By Jennifer Connelly
There’s no doubt that talking, in some form, is one of our favorite pastimes. But within our close circles of family, some things that are important to talk about between generations are not being discussed at all — critical things like money and how to manage it.
More than 75% of kids report that their parents don’t discuss money and personal finance with them, probably for several reasons. For parents struggling with their own personal finances, they may not feel educated or financially empowered enough to be a mentor, or they may not have time. It may take a small crisis such as misusing a credit card or phone plan for a parent to recognize certain financial basics are a must in the short term. But still, they may not fully realize how important ongoing and broad financial education is to preventing increasing financial struggles, protecting against cycles of financial instability and poverty, and maximizing a child’s chance for financial success.
So it’s not surprising that last year, a much-touted global study by the Organization for Economic Development Corp. showed that one in five teenage students in the U.S. lack basic financial literacy skills, lagging behind 14 other nations. But most young people will face significant financial decisions before their 20th birthday. And the number and complexity of financial decisions they’re faced with is growing all the time: student loans, credit-card options, insurance, mortgages, investing, and entrepreneurship, to name a few.
Student loans may be the first major financial decision many young people face. In 2018, the U, S. Department of Education reported that student loan debt in the U.S. was over $1.4 trillion. In Massachusetts, 60% of college students graduate with debt averaging over $31,000, and default rates are significant.
Also, the increased use of costly, ‘quick-fix’ financial options by young people — such as payday loans, pawn shops, and rent-to-own stores — is concerning.
The consequences of overwhelming debt and poor financial decision making can be grave, including lack of ability to pursue educational, job, and residential opportunities; bad credit resulting in a lifetime of higher interest rates; job loss; bankruptcy; extreme psychological stress; and physical and emotional strain. However, most states do not require schools to teach young people much about the financial world they will face and the skills they need to engage and succeed economically.
Personal financial-literacy education (PFLE) includes the basics of financial products, the influencers and consequences of financial decision making, and the necessity of personal financial planning. The call for all students to be taught this crucial preparatory subject is growing louder, often coming from young people themselves who often say they wish this had been taught in their school.
The logic and effectiveness of teaching high-school students PFLE is solid: financial literacy leads to better personal-finance behavior. Many studies demonstrate people with higher levels of financial literacy make better personal-finance decisions. A 2014 study commissioned by the Federal Reserve showed that mandated personal-finance education in high school improved the credit scores and reduced the default rates of young adults. And it is well-established that those who are financially illiterate are less likely to have a checking account, rainy-day emergency fund, or retirement plan, or to own stocks; they are more likely to use payday loans, pay only credit-card minimums, have high-cost mortgages, and have higher debt and credit-delinquency levels.
Government and business leaders perennially focused on the state’s fiscal and economic health should care that financial illiteracy is currently the norm. Also, for all the talk in Massachusetts about addressing economic inequality, practical, viable solutions are in short supply. Requiring PFLE is a win for everyone.
Jennifer Connelly is president of Junior Achievement of Western Mass. This commentary is supported by the agency board’s officers, Albert Kasper, Phil Goncalves, and Nicole Denette.