Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
- More than $102
- Less than $102
- Exactly $102
- Do not know
Questions like the example above is one of a five-question test that is part of the National Financial Capability Study. This study has been available to the public to gauge consumers’ knowledge about investment and financial risks. Since 2009, the average number of correct answers have gradually declined by 14%, implying a worsening aptitude of basic monetary fundamentals that underpin the fiscal competence needed for financial success.
Recognizing a need to support a life skill that has cross-generational benefits, particularly for those below the poverty line, the Maryland State Department of Education (MSDE) mandated a financial literacy program in June 2010 by integrating abbreviated modules throughout the K-12 Social Studies instructions (Marylandpublicschools.org).
Although no specific financial literacy electives are offered at the middle school level, students are provided a preview of the responsibility of adulthood for a few hours by balancing a monthly spending limit for their family during a simulation.
On Oct. 12, seventh graders, like Huy Changvu of Cabin John Middle School, did just that. Instead of a traditional field trip to a museum, excited students were bused to a county-wide financial literacy program sponsored by Junior Achievement (JA) Finance Park and hosted at Thomas Edison High School of Technology in Silver Spring, Maryland. Montgomery County Public School (MCPS) has packed a 3-week unit that involves budgeting, investing and savings into the existing required Historical Inquiry in Global Humanities course. The module culminates in a field trip whereby, for a day, every seventh grader can participate in a simulation where they will “leave behind [their] life as a student and become an adult with a career, family, salary, credit score, and financial obligations in the fully digital, innovative, hands-on environment of JA Finance Park,” as per the JA’s description of the activity.
This innovative program is a partnership between MCPS and JA, a DMV-based non-profit that aims to prepare students for their post-high school and post-college lives through financial, entrepreneurial, and career education. On the day of the field trip, each student is assigned a profile which influences their income and monthly expenditures. Participants could end up in simulated debt or with sizable savings depending on their salary and their spending habits. At the end of the experience, students gain budgeting knowledge and write a reflection discussing what they learnt about the value of a well-spent, or perhaps a well-saved, dollar.
Huy Changvu managed to pay down his college debt and stow away a few hundred dollars into his 401K retirement. However, he chuckled as he realized his healthier and more expensive choices of grocery had left him without an appropriate budget to purchase necessary clothing for his 5-year old child.
“I think I got a better sense of how expensive basic needs are…I learned a fair amount from Finance Park since it actually gave a more hands-on experience. There is a difference between learning about finance and managing your own finances though.”
One of Changvu’s classmates realized that she could reduce her expenditures by taking the bus rather than buying a car. Yet, another student with a profile of significantly higher salary had opted to allocate a majority of her budget to trendy clothes and expensive vacations.
“It’s extremely helpful in that it gets kids thinking about their futures, especially for those who struggled to make it through the simulation while accommodating basic needs,” a Winston Churchill High School freshman recalls of his past experience at JA Finance Park.
“For many kids, it was an eye-opener with how many expenses they are responsible to pay and how fast the monthly bills add up. Some students realized that their jobs did not provide them with adequate income to pay for something as necessary as health insurance, and the prospect of having to live paycheck-by-paycheck made them nervous,” said field trip parent volunteer Beth Vu.
The students’ worries are not far off from reality. CareerBuilder has reported that 78% of Americans live paycheck by paycheck. According to the U.S. Federal Reserve, more than 36% of U.S. adults do not have the necessary emergency fund to pay off a $400 rainy day event in 2021. The most common recourse to cover any unexpected costs is to rack up additional credit card balances with double digit interest rates. The vicious cycle of “buy now, pay later” fueled by low payment requirements and high rates has drowned Americans in over $1 trillion in credit card debt. As a matter of fact, 10% of adult consumers under the age of 29 have had their credit history marred in “serious delinquency” with balances that are over 90 days overdue (Opploan.com).
Many working Americans are financially illiterate and set themselves up for poor fiscal choices. Three in five adults do not maintain a budget, frequently overspending on money they do not have and not saving enough, if at all, to support themselves in the decades following their retirement. The average savings for Americans ages 55 to 64 stands at $134,000, or just about $600 a month (Investopedia.com). Oftentimes, parents who lack a solid financial plan will pass the same loose foundation to their children, setting the next generation up for a similar destiny. Even when parents have some level of budgeting knowledge, 69% have expressed their reluctance to discuss financial matters with their children according to a 2017 Survey by T.Rowe Price. The lack of a proper financial education leaves an entire generation vulnerable to squandering in a world of digital currency and online transactions, where flows of money seem more like abstract concepts. Without a proper foundation in financial education, the vicious cycle of debt will continue to perpetuate.
Financial instability permeates beyond the walls of one’s homes. Ill decisions by the collective consumer have required trillions of dollars in bailout money from the federal government to avert global economic disasters. Furthermore, anxiety over money has been associated with debilitating health conditions such as heart disease, diabetes and depression. A 2018 Financial Industry Regulatory Authority (FINRA) study estimates that 53% of adults are financially stressed, costing $300 billion annually in lost productivity, and only expected to worsen with the coronavirus pandemic (Healthadvocate.com).
Although financial literacy appears to be a cornerstone to a nation’s well being, only fifteen states currently require it as a standalone course for high school graduates (Ramsey Solutions). Twenty-one states require some form of personal finance education but it can be shortened units integrated into another required coursework. In MCPS high schools, there are little financial literacy education opportunities available, none of which are mandated. Currently, content standards with resource instructions are provided to teachers to incorporate an abbreviated unit on financial education during the National, State, and Local Government course that is typically offered in 10th Grade. Although it is a start, former Student Member of the MCPS Board of Education (BOE), Hana O’Looney, asserted that skills such as filing taxes, applying for student loans or understanding credit scores are too critical to delay and that a standalone half-semester class should be required as a graduation credit, starting with the class of 2028 (Bethesda Magazine).
Many financial advisors agree. Even before students fly the coop into adulthood, they are already forced to make crucial choices about loans and career choices that will have bearing on a lifelong financial commitment. For the teens heading off to college, credit card companies swarm campuses to entice unassuming students with low payment offers and high credit limits without forewarning them of accompanying high interest rates. Students cannot afford to wait until after high school to learn about the many pitfalls that knock at their door as the cost of any blunder is too high. The consequence of a fallout is even greater for minorities and those living in under-resourced communities.
“It would be a shame if the courses that this board decided were mandatory for life were Algebra I, Biology, English…instead of actual skills that can break the cycle of poverty,” O’Looney told BOE members at a June 2022 meeting (wtop.com).
Skills applicable to the real world seem to be a common theme among what students want in their curriculum. A recent study found that graduates who went through personal finance education, such as budgeting and investment, had overall higher credit scores than their peers who did not undergo the same lessons, and yet only five Montgomery County high schools offer any kind of financial literacy courses (Bethesda Magazine).
“We can’t say, as a county, that graduates are ready for the university and the workforce when they don’t know how to apply for financial aid and how to manage a loan,” said Northwood High School freshman Nareen (Bethesda Magazine).
Despite the push by many students for a proper curriculum, the Board voted 5 to 3 against adopting O’Looney’s proposal, citing concerns such as student’s desire to pursue other types of coursework, staffing implication, and a burden on those who are in danger of graduating as they already have a packed curriculum (Bethesda Magazine). Superintendent Monifa McKnight voiced the need to delay consideration until next year as the focus should now be on the 2021 state legislative mandate, Blueprint for Maryland’s Future, which prioritizes equity by instituting new programs and methodologies to close the achievement gaps for every student (Marylandpublicschools.org).
The Board assures that they will revisit the need for a standalone financial education course in coming years. The members insisted that they will leverage the lessons learned from other districts, such as Prince George’s County which recently mandated a formal financial literacy graduation requirement, prior to implementing a curriculum. Meanwhile, incremental improvements are already in motion. This past year, the school board approved a plan to increase access to the needed electives including integrating lesson plans in math classes or developing non-credit bearing modules, similar to that of the 75 SSL hours, that could become part of the graduation requirement (Bethesda Magazine). In addition, students who complete the coursework will receive special recognition during their commencement.
Every year, MCPS sends students into a world where they have to make informed long-lasting financial decisions. In the past, these young adults have been mostly unprepared for the fiscal challenges that they would face. The county is taking first steps to buck the trend by breaking the cycle of debt that many financially-illiterate consumers have fallen into. Breaking away from generations of poor financial decisions involves educating our youth.
Although O’Looney was not successful in her proposal to the Board of Education this past year, she has laid the groundwork by bringing attention to a difficult conversation.
On her Twitter page, Hana O’Looney tweeted, “Personally, I don’t think our work as a public school system is done until 100% of our graduates know how to navigate financial institutions. I’d even argue [its] importance over chemistry or pre-calc. But with a little more time and student voice, I know we’ll get there.”
Written by Huan Changvu of Winston Churchill High School