unbiased education.

In middle school, I went to a private school on a scholarship where we played the stock market game. In a classroom environment, were taught about compound interest, mortgages, and debt. I come from a family where money was never talked about (because there wasn't much to talk about), but those games sparked my interest in the world of business. To this day, I consider that sixth-grade class an essential part of my education.

The high school I attended, however, like most other public schools, had no financial literacy program in place. As I wrote in an op-ed piece when I was a student there, the failure of the schools to teach kids about money has done more to perpetuate the status quo than any lobbyist in Washington could ever dream of.

Here are some numbers that suggest to me that we need more emphasis on home economics in high school. The Jump$tart Coalition found the following in its annual survey of high school seniors:

  • Only 48% understand that a credit card holder who only pays the minimum amount on monthly card balances will pay more in annual finance charges than a card holder who pays off the balance in full each month. That level of ignorance can easily lead to thousands in interest charges each year, and can easily be the difference between financial security and destitution.
  • Only 40% realized that they could lose their health insurance if a parent suddenly lost his/her job.

More troubling still: college experience does not appear to be a meaningful contributor to increased financial literacy. On the Jump$tart survey, college freshman received an average score of 59% while college seniors were only marginally better at 65%.

In the current economic environment, increased financial literacy is absolutely essential for people to understand the issues as consumers and as voters. No one should leave high school without a solid foundation of practical financial skills. Students should be able to understand credit card offers, evaluate investments, compare insurance products, and understand their rights and responsibilities as consumers. Trust me, it's a lot more useful than Latin.

Zac Bissonnette is an editor with AOL Money & Finance and its new personal finance site WalletPOP.com. He is a sophomore at the University of Massachusetts Amherst.