University of Wisconsin - Extension

When young people head off to college, or start their first jobs after high school, will they have the personal finance skills necessary to manage their money and plan for the future? Just ten percent of youth are graduating from high school with any kind of instruction in personal finance, according to the Jump$tart Coalition for Personal Financial Literacy, a Washington, D.C. based advocacy group. Recent results from the Jump$tart survey also showed that the average high school student failed a basic financial literacy test.

"These patterns are true in Wisconsin," says Michael Gutter, UW-Madison/Extension family financial management specialist. "Less than half of schools require financial education and Wisconsin students failed to outperform the U.S. average on the Jump$tart test."

This leaves young people ill-prepared for the increased financial responsibility that students take on when they go to college. New college students are inundated with credit card offers, as they take on student loans, sign leases, and make numerous purchases. They are making decisions that can impact their future, says Gutter. Many of the mistakes they might make will be captured on their credit reports. This could limit their options in the future, as lenders, employers, insurance companies and landlords can view these credit reports. Poor decisions regarding credit or other financial responsibilities can come back to haunt students even after a year or two.

The University of Wisconsin is responding to this growing concern about financial literacy among young people:

-- At University of Wisconsin-Madison, a series of peer-led workshops called Money Talk$ are being held in freshman dorms, at the student Unions, and by invitation to various student forums. Money Talk$ is a program run by members of the Financial Occupations Club for University Students (FOCU$), who are Consumer Science students in the School of Human Ecology. They give presentations to freshman students about budgeting, financial service, crediting and housing/renting. The program is now in its fourth year and has never been busier. FOCU$ students are taking Money Talk$ to other UW campuses by request to share the program.

-- FOCU$ also has been running the Get Focused Counseling Center in partnership with the Office of Student Financial Services on the UW-Madison campus. The program has been on campus for several years and has helped dozens of students as well as faculty and staff. The counseling center helps students put together spending plans for each semester and helps them deal with credit card debt repayment. The counseling center emphasizes empowerment of its clients, teaching them to take control of their financial responsibilities.

-- UW-Extension, in partnership with the National Endowment for Financial Education, is helping to educate high school students about basic money management and financial planning concepts. Over the past four years, 24,526 Wisconsin high school students have increased their financial literacy by participating in the NEFE High School Financial Planning Program. The program covers financial planning, cash flow management, credit and debt, saving and investing, and insurance. UW-Extension data show that graduates of the NEFE program learned more about managing their money, better understood how credit cards work, and improved their ability to track expenses and accumulate savings.

"Many teens live in a state of ‘premature affluence,’" Gutter says, "because they don’t have many expenses except their own leisure time activities. As they move toward adulthood, they gain knowledge and experience with money."

"However, without education," Gutter adds, "they often learn the facts but not the skills needed to handle money in a more mature and responsible manner." As they work toward their careers and learn how to get what they want out of life, a significant part of their eventual success will rest on their ability to make rational and responsible money decisions.

The national Jump$tart Coalition survey gathered information about the financial literacy of high school youth. Surveys of 12th graders' knowledge of personal finance basics were conducted in 1997, 2000 and 2002. The most recent survey shows that high school seniors know even less than they did in 1997 about credit cards, retirement funds, insurance and other personal finance topics. On average, participants in the 2002 survey answered only 50.2 percent of the questions correctly--a failing grade. Since 1997, personal finance has been incorporated into the curriculum standards of only a handful of states.

The best financial education takes place at home, says Gutter. There are some things parents can do to help instill financial responsibility in their kids:

-- Talk about money early and often while your children are growing up. Many parents grew up in households where it was not considered polite to discuss money matters, but things are different now. Kids don't need to know details about household bills and finances, but they need to learn about attitudes toward money and basic principles of saving and spending.

-- Make lessons about money hands-on. "A good way to teach kids about budgeting and saving is to give kids an allowance, and then make them responsible for paying for certain things," says Gutter. Open a savings account in the child's name and have them make deposits and watch the money grow. When they are older, involve them in investing, perhaps by using mock accounts available on the Internet.

-- Use outside resources. Some good web sites for learning about money include the National Endowment for Financial Education site at http://www.ntrbonline.org, which is designed for young adults. The Jump$tart Coalition hosts an information clearinghouse on its site at http://www.jumpstart.org, where parents can find resources by topic and grade level.

-- Encourage schools to include personal finance in the curriculum. Schools may not respond to initiatives unless they know this is what parents want.

-- Introduce teens to the concepts of saving and investing. Teens might want to save in order to attend college, buy a car, or purchase a computer. Reasons for investing are more long-term like wanting to start a business, travel, get rich or change jobs. Teens also need to learn about protecting against personal and financial loss with the use of homeowners and renters, vehicle, health and life insurance.

-- The working world for most teens is in fast-food restaurants or doing physical labor. Some are uneasy about entering the adult world of work. They may see work as repetitive, confining, dull and boring. Gutter suggests a concept that usually catches their attention: the idea of "I quit" money. If you can show teens the value of investing early and putting money aside, they understand that this can free them to find work they enjoy instead of being stuck with a boring job.

-- Credit can be a valuable and useful tool. Teens need to understand credit laws, what affects your credit history, and how to handle credit problems, as well as how to establish and maintain good credit. At the same time, says Gutter, misuse of credit can keep young adults from developing good money-management skills and derail their financial stability. More than one-third of high school students are responsible for their own credit cards. By the time students finish their freshman year in college, a majority have a credit card.

-- Responsible money management includes communicating about personal values. One of the most important and basic skills is how to communicate with parents and partners about money values and goals. One of the major challenges facing individuals and couples is managing money. National statistics show that as many as 70 percent of divorcing couples attribute the breakdown of their marriage to arguments about money.