Is the fear of a financial education widening the wealth gap in America?
Americans are undereducated and uncomfortable about the dangers of managing their own finances, a new survey has found, even as inequality takes center stage in a presidential election and the stakes mount higher for young people.
The alarmingly wide wealth gap in the United States has no simple fix, but knowing the difference between a stock and a bond, whether a mortgage is a good deal or toxic, and the calculus of repaying a loan are small, significant steps toward bringing 90% of Americans closer to their wealthy fellows.
If, by the time students finish middle school, they do not fear balancing a checking account, that’s great. If, by the time they’re in their mid-teens, they can grasp the magic of compounding – that savings accumulate because every penny an investment earns can create a profit of its own – then they might do what’s better, and set aside a retirement account that is sheltered from taxes.
Ideally, by the time they graduate high school, young adults should be skeptics about offers that seem too good to be true, like those interest-only mortgages. That’s no guarantee that they’ll land a job and make enough to retire on, or even to pay off their student loans. But it should at least help prevent mistakes that could cost them dearly.
And yet, a new survey released on Monday by PwC LLP, the US branch of the accounting giant PricewaterhouseCoopers, found financial education is going nowhere. Only 31% of teachers feel “completely comfortable” giving some kind of instruction on it – and 18% don’t feel comfortable at all. Only 12% actually address it in their classrooms. The data also show that what students and adults – including, presumably, at least some of those teachers – do know is downright dismal.
Part of the problem, said Jeff Senne, corporate responsibility implementation leader at PwC, is that support for this practical teaching is fading as schools are increasingly urged to teach more narrowly. Programs to prepare students for the money dangers of the real world are being cut alongside music, the arts and other “extra” courses.
“This is happening at a time that the scale of the problem is growing,” Senne added. “It’s not just about not being able to pay off your credit cards anymore.”
He stressed that the stakes are far higher than they were for older generations: “The amount of trouble people can get themselves into, with hundreds of thousands of dollars of student debt that will follow them the rest of their lives …”
Reaching people when they are still in school is crucial, he said, adding that two-thirds of teachers believe preparation should start in elementary school.
Unsurprisingly, millennials who came of age in the midst of the financial crisis are usually the biggest champions of financial education. Younger teachers seem more ready to see the school as a place to teach about money, and less likely to leave it to parents. Overall, PwC found that 65% of teachers think it somewhat unlikely that parents give their children any financial education at all.
Often, that can’t be helped, Senne said. PwC works with public schools whose students often come from the poorest families in the community, where parents may be unemployed or working two to three jobs. In these cases, financial planning sometimes means making a paycheck stretch from one week to the next, and families may not have the time to teach their children about credit or bank accounts. When that student wins a college scholarship, they still end up at a disadvantage compared with the students whose parents were already higher up on the economic ladder.
The new survey is only the latest in a series of warnings. Last October, Champlain College gave only five states an” grade in ensuring their students got a well-rounded overview of financial matters. Twelve states flunked completely, including Alaska and Hawaii: students were able to graduate without ever having taken a single unit involving financial literacy.
There is some encouraging data that show programs actually make a difference. . The Financial Industry Regulatory Authority’s Investor Education Foundation found that in three states (Idaho, Georgia and Texas) where financial education is considered to be more rigorous, the credit scores of 18- to 22-year-olds showed big improvements.
Private sector firms, such as PwC, are quite happy to give schools curriculum materials that school budgets would not allow. April is “financial literacy month” – as good a time as ever for parents to start lobbying their school boards for more programs, and more funding for those programs, so that teachers don’t have to rely on outside firms.
And as the financial crisis painfully proved, education does not stop at graduation. Parents, single people and Americans of all stripes and creeds could benefit from courses that could help lift up their bank accounts.
Having an entire country of consumers making smarter financial choices can only be a good thing for the economy. Collectively, they can help keep financial institutions peddling questionable products, like subprime mortgages and liar loans, in check. There’s a bonus, too: they’ll ask smarter, tougher questions of politicians making impossible promises about the economy.