Financial Literacy In The News

• SLA is the midst of their 2010 Financial Literacy Survey which closes on Friday.  Ping me at [email protected] if you would like to participate.  We have almost 200 responses already. 

• Elizabeth Warren, director of the Consumer Financial Protection Bureau, spoke to student journalists earlier this week about financial literacy:  

"A major goal of the new agency is to give students the information they need to make good financial decisions, she said.  “We will empower young people to make smart choices by promoting financial literacy and safeguarding retirement, investment and, most of all, putting the right tools in the hands of students,” Warren said.  Warren believes that financial literacy is a major concern among Americans today. “Americans need more financial education, more information on how to survive in a complex financial world,” she said.  The bureau aims to address this, she explained, by developing new approaches to financial literacy and by making finance more approachable and relevant.  “It should not be the case that people who are trying to make good decisions get sucked into the wrong debt and are hounded for life,” she said. “It’s just wrong.”  Warren said it is the job of her newly commissioned agency to put a stop to these practices and to say “no more.”

• Bill Gross of PIMCO is one of the most important, respected voices (oh, and successful) in the investment community.  This should be required reading for those who want to understand what is happening with the economy (unfortunately, no happy talk here).  The title "Run Turkey, Run."  Here are a few excerpts:  
  • On the state of the political process:  "They say a country gets the politicians it deserves or perhaps it deserves the politicians it gets. Whatever the order, America is next in line, and as we go to the polls in a few short days it’s incumbent upon a sleepy and befuddled electorate to at least ask ourselves, “What’s going on here?” Democrat or Republican, Elephant or Donkey, nothing much ever seems to change. Each party has shown it can add hundreds of billions of dollars to the national debt with little to show for it or move our military from one country to the next chasing phantoms instead of focusing on more serious problems back home. This isn’t a choice between chocolate and vanilla folks, it’s all rocky road: a few marshmallows to get you excited before the election, but with a lot of nuts to ruin the aftermath.
  • On the Federal Reserve's likely next move after their meeting next week:  "Wednesday is the day when the Fed will announce a renewed commitment to Quantitative Easing – a polite form disguise for “writing checks.” The market will be interested in the amount (perhaps as much as an initial $500 billion) as well as the targeted objective (perhaps a muddied version of “2% inflation or bust!”). The announcement, however, has been well telegraphed and the market’s reaction is likely to be subdued. More important will be the answer to the long-term question of “will it work?” and perhaps its associated twin “will it create a bond market bubble?”

• Ever wanted to run an auto dealership?  OK, me neither, but you may want to check out this game that Michigan State University students developed, a credit education game called "DealerTown Ford."  (Wasn't I just writing about financial literacy games?)

"The game was created by students in SpartaSoft, MSU’s student video game developers’ organization. The team won a video game design challenge against the University of Michigan’s WolverineSoft organized by Ford Credit to create an application tied to the U.S. launch of the new Ford Fiesta."

• Haddonfield, NJ has a financial literacy program in their Adult School that teaches two audiences:  parents and their child(ren).  From CourierPostOnline.com:  "...He chose a two-session course at the Haddonfield Adult School because it encouraged parents to come with their children.While it's not unusual for parents to talk to their children about money and the high cost of everything, it is unusual for the kids to listen, said instructor Bill Wallner."

• Bentley University and Misercordia University sign up with financialfootprint to provide their students with online financial education (from press release): 

"financialfootprint, LLC announced today the public launch of their online-based service for personal finance education. Designed specifically for young adults, financialfootprint provides education and guidance about personal finance issues ranging from student loan options to credit card basics. Using real-time online interaction, young adults are paired with a personal finance expert of their choice to answer financial questions and guide them towards financial solutions. financialfootprint is now available for individual use through their website and through relationships financialfootprint establishes with academic partners."

• New national test for financial literacy to replace the old test developed by JumpStart.  Student scores on that test had been declining over the past decade so one happy result of having a new test will be a new baseline to be set in 2011 (from CBS MoneyWatch):

"JumpStart skipped the scheduled 2010 round of testing and outsourced the job to Learning Point Associates, a highly regarded education consultant that will begin testing students anew in spring 2011. The new test will be more scientific, rigorous and sweeping, and it will reflect the very latest thinking as to what students should know about money — and when they should know it."

• Unemployed hedge fund analyst describes life teaching financial literacy to high school students (from Minyanville): 

"Maybe I forgot how much we know at that age, or maybe it's the fact that if we'd call 2000 the start of the secular bear market, these kids have grown up in a bear market, have seen their families and friends struggle, and don't see the world as a cash machine and full of open-ended possibilities the way we did growing up in the '90s.

One thing is for sure, their views on consumption, debt, and risk have changed dramatically from the time I was that age. At the end of every lesson was a question where I'd give the students a scenario and they'd have to choose option A or B. For instance, in the first lesson, the question was whether to spend a $300 birthday check on a new gaming system or save the money for later. A sizable majority of the class voted to save the money."

• How much can regulation really protect an uninformed consumer?  Here are some opinions from this piece in Knowledge@Wharton:  

"Both Mitchell [Wharton business and public policy professor Olivia Mitchell] and Berenbaum [David Berenbaum, chief program officer National Community Reinvestment Coalition] believe that financial education should start in the schools, and that regulators can help by mandating certain requirements. "Schools do not adequately prepare consumers to understand the process and paperwork from basic banking to complex mortgages," Berenbaum notes. As for state mandates, Utah, Virginia, Missouri and Tennessee all require at least a one-semester course in high school devoted to personal finance, and 20 other states require that personal finance at least be taught through another course, according to data from the Washington, D.C.-based JumpStart Coalition. However, the Dodd-Frank Act does not even touch on the idea of financial education curriculum, let alone mandate requirements.

"It's been shown that when certain states have mandated financial education in high school, the young adults in those states are saving more, planning more and have more knowledge of interest rates," Mitchell says, adding that the most important piece of information one can learn is understanding compound interest.

Berenbaum is also confident that mandated financial education would help improve overall financial literacy in the United States. And he notes that the most important concept that should be taught is an "understanding of the impact of debt," since a low credit rating -- which is the result of poorly managed debt -- can significantly affect one's ability to get everything from a cell phone contract to a reasonable interest rate on a mortgage."

• At Ariel Community Academy in Chicago, the Stock Market Game takes on added meaning since students are investing real dollars (from Edutopia): 

"Each Ariel class receives an endowment of $20,000, which they begin to actively manage in 6^th grade. When they graduate 8^th grade, the class donates half of their profits to charity. Each student receives an equal share of the remaining profits, usually just over one hundred dollars, to invest on their own."

• Assistant Secretary Barr, a candidate for CFPB director, discusses importance of financial education in late September (note his comments about when financial literacy is most effective which I have bolded): 

"Financial Education is critical. People need the financial skills and knowledge to help them make good decisions. The Treasury Department in conjunction with the Financial Literacy and Education Commission has recently issued a draft of core financial competencies. The development of core competencies is a fundamental step in establishing a clear understanding about what individuals should know and the basic concepts program providers should cover. Furthermore, the Core Competencies are particularly important in establishing a baseline of knowledge, which is crucial for both individuals and providers of financial education. This baseline of knowledge addresses the current lack of consistency in various financial literacy programs in identifying goals and objectives including how program success is measured, and what financial information and problem-solving skills participants can be expected to acquire.

There is also significant evidence to show that financial education is most effective when it is immediately relevant, is part of a financial decision, and there is a product or services that will allow the individual to carry out their decision, which brings us to the next key piece.

Financial education must go hand-in-hand with Financial Access. Individuals need the knowledge to make good financial decisions, but that knowledge is not helpful unless they have access to safe and affordable products. Likewise, if individuals have access, but a poor understanding of how to use the products or services, the chance for misuse or that they will be taken advantage of is much greater. Effective financial education and financial access combine together to create Financial Capability: The ability of individuals to make and execute good financial choices for themselves and their families."

• Optimism reigns supreme among youth, right?  WRONG, according to this survey (from Credit.com):

"A recent survey conducted jointly by research firm Gallup and HOPE, a financial literacy nonprofit organization, reveals a stark shift in the dreams of U.S. teens today and how they plan to accomplish their goals. According to the results, one in three respondents do not consider homeownership a part of the American Dream. Another 40 percent said education and staying in school are not factors in making money in the future."