April Is Financial Literacy Month – Does Anyone Really Care?

Yes, April is financial literacy month and here and there in the media you’ll see references to April being financial literacy month. There will also be another(6th) annual Financial Literacy and Education Summit at the Chicago Federal Reserve again this year, among other scattered recognition activities around the nation, but outside of a few interested parties, does anyone really care about financial literacy and, if not, why not?

It seems to me that financial literacy and the whole subject of financial wellness just does not get its due, especially in light of the serious personal finance problems faced by U.S. citizens over the past few years, and the uncertainty about once-stable institutions such as Social Security, Medicare, and corporate pensions.

During the recession, many found themselves overextended on mortgage loans they shouldn’t have taken in the first place. Home values dropped and they continue to decline today. Credit debt reached soaring heights and large numbers lost their jobs and, outside of unemployment compensation, few had additional resources to sustain them. And the importance of retirement savings hit home for the first time for many, as retirement accounts were depleted by multiple thousands of dollars; causing many retired people to bail out of the market at its low point. Yes, for the first time, many U.S. citizens got a good taste of what a “great” recession can do in terms of devastating personal wealth.

You would think any nation that just went through what we’ve been through would do a thorough examination of the matter and put safeguards in place to ensure any similar problems in the future would be handled by its citizenry with greater knowledge and skill. Certainly, one could quickly conclude that a good foundation in personal money management would be beneficial to anyone that would have to face the challenge of another recession, or just the challenges that go with managing one’s day-to-day personal finances in our erratic financial world. A natural jumping off point, it seems to me, would be to take quick action to bring personal finance training into our schools, so the next generation might be better prepared to deal with their personal finances and/or the next great calamity.

Unfortunately, according to the 2011 Survey of the States, a survey that reports on the state of economic and personal finance education in our nation’s schools, only 22 states require an economics course for high school graduation and only 16 of those states require testing in economics; 3 fewer than in 2009. The number of states that require students to take a personal finance course is just 13. The survey reports that in schools where financial education is required the students were better savers, were less likely to max out on their credit cards, were less likely to be delinquent on their credit card payments, were more likely to pay off their credit cards in full each month, were less likely to be compulsive buyers, and were more willing to take average financial risk.

The survey also showed that the average college student in the U.S. had $25,250 in student loan debt at graduation in 2010; up 5% from 2009. And the last time I looked at this statistic, graduating seniors were carrying 4 credit cards on average.

Information like this related to the limited financial training we provide for our students, in light of the myriad of financial problems this country has experienced, leaves me with the feeling that, outside of a few, we as a nation are only willing to give the subject of financial literacy lip service and not serious consideration. We’re not willing to invest the money necessary to grow our financial education programs, nor are willing to make mandatory, with few exceptions, the requirement for developing critical lifelong personal finance skills.

With our students not getting the financial education they need, they go into adulthood without important survival skills. We allow them to go on to become adults and fall into the many financial pitfalls that await the uninformed and unskilled.

Well, you might say, the parents should be providing their children with financial education at home. Well, the parents generally don’t, no more than they provide home training in physics. Remember, few of the parents ever had any formal training in personal finance matters. This training will generally have to come from competent, qualified educators in the schools or the child’s adulthood will likely be a matter of learning from the school of hard knocks.

All too often it’s the school of hard knocks that wins out as there are volumes of information out there that speak to the financial distress adults feel, because they either don’t have the skills or interest in keeping their personal finance houses in order. For those that lack the skills, but feel the heat that goes with being a poor money manager, financial stress is often the order of the day; stress, which if not checked, can contribute to disease. Personal finance problems are also linked to many social problems; not the least of which is divorce. We know that the number reason for divorce is money.

In last year’s MetLife 9th Annual Benefits Study, this was the conclusion reached about the link between financial stress, healthcare, worker productivity and the achievement of business goals:

“The recession has resulted in widespread financial insecurity across all employee age groups. In fact, there is a virtual “epidemic” of financial stress, and there is compelling evidence that “financial illness” also contributes to health care costs, as well as to reduced productivity”.
“As much as employers have been focused on traditional health and wellness, there is compelling evidence that “financial illness” also contributes to health care costs, as well as to reduced productivity. Employee financial security may be a major driver in accomplishing business goals”.

Based on these conclusions from MetLife, surely you would expect employers to be taking an aggressive stance and bringing in personal finance training for those many of their employees that never had the opportunity to receive training, but it appears little is being done in the workplace to promote financial wellness. There are a few progressive leaders out there that are introducing financial literacy/wellness programs in the workplace, but this is a limited group of employers.

With 70% of Americans living paycheck to paycheck today and the lessons learned from the 2008-2009 recession, you’d just think we’d be doing a lot more now to make sure we handle the next challenge better than we did in the past, but I’ve yet to see that happen. So, have your April Financial Literacy month this year and next year and the next year, but does anyone really care?

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The Financial Literacy Quiz: What’s Your Financial Literacy?

What is financial literacy?

It is commonly defined as one’s understanding of finance and the science of funds management. A person’s financial literacy allows them to make informed decisions about either personal finance or business finance or both. The President’s Advisory Council on Financial Literacy defined the term as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.”

What are the basic concepts?

Some of the basic concepts involved in financial literacy include understanding credit, loans, insurance, interest, exchange rates, investments, financial planning, and the risks of finance. With so many young people today growing up to be financially illiterate – unable to manage their finances and/or effectively plan for the future financially – government and educational programs have recently become more focused on basic understanding, a movement that has redefined the term “financial literacy” with a focus on one’s ability to understand and manage personal finances and future financial planning.

Business finance has an entirely different focus when it comes to financial literacy, with a much deeper level of understanding of both basic and advanced business concepts required by individuals to effectively function in a business executive or business management capacity. A sampling of the basic concepts required for financial literacy in a business environment include:

Financial statements
Financial reporting
Balance sheets
Assets
Liabilities
Tax concepts
Income statements
Gross margins
Recording a loss
Cash flow and cash flow statements
Internal and external auditing
Internal control over financial reporting
Fraud prevention and detection

More about the Quiz Itself

The quiz focuses on financial literacy in a business finance capacity, with a focus on financial reporting. The quiz is meant to help individuals identify gaps in their knowledge of financial reporting so they can seek out additional business finance education opportunities. You can find and complete this year’s quiz online.

Originally published in the ’90s by Phil Livingston, Roman Weil, and John Stewart, this second edition includes new questions on developments in accounting and auditing standards, legislation, and regulation. It also incorporates questions about fraud prevention and detection.

The quiz was launched in the period immediately preceding the Sarbanes-Oxley Act, when there was increasing focus on the need to strengthen audit committees, and the primary audience for the quiz as originally constructed was for audit committee members. The Sarbanes-Oxley legislation came into force in 2002. It introduced major changes to the regulation of financial practice and corporate governance.

Why America Needs Financial Literacy in Every School

Why does the school system require classes like math, English and science but not basic personal finance? We force students to learn trigonometry, yet how many of us really use it after graduation? In contrast, how many transactions involving money will we each conduct on a daily basis for the rest of our lives?

Think about each time you purchase something with a credit card, make a car payment or reconcile your bank account. Even though these transactions are a daily occurrence for most consumers, more likely than not, we receive almost no financial education from our school system, or even our parents.

According to a 2007 survey commissioned by the National Council on Economic Education (now known as the Council for Economic Education), only 7 states currently require students receive some form of financial education in the school system. What about the other 43 states? We need to look no further than the daily news headlines about the Mortgage Meltdown, the Stock Market Crisis, the Housing Slump, or the Rising Cost of Oil to truly see how relevant financial literacy is, particularly for the next generation.

Just 20 years ago, personal finance was significantly less complex than it is today, and in many cases, parents supplemented what the schools did not teach. Fast forward to present day, and we now have hundreds of different home mortgage options and the burden of retirement planning has been shifted from the government and traditional company pension plans to consumers through investment vehicles like IRA’s and 401k’s. Because of their own financial woes, in many cases, parents are no longer comfortable with talking to their children about the touchy subject of money and personal finance.

Sadly, research shows that financial illiteracy has reached epidemic levels with no end in sight. Much has been done to bring awareness to other growing crisis like childhood obesity, the need to wear sunscreen, and drug and alcohol abuses, but why has something as important as financial literacy been largely ignored?

According to recent online consumer survey results from an online financal literacy quiz of adults:

o Only 40% know that their liability for credit card fraud is limited to $50.

o Only 50% know that Property Taxes and Mortgage Interest are tax deductible.

o Only 33% know what “Annual Percentage Rate” (APR) means.

o Only 56% know that the annual interest rate on most Payday Loans is 390%.

o Only 32% know what required deductions are taken from their paycheck.

o Only 59% know that the “Rule of 72″ is the time required to double your money.

So, why should you care? The better job we do of financially educating the next generation, the more financially independent and self supporting they will be. There is much discussion right now about the government’s $700 billion bailout package, but instead consumers should focus on what they can directly control – saving as much as possible, avoiding or paying off debt, and living within their means.

Our school system has an obligation to prepare students for success in an ever changing world. Personal finance is a subject which will affect each and every consumer for the rest of their lives, regardless of age, education level or income. Financial literacy is a fundamental life skill that needs to be properly taught in the school system, alongside traditional Math, English and science. The public needs to put pressure on lawmakers to mandate this and parents and students need to be vocal locally. In the meantime, consumers need accept personal responsibility and invest in themselves to get financially educated. It can start by reading a book, attending a seminar or getting coaching from a trusted advisor. Nobody will ever look out for your financial well being as good as you!

Braun Mincher is a young and successful entrepreneur who became a “Financially Free” self-made millionaire several years ago at the age of 30, despite starting with nothing and dropping out of college. For the past 5 years, he has served as a passionate Financial Literacy Advocate working to combat the “Financial Illiteracy Epidemic” sweeping America. Braun’s ultimate goal is to see Financial Literacy classes become a nationwide high school graduation requirement.

Braun Mincher is a noted author, speaker and documentary filmmaker. His award-winning book, The Secrets of Money: A Guide for Everyone on Practical Financial Literacy, uses a conversational and engaging style to teach all consumers — regardless of age, education or income — how to be financially successful for a lifetime, and he just completed the filming of a shocking new feature-length documentary movie, also named “The Secrets of Money,” exposing the state of Financial Literacy (Illiteracy) in America, which is scheduled to be released nationwide in mid-2009.

It’s National Financial Literacy Month – Got Money Skills?

April is National Financial Literacy Month in the United States. Should you have a money party? Or maybe take a tour of a local Federal Reserve or bank? Really – exactly what are you supposed to do for financial literacy month?

What is financial literacy?

Before we break out the cake and punch, we should figure out what exactly financial literacy is. Simply put, financial literacy is a basic understanding of personal finance and how it applies to the money decisions an individual or a family needs to make. It can include basic budgeting, saving and spending knowledge and skills. It also covers having a basic understanding of credit cards, consumer loans and mortgages. And, let’s not forget the ability to balance a checkbook.

Unfortunately, surveys and studies indicate that the financial literacy of the average American is between 50% and 60% based on their ability to correctly answer basic financial questions. If this were a real test, those grades would be close to failing. And the scores have not changed much over the past several years that the surveys have been conducted.

Why is financial literacy important?

Financial literacy helps people make solid financial decisions in their personal life. It helps limit the mistakes that people can make with their money. What kind of mistakes? Mistakes that can run the spectrum from having an overdraft on their checking account (or 4 or 5) to paying extreme interest rates on credit cards to buying a house that they cannot afford.

Sure not every mistake is a big one. And some mistakes are lessons in the making. But without a basic system of teaching people about personal finance, financial literacy is likely to remain an issue.

But it’s just an adult thing right?

Not so fast. Teenagers are one of the groups (if not THE group) with the highest disposable income – even if they are not the ones actually earning it. In 2006, teens spent nearly $190 billion. Over half of it was spent on food, apparel, personal care items and entertainment.

Yet, their financial literacy scores are on par with the adult Americans in the survey – meaning that they are no wiser about basic personal finance than many of their parents.

Why is this important?

Teens are going to be making really big financial decisions in just a few short years. These decisions include choosing a college and how to finance their education as well as living on their own for the first time. And while Mom and Dad may be footing the bill for a good chunk of certain things, there are still many new temptations.

What if teens entering college do not fully understand how long that $30,000 per year student loan is going to cost them and how much? What if they do not know the fees and interest structure of that credit card they just got to buy pizza and gas with?

Getting started on the right financial foot with a few basic pieces of knowledge can make a huge difference in the lives of today’s teen when they become tomorrow’s college graduates and enter the workforce. That is what Financial Literacy Month is focused on: making sure that everyone gets the money education they need.

The Importance of Financial Literacy

The Importance of Teaching Children Finance Literacy

I feel it is very important to teach children about financial matters. One reason that parents do not teach their children about money, is because they are not sure they know how to handle money either. It is one of the things that is not always taught in school. We earn degrees in order to earn a living but are not always taught how to handle the money we earn.

It is important to start teaching children about money when they are young. You can use the world as your financial classroom. Real life triggers lessons you want to teach your child, and since you are probably handling money regularly in front of your child, stop and take two minutes to explain what you are doing.

In the book “Money Doesn’t Grow on Trees” by Neale S. Godfrey there is a story about a father and his son. He had taken his children on a trip across the country to see their grandparents. Everytime they stopped to eat, one of the sons was always straggling behind. Finally, when they were almost home, the father asked him why he always late. He said he was picking up the money his dad kept forgetting on the tables. The father realized to his son his leaving money on the table looked like he had forgotten his money.

Another big issue, is teaching the difference between wants and needs. I know when you are a child it is hard to know the difference, but if we don’t teach them when they are younger, it is harder when they are older. That is part of the problem how people spend money now. They grow up not knowing the difference between real wants and needs. Then get into trouble with debt because they feel like they deserve anything they want.

Many people put their financial lives into jeopardy because they want the instant gratification of buying things they want instead of saving until they can afford them. Previous generations started with small houses and cars and worked and saved and gradually improved their way of life. Many people today, start first jobs and expect to have a big house and expensive cars right away. They figure if you can afford payments you can afford it. But that isn’t always the case. And living that way, you have no money for savings. It is important also to have an Emergency fund. Especially in today’s economy with the way the job market is. People get into trouble when they get used to living paycheck to paycheck on two incomes and then if one (or both) of them lose their jobs then they will be in trouble.

Another source for information on teaching children about finances is daveramsey.com. Dave Ramsey has books directed to kids and a Financial Peace Jr. kit with a book about saving your money and charts and envelopes to manage their money. One of his principles is to Save, Give and Spend. His program has envelopes labeled Save, Give and Spend.

In the book “Money Doesn’t Grow on Trees” some of the chapters cover How to teach your children the basics of money management, When to start your child on an allowance, How to use the World as your Financial Classroom. It also has games for different age groups on teaching children about money.

In closing, I feel the most important issues are to teach children to pay themselves first and save some of what they earn, difference between wants and needs and the power of compound interest.

It’s not How much you earn that matters, it’s how much you Spend!!

Nancy Kvamme started In the Black Money Coaching to help others learn to handle their finances better. She feels it is very important to also teach children the importance of Financial Literacy. She can help you set up a budget and spending plan, and ways to make you money go further. Also, money saving tips and ideas.