Californians have a financial education problem

Question: If interest rates rise, what will typically happen to bond prices? Does it go up, down, stay the same or is there no relationship? If you answered “fall”, congratulations. You are part of just 26% of Americans who, when surveyed in 2018, answered that question correctly.

Whether or not you answered that question correctly may not seem like a big deal. But that most Americans can’t answer speaks to a bigger problem: America has a financial literacy problem.

Numerous studies have shown that Americans lack financial acumen. The bond question above, for example, is part of a six-question financial literacy quiz that covers key topics in economics and personal finance such as interest rates, mortgages, and inflation. Only 7% of Americans were able to answer all six questions correctly. Another 2020 study of financial literacy among US adults had similar results, concluding that “many Americans lack the personal finance knowledge to make sound financial decisions.”

There are real-life consequences for these gaps in financial acumen, particularly as the country faces runaway inflation. Millions of Americans struggle to manage their finances, only to end up in debt. A 2019 Bankrate survey found that 56% of Americans can’t cover a $1,000 emergency expense with savings, and a LendingClub report from March of this year found that two-thirds of Americans live paycheck to paycheck. Over the long term, a 2017 study by the Global Financial Literacy Excellence Center found that differences in financial literacy accounted for 30% to 40% of inequality in retirement wealth. In many of the studies, Generation Z generally had the largest gaps in financial literacy.

So what can be done? Make personal finance education accessible to students.

As the co-founder of a financial education nonprofit that provides free curriculum to more than 60,000 educators across the country, I’ve heard from thousands of teachers that their students crave this hands-on learning. A teacher at San Marcos High School in San Diego County, Tara Razi, for example, offered a personal finance course this year thinking she would have one section and 40 students. It ended with six sections and 220 students. Razi’s students immediately began to apply the lessons learned in the classroom to their daily lives. A student got a credit card and used it wisely, earning rewards points and building a good credit score. After learning about compound interest, another student stopped her impulse buys and put more money in the bank for college. That same lesson on compound interest also showed a young man how she could earn $1 million before retirement if she just saved a little money each month from her age.

Fortunately, policymakers are beginning to appreciate the need for this type of education in schools. In the last three years, the number of states guaranteeing financial education has increased from five to 13. In 2022, 26 states have introduced bills, and almost all of them have increased access to financial education. In California, AB2215 and AB2051, two bills that recently passed the state Assembly Education Committee, would significantly increase access to financial education for California students by helping schools, school districts, of education and charter schools to implement financial literacy education programs and ensure that more high school students in California take a personal finance course before graduation.

We need these bills to become law. According to my nonprofit’s 2021 annual report on the State of Financial Education, the Golden State ranks 49th in terms of access to financial education. While 70% of high school students nationwide have access to a personal finance elective or guaranteed course, only 26% in California do. Additionally, 1 in 3 students nationwide attend a school that guarantees they will take a personal finance course, but fewer than 1 in 100 have such guarantees in California.

We cannot afford to let our children fall behind. Research shows that students who receive high-quality personal finance instruction in school manage their finances better as adults, resulting in less debt, higher credit scores, higher personal income, and a better overall quality of life.

The benefits of this type of education are not limited to students. In the 10 years I’ve taught a personal finance course at Eastside College Prep in East Palo Alto, I’ve seen students bring their finance lessons to their parents and guardians. Many of these adults came to me wanting to learn about budgeting and investing for retirement. In other words, educating students can lead to educating an entire family.

Some argue that personal finance education is already an important part of the economics course required by the state of California. This is inaccurate. A quick glance at the latest framework provided in a 2018 executive summary of the 12th grade economics course or a more detailed review of the state economics standards shows that it is very difficult to see links to personal finance education.

In April, Public Policy Polling conducted a survey that showed 85% of Californians believe that a personal finance course should be a guaranteed course in high school, and 88% indicated that the Legislature needs to urgently address this issue. If AB2215 and AB2051 pass and become law, our nonprofit is prepared to invest $1 million in teacher professional development so more students can have a Tara Razi at their school.

We owe it to California students to ensure their high school education equips them with the skills they need to thrive in the 21st century. That won’t happen without personal finance education.

Tim Ranzetta is co-founder of Next Gen Personal Finance.

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