Promoting Financial Literacy
According to a study released in July, the Paris-based Organization for Economic Cooperation and Development (OECD) found that American students were “in the middle of the pack” of students around the world when it comes to understanding basic financial concepts. As we saw with the 2008 financial crisis, this lack of understanding can have dire consequences when these young people become adults.
In an increasingly global economy, just one in 10 teenagers around the world are able to make certain key, complex financial decisions, such as choosing among various loans or analyzing invoices and pay slips. According to the study—administered in 2012 to 29,000 15-year-old students in 18 countries—the picture is no better in the United States, where just 9.4 percent were able to answer the most difficult questions on an international test of their financial knowledge and skills. More than one in six U.S. students did not reach the baseline level of proficiency in financial literacy; at best, these students could make only simple decisions on everyday spending.
The OECD has called financial literacy “an essential life skill” for teens. Already at 15, many have bank accounts and debit cards, while “many students nearing the end of 12th grade also have to decide, with their parents, whether to continue with post-high school education and how to finance such education,” the report says. Other experts claim young people start forming their opinions about money as early as fifth grade.
Why is financial literacy so important? The current and future financial choices faced by young people today are likely to be more challenging than those of past generations, given the increasing complexity in financial products, services and systems now available. Today’s young people may also bear more financial risks in adulthood due to increased life expectancy, decline in welfare and occupational benefits, and uncertain economic and job prospects. As young people decide whether to pursue post-high school education, one important consideration is how to finance their education. This is a particular area of concern, given the $1 trillion in student loan debt in the United States alone.
Increasing financial literacy among young people also helps bridge financial disparities due to socio-economic status. Indeed, financial literacy among adults has been shown to have a strong correlation to education, income and wealth; parents with lower levels may be less equipped to pass along financial literacy knowledge to their children. While financial literacy is taught in the classroom in many countries, just 19 U.S. states require a course in personal finance in high school, according to a 2014 report from the Council for Economic Education—and Illinois is not one of them.
Junior Achievement (JA) is actively working in our community to promote financial literacy. But financial literacy involves more than just gaining knowledge—it means understanding what it means to be financially responsible. JA helps accomplish this by bringing role models into the classroom to share their personal experiences about what it means to manage a budget, pay bills on time, and invest in ways that benefit the individual and the community. Students have the opportunity to apply these important concepts through hands-on, experiential learning activities.
If we want to improve financial literacy in this country, there are ways to do it. It just requires some dedication and commitment. For our part, JA is here to help. iBi