Californians have a financial literacy problem

Question: If interest rates rise, what will generally happen to bond prices? Rise, fall, stay the same or is there no relationship? If you answered “fall”, congratulations. You are part of just 26% of Americans who, interviewed in 2018, answered this question correctly.

Whether or not you answered this question might not seem like a big deal. But the fact that most Americans can’t answer it speaks volumes about a larger problem: America has a financial literacy problem.

Numerous studies have shown that Americans lack financial acumen. The bond question above, for example, is part of a six-question financial literacy quiz that covers key economics and personal finance topics like interest rates, mortgages, and inflation. Only 7% of Americans were able to answer all six questions correctly. Another study in 2020 of Financial Literacy Among American Adults had similar results and concluded that “many Americans lack the personal finance knowledge that enables sound financial decision-making.”

There are real consequences for these gaps in financial acumen, especially as the country faces runaway inflation. Millions of Americans struggle to manage their finances, only to find themselves deeply in debt. A Bankrate survey 2019 found that 56% of Americans cannot cover a $1,000 emergency expense with savings, and a LendingClub report from March of this year found two-thirds of Americans live paycheck to paycheck. In the long term, a study 2017 from the Global Financial Literacy Excellence Center found that differences in financial knowledge accounted for 30-40% of wealth inequality in retirement. In many studies, Gen Z generally had the biggest gaps in financial literacy.

So what can we do? Make personal finance education accessible to students.

As the co-founder of a nonprofit financial education organization that provides a free program to more than 60,000 educators across the country, I’ve heard thousands of teachers say their students crave this practical learning. A teacher at San Marcos High School in San Diego County, Tara Razi, for example, came up with a personal finance class this year thinking she would have one section and 40 students. She ended up with six sections and 220 students. Razi’s students immediately began to apply lessons learned in class in their daily lives. A student got a credit card and put it to good use, earning rewards points and building good credit. After hearing about compound interest, another student curbed her impulse buying and put more of her money in the bank for college. This same lesson on compound interest also showed a young man how he could earn $1 million in retirement if he just saved a little money each month from his age.

Fortunately, policy makers are beginning to understand the need for this type of education in schools. Over the past three years, the number of states guaranteeing financial education has increased from five to 13. By 2022, 26 states introduce bills, almost all of them increasing access to financial education. In California, AB2215 and AB2051, two bills that were recently approved by the State Assembly Education Committee, would dramatically increase access to financial education for California students by helping schools, school districts, offices education county and charter schools to implement financial literacy education programs and ensure that more high school students in California take a personal finance course before graduating. diploma.

We need these bills to become law. According to my nonprofit’s 2021 annual report on the state of financial education, the Golden State ranks 49th in terms of access to financial education. While 70% of high school students nationwide have access to a personal finance elective or guaranteed course, only 26% in California do. Additionally, 1 in 3 students nationwide attend a school that guarantees they will take a personal finance course, but less than 1 in 100 have such guarantees in California.

We cannot afford to let our children fall behind. To research shows that students who receive high-quality personal finance education in school manage their finances better as adults, resulting in less debt, higher credit scores, higher personal income and a better quality of life in general.

The benefits of this type of education are not limited to students. In the 10 years I taught a personal finance course at Eastside College Prep in East Palo Alto, I saw how students brought their finance lessons to their parents and guardians. Many of these adults then contacted me, wanting to learn more about budgeting and how to invest for retirement. In other words, educating students can lead to educating an entire family.

Some argue that personal finance education is already an important part of the economics course required by the state of California. This is incorrect. A quick preview of the latest frame provided in a Analytical summary 2018 on the economics course of the final year or a more detailed examination of the state economic standards shows that it is very difficult to see links with personal finance education.

In April, Public Policy Polling conducted a survey that showed 85% of Californians think a personal finance course should be a guaranteed course in high school and 88% said it should be urgently addressed by the legislature. If AB2215 and AB2051 are passed and signed into law, our nonprofit organization stands ready to invest $1 million in teacher professional development so that more students can have a Tara Razi in their school.

We owe it to California students to ensure that their high school education equips them with the skills they need to thrive in the 21st century. This won’t happen without personal finance training.

Tim Ranzetta is co-founder of Next Gen Personal Finance.

Sarah J. Greer