Do the Math

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As Los Angeles slowly emerges from one of the most difficult economic downturns in its history and public policy is emerging to lead us forward into the next cycle business, leaders are uniformly in support of the usual business-friendly propositions: lower taxes, less regulation and red tape, a better trained workforce, improved infrastructure. These are all excellent elements of an improved economic climate debate, but what about improved financial literacy among students and young people?

Financial literacy is a critical life skill. Ask any one of the tens of millions of Angelenos impacted by the $7 trillion decline in the value of household wealth starting in 2008, which was at least in part caused and sustained by basic misunderstandings of personal finance and a lack of economic thinking, and the answer is a resounding, “Yes, financial literacy is important.”

This life skill is important at any age, but it is particularly important for young people preparing for their future. It is not a large stretch to note that a student’s credit history can be as important to his or her future as their grade point average. Yet most students fail standardized testing on the subject and most schools do not offer even a basic class on personal finance. How can we expect a different outcome when the next financial crisis arrives?

I strongly urge the business community of Los Angeles and all citizens interested in a strong economy in this great city to ask for and demand that financial literacy be required to be taught in our schools. A good place to start is to support AB 166, authored by Assembly member Roger Hernandez, which would at least incorporate some financial literacy training in the one economics class required to graduate from high school. This would be a low-cost, high-impact ingredient in preparing tomorrow’s consumer-citizen-workforce member.

Today’s students need to know more about the complex financial decisions that face them, including the decision to stay in school or drop out, the choice of college and how to pay for it, the decision to begin or defer starting a family, the balance between current spending and saving for the future. And yet students today are less prepared than any time in recent history.

Let’s start with basic knowledge of financial literacy. In 2012, virtually all studies conducted to measure levels of personal financial literacy among K-12 students reflect low levels of practical knowledge on the subject.

In the survey “The Financial Literacy of Young American Adults,” measured by the Jumpstart Coalition, high school students score just 48.3 percent. And while the average score for college students increases to 62 percent, the bad news is that since only 30 percent of students finish college, that means 70 percent of young people are likely to lack the skills to make good financial decisions.

Bad credit

Today, a Fair Isaacs Corp. score can be more important than an SAT score. A bad Fico score can change the trajectory of a young person’s life by restricting the capital resources needed to go to college, buy a car or access credit. In a recent Schwab MoneyWise survey, the majority of young people consider “making better choices about managing money” the single most important issue for individual Americans to act on today.

Clearly young people are focused on the weak economy and its effect on their future. And yet there is no clear path to learning about financial literacy throughout their educational career. Financial literacy is not required to be taught in Los Angeles or anywhere else in California for K-12.

Students who do participate in programs featuring budgeting, credit and credit abuse, the economic role of banking, saving-investing and understanding of capital markets improve their understanding and comprehension of these important topics by 30 percent or more. In addition, students uniformly vote with high marks regarding their interest in the topic, enthusiasm in pursuing additional learning opportunities and ability to relate the learning to their everyday lives.

April has been designated California Financial Literacy month to highlight the importance of financial literacy and encourage all of our citizens to increase their understanding of saving, investing and credit choices. I urge the business community of Los Angeles and citizens who care about better trained and prepared young people to support the efforts of organizations like the California Council on Economic Education and Assemblyman Hernandez’s AB 166, which provides a small step toward preparing our young people for the complex global economy that awaits them.


William Coffin is chairman of the California Council on Economic Education, headquartered in Los Angeles.

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