Financial Education

A recent article in the Chicago Tribune raised important questions about the effectiveness of financial education and challenged the appropriateness of its offering to consumers operating in an increasingly complex financial industry.  Author Greg Burns is right to draw attention to the lack of evidence on the impact of financial literacy, but policymakers should not abandon the pursuit of quality financial education just yet.

Financial education should be a complement to, not a substitute for other consumer protections.

For middle and lower income individuals who have fewer financial resources to begin with, learning the warning signs to trouble and the resources to seek support is unquestionably valuable.

Almost daily there are news reports that the average gas price has set a new record. The continued increase in gas prices is taking its toll on many Americans and to manage the higher prices faced at the pump, people are searching for ways to cut other expenses. As individuals are looking for ways to cut expenses so they can afford increasing fuel costs, employers are also taking steps to help. Some employers are responding to the escalating gas prices by establishing perks to help their employees manage these costs.

Some businesses and local governments are cutting back to four-day workweeks, with employees working four 10-hour days instead of five eight-hour days in an effort to help employees save some money on gasoline. The city of Birmingham decided to adopt a four-day week for employees starting July 1 and starting June 1, Avondale, Ariz., will move to a four-day workweek at City Hall.

These cities are not the only employers who are offering flexible schedules in response to increasing gas prices. The Society for Human Resource Management (SHRM) recently conducted a survey, What Employers Are Doing to Help Their Employees with High Gas Prices in 2008. This survey showed that 26 percent of employers are offering a flexible work schedule in response to rising fuel costs. Eighteen percent are instituting telecommuting and 14 percent are rewarding performance with a gas card. The survey showed that 42 percent of employers are raising their mileage reimbursement to the IRS maximum.

 I've recently been thinking about the similarities between our national epidemics of obesity and financial illiteracy. Both are socio-cultural phenomena created through generations of misinformation, misunderstanding and perverse incentives.  Factors like (but not limited to) easy credit and encouraged consumerism without proper consumer disclosure and easy access to abundant, cheap astonishingly unhealthy foods has created a culture of overindulgence on so many levels. Both problems tend to fall disproportionately on poor, low and even some moderate-income households, which lack easy access to alternative options (like banks red-lining disadvantaged neighborhoods; public school cafeterias serving french fries most everyday yet not offering physical education classes). And both are believed to have huge social and economic costs that are now reaching epic proportions.  If similar forces are causing and/or driving these problems, then shouldn't efforts to tackle both childhood obesity and financial illiteracy also be similar?  Only recently has this become apparent to those fighting the battle of such rhetorical bulges.

Recently there has been a lot of attention on the lack of financial education in the United States. Some experts have suggested that we need to educate people at an early age in order to reverse this trend. Although providing financial education in schools seems like a logical way to provide financial education to youth; however, some research appears to show that delivering financial education in the schools is not effective. The Jump$tart Coalition for Personal Financial Literacy has been conducting national surveys of high school seniors to measure their financial literacy biennially since the 1997. The 2008 survey had the lowest score of any survey issued to date, with high school seniors answering just 48.3 percent of the financial literacy questions correctly.

Although there is a desire to help youth improve their financial decision making, state and local officials are struggling to determine how best to provide financial education in schools. Only three states require at least a semester long personal finance course. Teachers are stretched thin and are often overwhelmed with the thought of adding personal finance to the list of topics they are required to teach. They also struggle with getting students excited about complex concepts like credit card interest rates and loans.