Uncle Sam and everyman need to manage finances better

The National Debt Clock on Times Square reads $20.5 trillion, meaning the U.S. owes its creditors an average of more than $170,000 for each American family. Just as frightening is our nation’s financial literacy deficit.

The National Foundation for Credit Counseling’s 2017 Consumer Financial Literacy Survey showed that nearly half of American adults gave themselves grades C, D or F in personal finance knowledge, while another study reported that just 1 in 5 Americans participated in personal finance education in our K-12 schools, colleges or the workplace.

{mosads}Regardless of how much the tax bill being debated will impact our nation’s alarmingly steep financial obligations, time is running out on our financial literacy clock, and this invisible clock is closely intertwined with the one charting our national debt. 

A lack of financial knowledge contributed heavily to the Great Recession of 2008, which exacerbated our deficit problems. We read reports about how little most Americans save and how much they love credit cards. We’re told we are entering a baby boomer retirement crisis caused by a lack of financial planning. Oh, and let’s not forget about the student loan debt crisis and the large amounts of risky sub-prime auto loan debt.

Simply put, balancing budgets and staying debt-free are two things our government and our households are not very good at.  

Scarier still is the fact that the academic subject of personal finance is not taken seriously at all by our country’s educational establishment.

My research team gathered data and conducted personal interviews in every state and the District of Columbia to see how well our high schools are teaching the subject of personal finance. The resulting report  shows we have a long way to go, despite the fact that our 2013 and 2015 report cards may have inspired a few states to make improvements in personal finance education standards and graduation requirements.

Precious few high school seniors graduate ready to take on student loans, car payments, rent, mortgages, credit cards, monthly budgeting and retirement planning. 

In a nationwide study of 11,000 high schools with 13 million students, conducted in September by Next Gen Personal Finance, it was found that 16.4 percent of students are required to take a personal finance course to graduate from high school. Students from low-income backgrounds are half as likely to have taken a personal finance course as their wealthier peers.

In a study we did last year, we found that Mom and Dad are nearly as financially illiterate as their kids. How can we expect our youth to make better financial decisions when their parents are unsure of themselves and our leaders in Washington D.C. keeping racking up bills on the nation’s credit card? 

Our government needs to work with educators to improve personal finance education from grade school through adulthood. It’s heartening to see that the U.S. Department of Education’s priorities released in October includes supporting financial literacy instruction in our K-12 schools and colleges.

Acting on this priority could start with the college student loan challenge. Burdened with loans, college grads cannot buy homes and cars, are forced to live at home, and delay marriage and children and saving for retirement. Helping them streamline the loan process with an app is fine, but someone should be ethically responsible to educate students in managing their economic burdens. The federal government — and colleges themselves — should be more aggressive about ensuring that no one graduates from college without personal finance skills and knowledge. 

Here’s a thought — if students can’t pass a test on how loans work — maybe they shouldn’t be given the loan in the first place. They should know how much debt is appropriate for their major. Too many learn this too late, when they default on their loans and destroy their credit scores. Had they been educated, they also could have learned that the Feds offer loan deferment, forbearance and other ways to prevent defaults.

While the states try to improve personal finance education at the high school level, Congress is in a great position to do the same with colleges when it re-authorizes the Higher Education Act. How about requiring comprehensive personal finance education from colleges in exchange for student loans?

The clock on Times Square reminds us that we need to get serious about reducing the deficit. But there is also an invisible clock telling us we need to get just as serious about developing a financial literate populace if we want to avoid more recessions, prosper as a democracy and grow our economy.

John Pelletier is director of the Center for Financial Literacy at Champlain College and formerly chief operating officer and chief legal officer of some of the largest asset management firms in the country. Follow him on Twitter at @ChampFinLit.