Financial Education is the Key to Success

One of today’s biggest challenges is providing Wisconsin’s youth with the educational foundation for making effective financial decisions throughout their lives. Many schools teach students how to manage a stock portfolio, but fail to teach them how to balance a checkbook or responsibly handle a credit card.

According to a study by the United States Treasury Department, the average American was able to answer only 42 percent of the questions correctly on a personal finance quiz. Only eight percent answered three-quarters of the questions correctly. Four in 10 Americans admit they are living beyond their means primarily because of the misuse and miusunderstanding of credit.

Consider the following:

• The average American household with at least one credit card carried a credit card balance of $7,942 in 2000, compared with an average balance of $2,985 in 1990.
• From 1992–2000, disposable personal income rose 47 percent, but personal spending climbed even more—61 percent. At the same time, the personal savings rate fell from 8.7 percent of disposable income in 1992 to zero in 2000.
• More than one million Americans have filed for bankruptcy annually since 1990.

While America’s young people spend over $150 billion annually on products and services, high school seniors answered just over 50 percent of the questions correctly in a Personal Finance Literacy Survey. In another survey, only one-fourth of the students knew that the federal government would deduct income taxes from their paycheck.

Evidence shows that teaching financial education to young people can make a difference. Individuals graduating from high schools in states that mandate personal finance education courses have higher savings rates and net worths than those who graduate from high schools in states without financial literacy courses.

Wisconsin does not mandate high schools to require students to take a financial literacy course in order to graduate. Last year, however, the Governor’s Task Force on Financial Literacy recommended that Wisconsin join the growing number of states mandating such a course. For information on this and other Task Force recommendations, visit www.wdfi.org/ymm/finedtaskforce/.

There are numerous programs and tremendous amounts of free information available on the World Wide Web addressing financial literacy. Many Wisconsin community bankers visit their local schools to teach financial literacy. Most community banks offer children’s savings programs and “kid’s banks” to help students learn money management skills.

Financial education is becoming more important in light of the low savings rates, rise in consumer debt, predatory lending and bankruptcy filings. Although they are in a minority, there are a few unscrupulous predatory lenders who prey primarily upon low income, elderly and minority groups who may not have a good understanding of the financial process.

Teaching children to effectively handle their financial affairs should be just as important as teaching them to read, add and subtract, and understand how our government works.

Financial literacy is an evolving process. Young children should be taught the importance of a savings account. Teenagers need to know how to manage a checking account and college students need to know how to manage credit wisely and set long-term financial goals. Appropriate and effective education in financial matters will equip young people to deal with this important part of being a responsible adult.

Provided as a public service by the Community Bankers of Wisconsin (CBW)