Business - Dave Gallagher

POSTED: Sunday, Apr. 19, 2009

Fixing this economy through financial education

It may have taken a national economic meltdown, but it appears the problem of financial illiteracy is starting to be addressed.

Last week U.S. Senator Patty Murray, D-Wash., dropped by Western Washington University to talk about legislation she and some of her colleagues recently introduced. The Financial and Economic Literacy Improvement Act of 2009 would provide $250 million in grants annually to states to support programs that teach financial literacy in schools. Many K-12 schools do not have financial literacy classes, relying on programs such as Junior Achievement for help.

During her Western visit, Murray listened to a group of college students who recently completed a study of what their peers know about basic personal finance. Jordan Maughan, Spencer Covich, Simon Trigg and Thomas Evans surveyed 1,200 Western students and found that 60 percent of those surveyed had at least one credit card and that 18 percent have already maxed out at least one card. The survey found was that 5 percent of those who had credit card debt were not making monthly payments. Looking at the overall results, they concluded many of the students didn't have basic financial skills and did not realize how deep a hole they were digging.

"What seems to be happening is college students are not getting a basic financial education, so instead they are learning from experience by making mistakes. That can be very costly," Maughan said.

Partly as a result of this study by these students, Western is looking at offering a personal finance class, possibly as a general education course, said Brian Burton, a dean at the College of Business and Economics at Western.

Personal finance should be covered before students start getting bombarded with credit card offers in college. Murray started seeing financial illiteracy as becoming a big problem during the real estate boom when people were taking subprime loans, then calling her office when they realized there was no way they could now afford it. She relayed one story about a constituent who wouldn't open her bills or answer the phone for years because she didn't know how to deal with the situation.

"It hit me that we don't teach the financial basics in schools, and this would lead to trouble," Murray said.

With all that's happen in the economy the past six months, financial literacy is getting a lot more attention, making it a good time to introduce this legislation, she said.

While irresponsible CEOs of large companies are justifiably being flogged for the mess we're currently in, things are not going to improve unless more Americans become financially literate. If we have college graduates entering the workforce with maxed-out credit cards and not making payments, they'll be financially ruined before they get a chance to establish themselves. It has to start in the elementary and secondary schools, because personal finance and the economy is only going to become more complex in the coming years.

Pam Whalley, director at the Center for Economic Education at Western, said financial education also acts as an anti-dropout program. Many times when they see the data on what they'll make on average as a high school dropout compared to someone with a college degree, they have that 'aha' moment and their eyes light up. Once they have those basic tools about what it takes to make and save money, there's more motivation to get through school.

Murray's proposed legislation won't solve all the problems with financial illiteracy, but maybe it will be part of what should be a more concerted effort by all of us, particularly the business community. This is an issue that can be fixed while our economy is going through this correction.