Young people don’t know the financial score

I ran this op-ed today from a recent UGA graduate on the Monday education page as I thought it was a good topic.

Katie McCabe recently graduated from the University of Georgia with degrees in international affairs and economics. She is originally from Sylvania, but now lives in Atlanta. She is the founder and CEO of Your Score Matters, a nonprofit dedicated to spreading awareness about financial literacy among young people.

Read her blog and follow her Twitter account at Urscorematters@twitter.com. If you know of a group in the Atlanta area that would benefit from free seminar on a basic financial topic, please contact her at yourscorematters@yahoo.com

Enjoy

By Katie McCabe

Having attended the University of Georgia, I feel like I acquired some smart friends — pre-med, business, mathematics, philosophy. I knew kids who were taking some of the hardest classes offered at UGA.
And many of these students came from some of the best high schools and most well-to-do areas of the state, all very well-prepared for both college and life in general.

So you might imagine my surprise when these same intelligent, driven peers would call me up and ask, “Can you help me with my credit score?”

This question didn’t, however, surprise me. After years of independent interest in and study of personal financial literacy, I’m surprised when a person my age, 23, actually knows their credit score. I’m even surprised when people know what financial literacy means.

If the smartest kids at the state’s flagship institution don’t know, what does that say about the rest of Georgia’s youth?

The numbers reflecting financial literacy for America’s youth are alarming. The Jumpstart Coalition, a nonprofit dedicated to increasing youth personal finance education, issues a biannual survey aimed at measuring financial knowledge.

In 2008, 6,856 high school seniors nationwide took the survey, scoring a mean of only 47.5 percent correct. Other studies and surveys (although very few) reflect similar percentages. And these are basic questions about things like taxable income, basic interest, and financial terminology.

This lack of knowledge manifests itself in every aspect of personal financial behavior, not the least of which is credit management. A 2009 working paper for the National Bureau of Economic Research studied the effects of financial knowledge (or a lack thereof) on personal wealth, and found that people who know less about the financial system tend to accumulate more negative debt.

This same study also found that those who are less knowledgeable tend to pay only the minimum payment for any credit, which causes them to pay about 50 percent more in fees than the average credit card holder. So why is it that youth are so ill-informed when it comes to personal finances? The short answer is because financial literacy is not adequately taught in Georgia’s  schools.

Georgia does cover personal finance topics on its high school graduation test, but these topics are only taught within economics curricula, which are lumped into broader social studies courses.
The result of this educational sausage-making process is a sort of identity crisis for personal finance as a subject. This can cause a range of problems, such as a lack of adequate teacher training in financial topics.

Furthermore, Georgia only provides teachers with generic “performance standards” instead of a standardized, comprehensive curriculum. Without a standard, it’s very difficult to evaluate the curriculum’s effectiveness, another obstacle that Georgia shares with the rest of the nation.

It’s unfair to hold youth accountable for skills that they may never have learned in the first place. More unfair is that those who may have the least end up paying more in fees and interest simply because they were never taught the rules of the financial system.

After seeing firsthand the effect that a lack of financial knowledge can have on young people struggling to support themselves, I started “Your Score Matters,” a nonprofit that teaches financial skills to youth and uneducated adults. “Your Score Matters” offers free Atlanta-area seminars on basic financial topics such as credit cards and money management.

subsidiary goal of this organization is to raise awareness about the state of financial knowledge among youth, especially in Georgia.

The statistics outline a path for a legislature that wants to prepare its youth for their financial futures: Start teaching kids about personal finance as early as possible; create a standardized, subject-specific curriculum mandate; and properly train and certify teachers to teach financial material.

With the next legislative session beginning in January, I challenge the General Assembly to address this injustice by putting financial literacy education for Georgia’s public middle and high schools at the forefront of its educational agenda.

The ultimate goal would be to enact a statewide mandate creating a stand-alone course on financial literacy. But perhaps creating a committee to spearhead research in the area of financial education may be a more plausible (and cheaper) place to start. At this point, any legislative action aimed at spreading awareness for financial literacy would be a huge step in the right direction.

By Maureen Downey, for the AJC Get Schooled blog

48 comments Add your comment

Me

December 20th, 2010
3:42 pm

What happened to the last topic about Ramona Tyson?

Maureen Downey

December 20th, 2010
3:48 pm

I put this note up on another blog, but am adding here as well:
To all, I actually put that DeKalb entry together early this morning with a delay on publication as I wanted to read it over again and check two things. I completely forgot that it had a scheduling time programmed into it. I have been cramming to get the print pages done in advance of the holidays. So, I took the blog down until I can check out a few of the points.
Maureen

Toby

December 20th, 2010
3:55 pm

It’s very true… people around here tend to be stupid &/or foolish with money & public education should be massively improved ‘across the board’.

Ernest

December 20th, 2010
4:09 pm

This goes back to the suggestion of including a ‘life skills’ class for either middle of high school students. I’m sure you’ll get some to complain that there is not enough time in the school day to add something like this, regardless of how worthwhile it is.

Charles

December 20th, 2010
4:25 pm

I think it’s just UGA grads that are financially illeterate

Ole Guy

December 20th, 2010
4:37 pm

With the realization that many of my comments may be viewed as old school, antiquated, and entirely inappropriate for the youth du jour…HERE GOES!

My Dad would bore the hell outa me with his “old fashioned” mantra, “Do what the mind dictates, not what the heart desires”. As a young adult, however, I completely disregarded his advice and ran up every credit card I could muster, reasoning that…WELL, DAMMIT, I DESERVED IT! Eventually, realizing the inevitable…that interest expenses (particularly after the mid-80s elimination of interest exp write-off) where just not worth it, I came to my senses, grudgingly sacrificed, and (in my estimation) came out the victor. MEANWHILE, armed with an education, both from hs and college, which enabled me to make a viable income, and educating myself on the nuances of money management, I have been able to prepare accordingly.

The issue here is…just exactly how much, of the 12 year public educational pipeline, can we afford to siphone off from the 3-Rs to so-called “life skills”. What is more likely to enable the kid to remain competitive within the job market? Mastery of the 3 Rs, or “how to go to the bathroom without falling in”? Remember, as reasonable beings, we are all compelled, at some point in life, to learn to make appropriate choices. Maybe, just maybe, these damn kids can start the process by listening to us “stupid adults”…ya think!

[...] This post was mentioned on Twitter by twupsies, Maureen Downey. Maureen Downey said: Young people don’t know the financial score http://bit.ly/fAW9H6 [...]

Lee

December 20th, 2010
4:43 pm

The financial literacy of the population as a whole is simply atrocious. Don’t believe me, just watch a few ads on TV.

Title loans, 0% financing, no payments for six months, etc, etc. I’m always amazed at the number of people who should know better [fellow accountants] who are sucked into these gimmicks. As the age old adage says, “A fool and his money are soon parted.”

There are two concepts that should be taught in high school; the time value of money and how to balance/maintain a checkbook.

Ross

December 20th, 2010
5:37 pm

I’d imagine that recent graduates from any college in the state of Georgia have a lot to learn about their own FICO score. Remember, the score assigned to each of us determines the interest rate we pay on credit cards, car loans, mortgages, etc. The author has a great idea to incorporate the basics of financial literacy into the public high school curriculum. Teenagers need to learn more practical skills in school. Will anyone in the Georgia General Assembly accept this challenge to sponsor a bill?

EnoughAlready

December 20th, 2010
5:37 pm

“A fool and his money are soon parted.”

So true and the fools come in all shapes, sizes, income levels, education levels and color.

We all need to be educated on “To Good to be True” marketing campaigns; which is the reason we are in this economic financial mess today. I see “Rooms to Go” is still at it.

K. McCabe

December 20th, 2010
6:00 pm

In reference to the “foolish spending” comment (Toby and Lee): can we honestly say that young people are “foolish” with money when they don’t know about credit or savings? One might argue that it’s a parent’s job to teach their kids financial skills, but what if the parents don’t know either? Keep in mind that personal finance is a lot more than balancing a check book; it’s understanding interest and managing your money in ways that are best for you individually- that involves understanding different aspects of the financial system on a somewhat deeper level. I’m thinking of the areas of Georgia with significant generationally impoverished populations like my hometown in Screven County. This is the exact reason I believe this should be a public school issue: so these skills reach all of Georgia’s children.

I am in no way promoting the “siphoning off” (Ole Guy) of the school day to financial education. I am merely in favor of amending the current economics curriculum to include more in-depth subject matter specifically relating to personal finance. I wrote a white paper on exactly this issue for Athens, Clarke County schools. Check out my blog, http://www.yourscorematters.wordpress.com, for my thoughts.

In reference to the UGA comment (Charles): Really constructive. My point was that the largest university in the state has a number of students that will live, work, and spend money in Georgia in the future, as do all of Georgia’s higher institutions. No need to mention that UGA boasts 3 Rhodes Scholars in the past 3 years. Oh, wait, I just did.

A fool and his money

December 20th, 2010
6:00 pm

I do the zero financing plans even though I have the money to pay cash, because I prefer to keep my money in ING drawing interest and use Home Depot’s cash to renovate my 42-year-old kitchen. That’s not a foolish use of 12-month-zero-interest plans.

Pippi LongSausage

December 20th, 2010
6:11 pm

If we tried to implement some training the Glenn Beck/Rush Limbaugh/Fox News/Tea Klux Klan crowd would howl like a scalded cat….”keep the government out of my business”

Dudogger

December 20th, 2010
6:36 pm

I’m over 50, but have yet to learn how to find my FICO score without having to pay some online scam service first, so how and why would a youngster ever find his/her FICO score, eh?!

confussedd

December 20th, 2010
7:13 pm

People in the Atlanta area have a general ignorance regarding finances. When they are in a financial mess it is always someone elses fault. I have seen people saying credit scores are racist and unfair. As long as people are ignorant enough to make themselves and their children believe the garbage they spew and other listen it will not change. People want to shop and live beyond their means they do so at their own peril and the current economic downturn is a great example of the problems this causes. Schools curriculum is not well thought out enought to teach financial literacy and frankly teachers are often clueless themselves.

TopPublicSchool

December 20th, 2010
7:19 pm

When I taught elementary school, I money ink stamped each and every student assignment.
$1 and abov= A
$0.50=B
$0.25=C
$0.24- $0.01 Accordingly when needed.

We were sponsored by a local bank.
Children received their own deposit slips and checkbooks.

Classroom assignments, Test Scores and Homework grades rapidly improved throughout the school year.

Children were asked to bring old toys they no longer thought were the BEST from home to our classroom Recycle Auction.

Throughout the month those items were displayed above the chalkboard.

Children volunteered to do extra assignments.

Fines were developed when some behaviors were out of line, The children helped to establish a set of rules for classroom fines. Late homework, Manners, etc. ( seldom was needed …but it was easy to show a child how to translate their earnings to adult situations )

A deposit was made at the end of each week.
Children could choose to save or spend their hard earned Sam Bucks at the Auction.
Some children bought back what they donated!
Recycled toys and other items were auctioned off to the highest bidder.
The rule: Never let anyone know how much you have in your checkbook…= power.

I loved seeing the dynamics of this project in the classroom.

I have many good memories of these classroom experiences in my mind.
One particular year everything changed.

The bank that sponsored our program gave us a tour of the bank.
I know this was before most of you can remember…but this was the year of the
FIRST TILLIE TELLER.

The bank representative gave a tour of the bank vault, behind the teller’s desk, and the bank President’s office…and finally the NEW invention!

Tillie the Teller
Standing outside the bank in front of this machine bank representative explained …”How Miss Tillie worked” to the eager children.

She was not a slot machine…she did not just print money…
Earned money was needed in your checking or savings account to receive money from this amazing machine.

The rule for using the Miss Tillie…If she accidentally “spits out too much money” …the person involved in the transaction would need to return the extra money she mistakenly gave to you.

A young curious mind asked a serious question…”How would Tillie know she gave you too much”

The bank representative stated…”behind this shiny black plate there is a camera…it takes a picture of each transaction”

Another child raised their hand and stated…”Well all you would have to do… is put your hand over it.”

I’ll never forget that day in my teaching career…Cameras on buses followed…killing that inside voice of our children…
They are now adults…What have we created?

I saw it coming long before now… It is a sad day in our society…Who will help it to change?

The internal voice to “do the right thing” has slowly died in our society. When cameras, video-tapes, and tape-recorders are the only means of regulating the illegal vile actions of the human race our society is doomed to fail. We must make sure as parents and teachers the internal voices of honesty and ethics are never erased. They are the “saving grace” of our future.

Success and Honesty
http://www.youtube.com/user/TopSchoolAtlanta#p/u/39/EQKSkWsCvlY

Our society is doomed to fail if “top” leadership does not change.
Someone needs to step up to the plate and raise the bar of ethics of ALL leaders.

Splendor In The Grass

December 20th, 2010
7:59 pm

I was @ Lenox Square Mall for several hours today Christmas shopping with my college student daughter. I couldn’t believe the crowds or the spending frenzy that was going on. Folks, forget all the media crap about a recession or a poor economy. People are spending money like drunken sailors, on really expensive stuff. Hopefully they realize that the charge card bill will be arriving in January.

Really amazed

December 20th, 2010
8:07 pm

Funny this should come up! I was at a Christmas party last night and a friend of mine, whos daughter is attending GT just failed her Acct. Class. The mom is just dumb found!!! This is the same girl that not only got into Tech last year, but had AP Calc. in high school. I was telling her about my son and she told me to chill out. What is going on??? These kids know way advanced math, however can’t do basic acct???? Credit, debit??? We need to get back to basics!!!! We will be making sure our children can balance a check book way before graduating high school. Truly pathetic!

oldtimer

December 20th, 2010
8:16 pm

TN now has a financial requirement for HS graduation. It is a semester class. They do not require World History. It is not such a good trade off I believe. They do have so many requirements students cannot take band all 4 years without summer or zero period classes.

EdDawg

December 20th, 2010
8:29 pm

FYI, Personal finance is taught in 6 & 7th grades now under the new social studies curriculum.

Gail

December 20th, 2010
8:37 pm

This does not surprise me one bit. My parents taught me about money. But if a kid’s parents aren’t money smart, they are on their own because it is generally skimmed over in school.

Also, don’t you think a personal management or business class would be more useful than a 4th year of science?

Lee

December 20th, 2010
9:02 pm

@Fool, if you can manage it, yes, you can use some of those plans to your advantage. You gotta be careful though because that 29% interest is accruing every month and if you slip up and do not abide strictly by the letter of the agreement, you get hit with a big back interest charge.

Lee

December 20th, 2010
9:05 pm

@EdDawg, it is good that they are getting exposed to personal finances in the 6 & 7th grades. They probably do need a more in-depth course around age 16, which is when most begin driving, getting part time jobs, checking accounts, etc.

Toto: speakin' the truth to power

December 20th, 2010
9:28 pm

Is this a joke? Our Federal government is in debt for TRILLIONS, most bankrupt state governments are looking to Washington for a handout, and you want the GOVERNMENT to teach us how to handle money????? LOL! Economics is simple. SPEND LESS THAN YOU EARN. PAY CASH FOR EVERYTHING. Buy some gold, silver, and nonperishable commodities for a rainy day and GIVE TO THE POOR. God’s way works. Don’t do business with the banksters and play the Wall Street Casino!

K. McCabe

December 20th, 2010
11:01 pm

To Confussedd: I believe when people refer to credit scores being “racist and unfair”, I think what they mean is that lower income individuals and families tend to be disproportionately affected by late fees and interest payments- penalties which are usually attributed to a lack of financial knowledge. True, those can also happen because of carelessness or irresponsibility, but I also believe that it’s easier to blame irresponsibility rather than look into the underlying CAUSE- a lack of knowledge and, possibly, positive reinforcement. Adam Smith’s “Wealth of Nations” sparked the idea that poor aren’t necessarily poor through their own fault, and it’s an idea that we’ve carried through American history. Why is it so hard for some to see that the same holds true for personal money management? Especially when our financial system is so complicated? Sure, long division is easy- AFTER someone shows you the right way to do it. If you can honestly think that navigating credit card bills and IRA’s is simple, then YOU are probably enjoying the benefits of proper financial education.

atlanta mom

December 20th, 2010
11:57 pm

Here’s an idea. Let’s not give them everything they ask for. Give them an allowance and expect them to buy their own clothes and play things. Let them learn how to budget and save when they are living at home. Show them how, if you don’t have the money, you don’t buy the big screen tv. But that would require some restraint by the adult in the house.

Lee

December 21st, 2010
12:06 am

Personal money management isn’t complicated. When you only have a certain amount of income, you first take care of the essentials to life – food, clothing, shelter.

Then there is this picture: http://www.macon.com/2010/12/16/1379464/funding-cuts-leave-many-without.html#disqus_thread

This lady is complaining about the program to give assistance to people with their heating/utility bills. However, in the background of the picture, there is a flat screen tv that is at least 50″. They also probably have cable or dish for that tv. So, they cannot afford to heat their house but they can pop for a $600 tv and another $600+ per year for cable/satellite.

I have no sympathy or patience with people like this.

Dano

December 21st, 2010
12:14 am

Nothing funnier than seeing somebody misspell “illiterate!” (Fifth item above!)

Toto: speakin' the truth to power

December 21st, 2010
1:21 am

Even 60 Minutes agrees with me.
The state of the states….BROKE!
http://www.cbsnews.com/video/watch/?id=7166293n&tag=topnews

Beck

December 21st, 2010
5:07 am

Economics is taught in Fulton County in 12th grade as a semester long course.

kmac

December 21st, 2010
7:10 am

I have never balanced a checkbook. I have no idea what my credit score is. I have absolutely no debt except monthly bills. You don’t need to know your score. You need to be responsible in paying your bills and if you do your credit score will be fine.

SonnyFab

December 21st, 2010
7:32 am

The reason ‘financial literacy’ is not a stand alone class is that there is not enough information to fill a class. An afternoon seminar? Maybe. An entire semester or school year? No way. Here’s everything the modern person needs to know to be well informed about finances:

Regarding the credit score: every graduate of UGA has access to the internet, as does almost everyone in GA with public libraries having free internet access, and in about 10 minutes online you can learn that to have a high credit score, you need to pay your bills on time and not max out all your credit cards. There’s not really much more to the whole credit score thing. Pay on time and don’t be maxed out on your credit limit. If you pay down your student debt on time, your score will be fine to buy a house some day.

Re: Credit cards: DON’T CARRY A BALANCE ON THEM BECAUSE THE INTEREST RATE IS OUTRAGEOUS. Done.

Re: Cars and car loans: Car loans also usually a rip-off. Also, new cars LOSE VALUE very quickly so even if you are not paying a lot of interest on a car loan, the car is still costing you a lot of money because when you sell it, it will be worth a lot less than it was when you bought it. If you don’t have a lot of money to spend driving a car, buy something used where somebody else already took a big hit on the value.

ALWAYS AVOID Title Pawn, Tote-the-Note, Pay Day Lenders. If you take out 90-days-same-as-cash and you don’t pay within 90 days, they charge you interest for the whole time, so PAY IN 90 DAYS, or better pay cash in the beginning and bargain for a cash discount. Basically, if there’s a ‘financial service’ that is only in the poor part of town, stay away from it.

On investing: save early, save often, and save regularly. Put your money in things you understand. Until you understand an investment, wait and it will still be there later to buy. And with investments more than anything else, the more somebody is trying to sell something, the more you should be weary.

And as you get some wealth, you’ll need some insurance to protect it.

There you go. And it didn’t take anything close to 15 weeks, 5 days a week. I’m not even sure it would make a very good afternoon seminar.

Dr NO

December 21st, 2010
8:23 am

“It’s unfair to hold youth accountable for skills that they may never have learned in the first place.”

Its NOT FAIR, ITS not FAIR…mommy, Fusha Bloom has a bigger rear-end than I…ITS NOT FAIR.

Crybaby and whiners…

DeKalb Educated

December 21st, 2010
8:32 am

Katie! This is great. I once taught middle school and there was a huge need for students to learn about saving, compound interest (the greatest invention since the printing press), contracts, etc. BTW – are you Jim’s “little sister”?

Richard G Rhodes

December 21st, 2010
8:57 am

Dave Ramsey’s Financial Peace University should be taught in high school. You only have a FICO score if you borrow money.

William Casey

December 21st, 2010
9:14 am

I wonder how many parents take the time to educate their college age children about the financial facts of life? As a retired educator and having taught Fulton County’s economics course for seniors, I agree that the schools could do a better job in this area. However, there is a problem: credit scores, loans, mortgages, etc. ARE NOT REAL to the students because they (a) don’t write the checks for the bills, and (b) seldom own/control wealth. This should begin to change during the college years but I wonder if it does.

I was a financial fool until I acquired a mentor in my early thirties. I was determined that my math major son wouldn’t be. I decided to involve my son in financial decisions during his last two years of high school and continue to do so during his college years. Some of the things I did:

1. At age 18, I made him co-owner of all my modest wealth. Give him financial “State of the Union” speech each year. He has a stake in my financial decisions. He listens when I discuss moving into a smaller, less expensive home. He’s learning the basics of home ownership and how the rules are changing.

2. I took him through the process of buying a car for cash rather than financing. Let him actually do the math as to the real cost of a financed car as opposed to driving an older car for awhile and saving for the dream car.

3. Involved him in the work required and wealth acquired by owning rental properties. He knows that there is a reason I was able to retire at 56. Also understands that defined-benefits pension plans are a thing of the past.

4. He manages all his college expenses (actually pays some of them from Summer job money) and understands the costs because I point out that his mother and I could have easily bought a second home “condo at the beach” had we begun saving for that in 1992 instead of his college expenses.

5. He uses one of my credit cards now, is responsible for me for justifying his expenses and will get his own card as a junior in college, beginning to build his own credit. He’s beginning to understand what an extravagance carrying a credit card balance is.

6. I’ve introduced him to my banker and he’s learning the importance of establishing a personal relationship with one.

It’s a start. No school can do that for a student.

Savvy TeCher

December 21st, 2010
9:28 am

Someone from UGA does not know about the Georgia Council on Economic Education at GSU that has been educating teachers across Georgia for years?

People make such erroneous remarks about our knowledge and depth of understanding all the time. Relevancy is still important to students. Where I am, it’s important to stress avoidance of Chex Systems, high interest charging check cashing places on every corner in addition to credit cards and their impact on your credit score.

We try very hard to make personal finance relevant to our students in high school especially in Economics and “business” courses. Why not push to include some relevancy in Math I and II with a few standards in Personal Finance. Most kids in 12th grade cannot calculate sales tax, tax on their income and finance charges when they get to the Social Studies course.

K. McCabe

December 21st, 2010
9:36 am

To Richard: Dave Ramsey has his own way of doing things, and I think he’s helped a lot of people. But please, don’t be fooled by the gimmick lines he pulls: EVERYONE has a FICO, as soon as you turn18 one is assigned to you. What Mr. Ramsey won’t tell you is that NO credit is just as bad if not worse that bad credit. The reason is that they use your credit score for so many MORE things than we realize these days- I had a friend in college who got a notice from their utility company saying that they ran his credit score and were going to have to increase his utility rates to adjust for his lack of a credit history. It wasn’t much, but still. What’s more is that utility companies usually run your credit when you open a new account, too, in order to determine if they need to (or can pull off) charging you an “introductory fee.” It’s one of the ways some utility companies make money.

Sonny Fab: Let me set the record straight- I’m not saying we need to mandate a semester-long course. Actually, I wrote a white paper about amending the current economics curriculum to include more in depth personal finance topics. My proposal WOULDN’T ADD time to the school day; it would also not take 15 weeks. As long as there is a specific curriculum in place, I’d be fine if it took 3-4 weeks of an econ semester. Unfortunately, it may require some hard decisions on what econ curriculum should be displaced, but, in my opinion, kids should learn about intermediate economic subjects like international monetary policy and the like in an optional period rather than a required one. The kids who need this financial help are not likely to revolutionized supply and demand mondels, and the kids who are could opt to take an exploratory class. Like I said, it’s a hard decision for educational departments to make- to teach to the practical in leu of the theoretical. I’m not saying it’s a no-brainer, I’m just saying that Georgia’s kids have a problem: they’re getting bombarded with credit card commercials and Title Pawn offers… I have to disagree with you, Sonny, that paying your bills is all there is to it. There are a million little things that go into your credit score as well, like the fact that if you cancel a card (in an effort to spend less) that your score goes DOWN! That’s completely counterintuitive, but once you know, you know. It’s this kind of thing that teachers should be trained about. And it’s not their fault! Georgia’s teachers are saints. The credit system is complicated because a lot of creditors WANT it to be- they want people to be unaware so they can make more money. I’m only suggesting shifting a few things around so that we can beat them at their game and put more money in Georgia residents’ pockets- from a young age.

Savvy TeCher

December 21st, 2010
9:45 am

Your points are well taken.

Economics Teacher

December 21st, 2010
11:44 am

I don’t think that it is so much that people are uneducated about credit and finances, they just don’t care. People want what they want when they want it and not a minute later. They delude themselves into thinking that they can afford the payments.

It is just like weight. We all know what makes us fat, but since we want what we want when we want it, then dammed the consequences.

When I teach credit in High School Economics it is always amazing to see how many kids tell me that their mother’s have used their child’s name and social security number to get their electricity turned on. Then they don’t pay that bill either and the child’s credit is messed up before they are even 18. To get it taken off, one must get a police report and who wants to get their Mama in trouble with the police?

East Cobb Parent

December 21st, 2010
11:55 am

I agree with some of the posters, finances as applied to budgets should be taught over a weekend. While not everyone gives their children an allowance we do. They are expecting to pay for their own snacks at the movies, gifts to friends and family, lunch out, clothing outside of necessities and the list continues. They must save 20% and donate 10% to a charity or church. We do not give a large amount, we want our children to make the choice on how to spend.I understand everyone may not be in a position to provide a monthly allowance. Still you can set an example by spending only what you have. So you drive a used car instead of a new pricier model, don’t have the largest cellphone plan, skip the nails, etc. I think kids learn more about spending habits from their parents than a class.

Warrior Woman

December 21st, 2010
12:08 pm

@K. McCabe – The is absolutely no truth to the idea that credit scores are “racist.” Although there is some correlation between race/ethnicity and credit score, it is also true that minorities will tend to perform worse than non-minorities for a given score band. For more information on this, read the 2007 Federal Reserve report to Congress on the effects of credit scoring on credit availability and affordability, located at http://www.federalreserve.gov/boarddocs/rptcongress/creditscore/default.htm.

Also, although MOST people have a FICO, not everyone does. Some files are so thin as to be unscoreable. You can have a score before turning 18. Cancelling a card does NOT always reduce your score. It may reduce your score, increase your score, or leave it unchanged, depending on the circumstances, your payment history, and what other credit you have available.

You are correct, however, that having no credit history can be worse than having bad credit history. Many lenders apply different, harsher, critieria to loan applicants with thin credit files.

I don’t think economics, with its required course content, is the place for what you propose. I’d replace one of the multitude of personal health/PE classes students take with personal financial health.

SonnyFab

December 21st, 2010
2:29 pm

I disagree with your response. If you close a credit card, you are closer to being at your available credit limit, so your score goes down. That’s not counterintuitive at all. Your credit score is based on whether you have made your payments on time and how close you are to borrowing the maximum credit you have available. That’s all there is to it.
I think having students learn the fundamentals of economics is a lot better than trying to explain a credit system to them when you can’t actually teach them what their credit score is because the FICO formula is proprietary data of the Fair Issac Company. If FICO felt like letting people know how credit scores were calculated, maybe 10 minutes in econ explaining how it works would be worthwhile, but until they make that information available, there’s no need at all to discuss FICO scores in school.
Our school system is designed to teach the theoretical. Unlike European schooling models, the US has made the choice not to have a ‘technical/practical’ path available to high school students. Everyone takes college prep classes so that everyone will have the chance to go to college. When you start saying “these kids aren’t likely to revolutionize supply and demand models” and then put them in classes where they don’t learn about supply and demand, you’ve created a self-fulfilling prophesy.

K. McCabe

December 21st, 2010
11:48 pm

Warrior Woman: Please excuse me if I misspoke- I in no way meant to convey that I thought that credit scores were in any way racist ipso facto. You put it much better: that minorities perform worse relative to non-minorities. What I was trying to say (and granted, not well) when I said that minorities are “disproportionately” affected was that minorities tend to be less educated, and lower education levels correlate to lower credit scores- you’re absolutely right about that. I’m actually very familiar with that particular FED paper. I would also refer you to a working paper by Dartmouth econ professor Annamaria Lusardi and Harvard prof Peter Tufano for the National Bureau for Economic Research, which focused on minority debt management. In this study, minorities were in fact found to have lower rates of savings and higher late-fee payments, but their most interesting finding was that increased penalty fees were still attributed to a lack of financial knowledge, even after minority variables were distilled. (NBER Working Paper no. 14808- unfortunately you would have to pay to read it all, but the abstract is available.)

Also, I was also unaware that closing an account can sometimes increase your score- in my personal research and my (all be it limited) experience helping people with their individual scores, I have never seen that happen. BUT that doesn’t mean that it can’t, and this goes to what SonnyFab was saying, that Fair Isaac is a private corporation and is not legally obligated to publish their scoring formulas. To me, Sonny, this is all the more reason to increase education AND awareness about this fact- it truly is different for everyone, and is, therefore, extremely complicated. Can we say that this is an unintended consequence when Fair Isaac and creditors which base fee schedules on these scores make money??? I can’t in good faith. And if we can’t, then can we justly deny the fact that we are not preparing kids for the financial “jungle” out there? When I start law school next year (**crossed fingers**), I will most definitely look into the legal question of Fair Isaac’s withholding this information, and what’s more, how companies are allowed to use these scores as measures of people fiscal responsibility. But that’s another soapbox for another day.

To William Casey: It sounds like your child would not need one of my credit seminars! I applaud you and the others who have championed the system and have gone to great lengths to extend your lessons and experiences to your children. I’m just trying to find a way to extend that knowledge to all of Georgia’s students.

To Dekalb Educated: Haha, thank you, and no- but I am Ross, Tyler, and Connor’s little sister, as they always remind me :)

I just want to say thank you to everyone for your comments so far! I’m so excited that this discussion has been so lively. Please talk to your friends, and especially the young adults in your life, about these issues and always feel free comment on my blog at http://www.yourscorematters.wordpress.com. Even though the aim of the blog is to provide a forum for people my age to talk about financial issues and questions, I welcome policy proposal comments.

Economics Teacher

December 22nd, 2010
8:50 am

We really need a law making the FICO score more transparant. We have a law that gives us a right to see our credit report twice per year for free. We need the same law for the credit score.

Fire Bad Teachers

December 23rd, 2010
5:58 pm

Family and Consumer Science teachers teach personal finance and other life skills in their classes. Many students planning to attend college do not have time in their schedules for these classes.
I personally know someone who just this week did not get an amazing job due to his credit score. So easy to mess up, so hard to fix.

blue_moon

December 26th, 2010
8:39 pm

Many high schools in the Georgia area are using the Ever-Fi literacy program to augment the Georgia personal finance standards. Students complete the nine interactive financial literacy modules, pass each of the assessments and receive a financial literacy certificate. The website is everfi.com

Farrah Zeman

July 12th, 2012
2:21 am

If you retired from GM after October 1, 1997, you know that your pension option decision time is coming to a close. On June 1, General Motors announced their plan to lessen their pension liability by approximately 26 billion dollars. This leaves you with the power to choose between a one-time lump-sum payment, continuing with your current monthly payment, or taking a new form of monthly benefit. You need to decide which option you’ll go with by July 20, 2012. Before you do, it’s important to understand the complexity of each and every option so that you can choose which is best for you. You can watch this informative video which outlines the three available options by following this link: http://youtu.be/32ZRne7AoTQ. Additionally, it’s highly encouraged that you seek the advice of a seasoned financial planner..info for more information.