By Robert M. Church
DoughMain Financial Literacy Foundation is dedicated to helping young adults acquire the skills and understandings necessary to build upon for a lifetime of financial responsibility and a secure financial future. Understanding personal finances is not easy, nor can it be one of the most engaging areas of study, but having the ability to understand and plan for the future financially can have an incredible impact on a young person’s life. Though the US has focused on financial literacy education, and to date 45 states have adopted standards for Financial Literacy Education only 24 states require a Personal Finance course to be offered, we are becoming less financially literate. Based upon our experiences, we believe the following are compelling reasons as to why it is important for schools to teach about personal finance.
1) The lack of “friction” related to the way we purchase and spend. Technology has made it increasingly easy to purchase items and spend money. Without handling it, we seldom think about the consequences related to purchases. In-fact most households overspend their income monthly, creating situations where individuals and families are continually trying to catch up.
2) Student loan debt increasing. Student loan debt has soared from $260 billion in 2004 to over 1.7 trillion last year. According to debt.org The average student takes on more than $37,172 in student loans and maintains student debt well into their 60s. Students who understand the decisions that they are making are more likely to avoid costly debt.
3) Understanding personal finances encourages good savings, investing and financial practices. From youth to adulthood the ability to learn, understand and practice sound financial decision-making skills encourages youth to ask questions, make better decisions and carry those practices on later in life. They are also more apt to share their financial decision-making processes and discuss personal finances with their children.
4) Young adults are filing for bankruptcy. Students start spending sooner, have more debt options, have more debt in general, student loans are costlier, and people are going bankrupt younger. In 2001 almost 1 in 5 Americans age 18-24 declared bankruptcy according to USA Today. This is the fastest growing demographic in bankruptcy cases.
5) Common misunderstandings can lead to serious financial issues later in life. There are many myths when it comes to managing your personal finances. It’s important not to listen to outdated advice or blindly follow rules of thumb. In fact, many experts suggest that the commonly held rule of holding 6 months of income in emergency reserve is incorrect and now encourage holding 9 months in reserve.
6) Understanding of basic skills in personal finance helps to ensure individuals do not become victims. Often during times of financial stress individuals are faced with having to make decisions financially that they lack confidence in, or because they are pressured by creditors. Understanding basic skills helps to avoid these situations and challenges and to overcome inequity.
7) Give yourself options. Understanding personal finances can help to plan and provide for options when faced with making financial decisions, especially during time of financial stress.
8) Planning for today and tomorrow. Understanding basic skills and practices in personal finance helps you to plan for the future and provides you with an understanding of how the financial decisions that you are making today affects you tomorrow.
9) Stabilizing parents and families. Understanding personal finance is an integral part of managing a household, planning for families, and securing futures. Most Americans would not give themselves better than a C in their own personal financial understandings. As husbands, wives and parents it is important to plan responsibly for the day to day, for family growth and for retirement.
10) Financially literate youth become good members of their communities. Financial literacy lays the foundation for the future. Understanding skills in personal finance helps individuals to recognize their dreams, to establish businesses and organizations and to help themselves, their families and others succeed.