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Professor Discusses Strategies for Financial Literacy

Tuesday, July 9, 2013

Despite signs of economic recovery, it seems like the list of problems standing in the way of a secure financial future for the U.S. is getting longer by the day. From out-of-control student loan debt and habitual consumer overleveraging to Medicare insolvency and an overcomplicated tax code, we clearly have a lot to figure out in a political landscape that’s far from conducive to progress.

Underpinning, and perhaps exacerbating, all of these problems is a disturbing lack of financial literacy. In other words, far too many people know far too little about personal finance, and our poor overall performance in that area simply puts undue pressure on already flawed programs.

Just consider the following statistics:

  • Fresh off one of the worst recessions in history, U.S. consumers have racked up roughly $82 billion in credit card debt over the past two years and are on pace to make it a cool $130 billion by the end of 2013.
  • There is currently over $1 trillion in outstanding student loan debt – far more than we owe either credit card companies or auto lenders. The average household balance as of 2010 (when the most recent figures were released) was $26,682, and roughly 40% of households headed by someone aged 35 or younger owe money on student loans.
  • The United States ranks behind Brazil, Mexico, and Australia in terms of overall financial literacy, according to Visa’s Global Financial Literacy Barometer. Out of the 28 countries surveyed, only Bosnia ranks worse than the U.S. in terms of parents’ perception of how prepared their children are for responsible money management.
  • More than a quarter of U.S. adults say they do not pay all of their bills on time, according to the National Foundation for Credit Counseling’s 2013 Financial Literacy Survey. What’s more, 60% of people do not have a budget and 40% give their knowledge of personal finance a grade of “C” or worse.

The question is what are we going to do about our obvious financial illiteracy? CardHub has written about this issue at length in recent months, and there are a number of great initiates sponsored by universities, corporations, and non-profits already in effect. Congress and individual state governments have explored legislative solutions as well. And many celebrities are even preaching fiscal responsibility. But there is still widespread disagreement about the best ways to foster a financially savvier populous.

What we need is a coordinated plan of attack. So, in the interest of brainstorming such a plan, we turned to leading experts in the fields of education, public policy, and financial planning for ideas. You can check out what they had to say below and even share your own opinions in the comments section at the bottom of the page.

  • Lawrence Bailis – Associate Professor in The Heller School for Social Policy and Management at Brandeis University
  • Ron Rhoades – Chair of the Financial Planning Program at the Alfred State SUNY College of Technology
  • Jacob Sybrowsky – Assistant Professor of Personal Financial Planning at Utah Valley University
  • David Aron – Associate Professor of Marketing at Dominican University
  • Robert Scott – Associate Professor of Economics at Monmouth University
  • Vickie Bajtelsmit – Professor of Finance and Real Estate at Colorado State University
  • Lukas Dean – Assistant Professor of Economics, Finance and Global Business at William Paterson University
  • Martin Seay – Assistant Professor with the Institute of Personal Financial Planning at Kansas State University
  • Nicholas Hillman – Assistant Professor of Educational Leadership & Policy at the University of Wisconsin – Madison
  • Clifford Robb – Associate Professor of Family Economics at Kansas State University
  • Debby Lindsey-Taliefero – Associate Professor of Economics at Howard University
  • Jodi Letkiewicz – Assistant Professor of Family Finances at York University
  • Lascelles Anderson – Professor Emeritus of Education Policy with the University of Illinois at Chicago
  • Lorna Saboe-Wounded Head – Assistant Professor of Consumer Affairs at South Dakota State University
  • Alicia Dowd – Associate Professor & Co-Director of the Center for Urban Education at the University of Southern Califorinia

Expert Opinions – What Changes Are Necessary to Foster Increased Financial Literacy?

Lawrence Bailis

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“There are many avenues to financial literacy for people of all ages across the spectrum. One excellent example are ‘one-off’ programs sponsored by banks, such as Capital One’s MoneyWi$e program that helps train bankers and community groups to provide financial literacy training on a wide variety of topics to large numbers of adults.

But in the long run, I believe that the answer lies in integrating financial literature into the school system through programs like those run by Junior Achievement, that offer age appropriate lessons starting at kindergarten and are perhaps best known for the Company program, in which high school or college students actually get the experience of starting and running a company with guidance from business leaders. If we want it to happen–and we should–I do not think we should leave it to chance, and thus integrating into school systems curriculum seems like the best way to insure it happens for as many Americans as is possible.”

  • What else needs to be done to promote financial literacy among future generations?

“Integrating [financial literacy education] into school curricula to insure that everyone gets the opportunities to learn. This is not a program for any specific groups in society. Everyone should have the opportunity to learn.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“It is an important issue for the future of our country, and while I believe the federal government should be encouraging financial literacy education and perhaps supporting pilot programs and efforts to disseminate information about them, I believe that this is not the time for the federal government to be taking on major new grant programs nationwide, especially when so many critical programs are already underfunded and being cut back. Nevertheless, there is also room for improvement in ways that the government helps people to understand the implications of existing programs, that are often poorly understood, such as the Earned Income Tax Credit.”

- Lawrence Bailis, Brandeis University

Ron Rhoades

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“It all begins and ends with having consumers understand the basic concept of ‘self-control.’ The ability to exercise self-control is the #1 determinant of success, in all aspects of life. Fortunately, those lacking self-control (aka self-discipline) can enhance their self-control over time. Self-control is like a muscle – the more you exercise it, the better it gets.

Financial literacy programs are best when they best address the basic issue of ‘self-control,’ and then offer basic techniques (such as personal budgeting, tips on major purchases) to assist in implementing self-control with regard to personal expenditures.

I don’t believe we can expect the typical individual consumer to become a great investor; the modern world of finance is too complicated. Efforts to make individual investors more knowledgeable in selecting investment products have largely failed over the past two decades. This is why we need all financial advisors who provide personalized investment advice to be fiduciaries, legally bound to act in the best interests of the individual client.”

  • What else needs to be done to promote financial literacy among future generations?

“Financial literacy efforts in high schools and in colleges need to be expanded. With budgetary pressures many high schools have been dropping such courses. And colleges are sometimes reluctant to approve such courses as a ‘general education’ offering – leaving no room in many curriculums for a student to take the course (without adding to the credit hours they take prior to graduation).”

- Ron Rhoades, Alfred State SUNY College of Technology

Jacob Sybrowsky

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“A mixture of policy, education and oversight are necessary to help families make the best possible financial decisions. Among those, I believe education is the foundational principle. Previous research has shown that youth develop money attitudes which greatly impact their financial behaviors early on in life. Hence starting to teach and model basic principles at an early age is key to developing the long-term habits necessary to maximize financial success. Even at the elementary school level basic principles of budgeting, planning, giving and delaying gratification can be reinforced. Ideally these basic and sound principles would be modeled in a home environment. As part of their education, parents should talk to their children about finances, budgeting, planning and saving.”

  • What else needs to be done to promote financial literacy among future generations?

“There are currently 12 states that require a general financial literacy course as part of their high school curriculum core. Others have gone beyond a single class and have developed K-12 curriculum models to help students develop healthy money attitudes. When it comes to education, start early and be consistent. We have also found that those states with the most efficient system have devoted resources to teacher training and development.

In addition to formal education, a lack of trust in financial markets, systems and perhaps financial service professionals in general is a barrier to those, of any generation, seeking financial information. From a professional perspective, the disclosure of fees, adoption the fiduciary standard, and following a well-defined code of ethics combined with appropriate industry designations will reduce the trust barrier over time. Higher levels of trust will promote the adviser and client interaction necessary to educate clients and increase financial literacy.”

- Jacob Sybrowsky, Utah Valley University

David Aron

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“Education is the key. Let people know how expensive debt really is and how the cycle must be broken. Delayed gratification must be understood, and that sometimes the best investment one can make is paying down a credit card bill instead of buying something new. … The education could come from so many sources…even local community centers and church groups could incorporate seminars and classes to educate their members and help make their lives better.”

- David Aron, Dominican University

Robert Scott

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“More financial literacy might help, but the research is mixed on the value of financial literacy. More knowledge about finance/economics is better, but how effective is this education on financial behavior? We don’t know yet. Helaine Olen’s new book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry is a fascinating analysis explaining how financial literacy alone is not enough. The Jump$tart Coalition has done some great work administering financial tests to students. Strangely, students who had a semester of financial literacy did ‘worse’ on their financial exam than students who did not. It’s a weird result, but again it begs the question—does teaching financial literacy change financial behavior? We don’t know yet.

Second, I did a research survey several years ago among students from first grade through high school in schools around New Jersey (not a large sample, but enough to get an idea). My results suggested that when students reached fifth grade they were excited to learn about money and finance. Before this student interest was weak. But once they hit fifth grade, wham, they were all into it. So, I think starting around late grade school (maybe middle school) to start teaching students about money/finance/banking etc. would be great. Heck, it’s more interesting than plain ol’ Algebra, right?”

- Robert Scott, Monmouth University

Vickie Bajtelsmit

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“The problem isn’t so much that the information isn’t available to the average person. There are many opportunities to learn about personal finance. If you want the answer to a question, there are trustworthy government-sponsored websites that provide many of the answers. In surveys, people say they know they need to become better informed and they need to develop a financial plan, but somehow they always find something reason to avoid doing it. Doing the right thing for your personal finances usually means you are giving up something today to have something in the future (whether time or money). So it’s no wonder that people avoid.

But I also find it very interesting that you ended the first question with ‘make personal finance easier.’ Perhaps the perception that it’s very hard or that it requires delving into a lot of numbers (and to a certain degree that is true) is a major deterrent. But the basic principles are not rocket science. In fact, just focusing on a few simple ideas would probably be a good approach (e.g. don’t spend more than you earn).”

  • What else needs to be done to promote financial literacy among future generations?

“Piggy backing on the previous point, I do think that it’s difficult to teach old dogs new tricks. So my personal belief is that personal finance education must start at younger ages and be part of the curriculum throughout K-12. Kids are so much more receptive than adults. I would love to see it integrated in freshman orientation at the college level as well. Many states have bought into this idea and added personal finance curricular requirements. In some states, it’s a requirement for graduation.

The problem is that very few states put any money behind these additional requirements, so the teachers are struggling to provide content without training or materials. I’ve been on the national board of directors for the Jump$tart Coalition for Personal Financial Literacy for the last few years and have met people from the public and private sectors who are focused on improving education in these areas. We offer teacher training programs and access to teaching materials on our website. I am also a big supporter of Junior Achievement, a non-profit that provides basic financial literacy education in the schools through volunteers from the community. In some communities (like Fort Collins where I live), JA reaches several thousand students each year.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“The federal government could play a role in developing and disseminating quality teaching materials, but ultimately, it will be up to the states to actually deliver on curriculum.”

- Vickie Bajtelsmit, Colorado State University

Lukas Dean

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“Personal finance would be easier if everyone that claimed to be a professional ‘advisor’ were actually held to a fiduciary standard of care, and made their fees & costs more transparent.

For example, despite huge advances in technology, certain industries like insurance have shrouded the costs associated with their products and the commissions & surrender charges associated with products, making it difficult for consumers to shop around and compare costs.

Other examples are broker/dealers that might recommend a mutual fund with a 5% front load, a .25% 12b-1 fee, which they bought just enough to come in at the highest breakpoint, and they got a bonus from their firm or the provider of the product… All of those costs are shrouded to the common consumer, but tend to really erode their returns.
If you’re a professional — your advice should be in the consumers best interest. Not your own.

If you want to be a salesmen, then call yourself a salesmen. But don’t call yourself a professional or an advisor, if your advice is really just a means to generate more sales commissions for yourself.”

[Editor's Note: You can now compare, rate, and review financial advisors and insurance agents on CardHub's sister site, WalletHub]

  • What else needs to be done to promote financial literacy among future generations?

“After the financial crisis, the state of New Jersey started requiring all public high school students to complete a personal finance course in high school. This is a huge step forward, and although I think the high school students aren’t entirely ready for it yet… in my opinion, this is the single most effective way to bring basic financial literacy training to the masses.

We have also implemented a course at WPU that is required as part of the University Core Curriculum for incoming Freshmen & Sophomores. We’ve brought in local financial planning firm owners that manage hundreds of millions of dollars, and they teach our college students the basics of financial well-being to help them know what to do, and also to help keep them from getting buried in insurmountable levels of debt at the start of their adult life.

There are now 13 states in the U.S. that require personal finance to be taught in high schJools. I think it’s much more appropriate for college freshmen, but if they can get a primer in high school and then a more intense version as a freshmen — that’s ideal.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“John Adams stated that the basic purpose of government is to protect the sheep from the wolves. Our federal government has made very little effort to live up to this in the realm of financial advice. Especially in the insurance industry and the broker/dealers that are allowed to operate under a ‘suitability’ standard instead of a ‘fiduciary’ standard of care.

The Investment Advisors Act of 1940 was created to ensure that anyone who is providing financial advice or acting as an advisor, was to be held to a fiduciary standard. Broker/dealers were given an exception because they were just doing transactions not providing advice. Now, if you approach a broker — they will tell you that they are a ‘financial advisor’ and they’ll advise you — but they do not have to give advice that is in your best interest, and they’re not held to a fiduciary standard.

Consumers trust their financial advisors. Whether they’re with an insurance company, a broker/dealer, or an RIA. However, only RIA’s are held to the fiduciary standard. The other 2 groups have intentionally shrouded most of their costs, and they are oftentimes primarily salesmen.

If you have a nation full of uneducated consumers, you have to require professionals to be professionals. If you’re going to continue to let ‘professionals’ be salesmen with shrouded costs, then you have to work to enhance the financial literacy and education level of your citizens.

We are currently in a ‘buyer beware’ marketplace, and there has been very little effort made to warn the sheep that there are a lot of wolves out there.”

- Lukas Dean, William Paterson University

Martin Seay

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“After spending a lot of time focusing on how to increase financial knowledge and literacy, it seems that academia has been very limited in its success (both in increasing financial knowledge and in translating that to better financial behavior). I am beginning to think that KNOWLEDGE is not the issue, but culture is. For instance, we can compare our savings rates with many other countries and find that we are severely lacking. However, in many cases their knowledge levels are no different, they just live in a culture where saving is the norm. So I would suggest that if we care about financial outcomes, that we seek to create a culture that better promotes and accepts better financial practices. So at some level we have to decide (and this is a very behavioral economics concept) are we more interested in people knowing what they are doing or the positive financial outcome?

With that in mind, I think that it all starts with instilling social norms and attitudes that promote best financial practices. I think this can be most easily accomplished in systematic educational programs for children. In that context they can both receive the knowledge and receive the benefits from norm setting.”

  • What else needs to be done to promote financial literacy among future generations?

“Systematic educational courses and training throughout the course of schooling.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“At some point, given our culture the government is going to spend money on allowing people to achieve better financial outcomes (whether it is proactive spending to avoid the problem or paying the costs of subsidies and entitlements). I would suggest that I would rather the government proactively invest in individuals to increase their financial capital (and therefore their human capital) to provide for greater self sufficiency and better outcomes over the life course. Will they? Who knows.”

- Martin Seay, Kansas State University

Nicholas Hillman

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“When it comes to paying for college, the people who are most constrained by finances are too poor to save. Policymakers don’t get this reality, and they do not support policies that would truly help the poor prepare for college. State policymakers advocate for expanding college savings plans (529 Plans) that disproportionately benefit wealthy taxpayers. Federal policymakers advocate for Coverdell savings accounts that also tend to benefit the wealthy. College savings policies are disproportionately benefitting individuals who would likely go to college even without the subsidies.

So, the biggest challenge facing ‘financial literacy’ are structural ones that are reinforced by poorly-targeted policies. We can’t expect individuals to fix these underlying problems by simply becoming better informed about their options…they need to have real options and opportunities to be on equal footing.

One way to improve these conditions is to rethink the way we operate and finance our nation’s student financial aid system. Currently, federal aid is distributed to students only after they enroll in college. This makes no sense in terms of helping students prepare for college. Instead, early aid commitments to students would be better – the feds or states could do this when students are in 8th grade (or earlier would be even better) and would help students and their families be better informed about how much college will cost and how they’ll pay for it. Oklahoma and Indiana are two examples of states making early commitments to students.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“I am doubtful the federal government will do anything to address these challenges because doing so would require officials to reverse decades of rising economic inequality. Elected officials are not responsive to the needs of the poor in this domain, so I hold little hope that federal efforts will improve college affordability for this group of citizens. Instead, policymakers will likely double-down on tax credits and college savings accounts that benefit middle and upper income households, leaving the poor to scrape together Pell Grants and other need-based programs that are not keeping pace with the rising price of college.”

- Nicholas Hillman, University of Wisconsin

Clifford Robb

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“This is an extremely challenging question, as it is likely that no single approach will really provide the systematic change that is necessary. Were I pressed to select the option among these that I consider to be most important, it would be along the lines of education. The need for any real policy change is debatable, and without any clear sense of exactly how change should be implemented I would be hesitant to say that is the solution. The same goes for industry oversight. We have fairly strong regulatory bodies in place, and there is obviously growing emphasis with legislation and agency developments that focus on consumer financial protection.

I also see one of the critical arguments as being whether or not we should promote greater literacy or if the market should be adjusted such that financial decisions are easier. I certainly see the case for some simplification of certain financial processes (the number of complicated forms and documents in many complex financial transactions can complicate consumers’ ability to compare and assess options), but overall, I believe that the heart of the matter lies in an informed populace that is capable of making decisions for themselves, or at the very least knowing whom to seek out for advice and what questions to ask.

So to make a very lengthy answer, I think that broad-based education programs (starting in middle school or earlier and continuing through college) would go a long way to improving things, though again, I do not believe that educational programs alone will be sufficient in and of themselves.”

  • What else needs to be done to promote financial literacy among future generations?

“Again, I think that starting young is critical. It is also likely something that will take some time, as this needs to become an issue that households are more comfortable dealing with (that is, it ideally starts with the parents). Unfortunately, we are currently in a situation where many adults lack a fundamental understanding of proper financial practice or markets, so how can we expect their children to do any better. That is one of the reasons this is such a complex problem (i.e. simple policy change does not solve these issues). Only be inculcating a respect for our financial history as Americans, along with a motivated response from the government to model more reasonable financial behavior, can we be assured of any real change in coming years. Overall, there must be a cultural shift towards saving and planning for the long run that has been lacking from households as well as policymakers.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“First, I doubt that there WILL be any substantive actions on the federal level in terms of literacy. The more critical question here is SHOULD there be. I will offer my opinion, noting that in no way do these thoughts reflect those of my institution of employment. I am a firm believer in the power of markets to generate positive outcomes in most cases. Obviously there are situations where we need government intervention or oversight, but in my opinion there has been growing demand for government to fix things that honestly are not necessarily broken (or if they are broken, it is because there was unnecessary government intervention in the first place). If we can align market incentives in the right ways, then the markets themselves should work effectively.

For example, I believe that one of the fundamental problems with the American mortgage markets is the presence of government-backed entities that are willing to purchase mortgages in a secondary market. This essentially modifies the incentives of a lender. If they are going to simply sell the loan that they generate, what are their incentives to ensure that the loan is a “good” one (low likelihood of default). If banks were making loans that they had to keep on their own books, then there is a strong incentive to make only good loans, since defaults directly impact their bottom line (ability to meet their financial obligations). This is just a simple example (and there is a bit of simplification), but I believe that it is possible for the markets to become more hospitable for consumers in the realm of personal finances. There will always be a need for oversight and protection from unscrupulous practices, but those practices would become more difficult to perpetrate with a more informed populace and an engaged financial system (with the overall idea being that incentives should be aligned for these two groups to ensure better outcomes).”

- Clifford Robb, Kansas State University

Debby Lindsey-Taliefero

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“Financial literacy education needs to start in elementary school and be repeated yearly increasing topics that are covered and difficulty. These same concepts of budgeting, planning income, investing needs to be continued through college, vocational school, and on the job training. Financial literacy is a dynamic life-long learning process. I have been involved with several financial literacy programs dating back to assisting Freddie Mac’s with developing CreditSmart in 1999. Many banks and community base organizations are also involved with the financial literacy out reach. I think they need to continue. The problem with many programs is that the funding runs out or the institution more on to another hot topic. In other words, many financial literacy programs do not have the dynamic life-long dedication to educating the young, middle age, and senior citizens. Student loan debt needs to have caps which should depend on the type of learning institution, i.e., 4-year vs. 2-year colleges.”

  • What else needs to be done to promote financial literacy among future generations?

“Some form of all of the above needs to be considered to ensure that students approach debt more responsible. Some trade off with students’ university choice and interest rates needs to be balanced. That is, student loan rates for public school should be lower. This would encourage students to attend public school, in general, which are lower cost, but still offer a great education. A second look at pre-Reagan Administration regulations is needed. Parents are more in debt today for their children’s’ education than in the past. Before, in general, students were the primary student loan borrowers and today it is the parents. This regulation change fueled tuition cost. Parents were willing to borrow even if not able to pay for their kids’ education. As a result, institutions of higher education extracted the consumer surplus by raising tuition.

In support of the above trend, the number of borrowers of student loans age 60 and older was 2.2 million, a figure that has tripled since 2005. That makes them the fastest-growing age group for college debt. All told, those borrowers owed $43 billion, up from $8 billion seven years ago, according to the Federal Reserve Bank of New York. Almost 10 percent of the borrowers over 60 were at least 90 days delinquent on their payments during the first quarter of 2012, compared with 6 percent in 2005. The consequences of such debt can be dire because borrowers over 60 have less time–and fewer opportunities–than younger borrowers to get their financial lives back on track. Some are forced to move in with their children. Others face an unexpectedly pinched retirement. Still others have gone into bankruptcy.”

- Debby Lindsey-Taliefero, Howard University

Jodi Letkiewicz

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“I don’t know that one single thing that we can do – there are many forces at work here. Certainly, people need to be more financially literate, but that has some limits. Efforts at increasing financial literacy, through things such as financial education, have not been terribly successful. The problem is that we are dealing with a terribly complex and ever-changing financial system. Disclosures for checking accounts can be upwards of 100 pages and mortgage loans are even worse. I am of the mindset that we need to work towards simplification. Consumers are facing a losing battle against behemoth financial institutions. They create financial products that so complex they are impossible to understand and then we blame the consumer for being unable to manage or understand what they signed up for. I think a combination of financial education at various points in the educational system, coupled with simplified financial products and disclosures, and a reasonable amount of government regulation are the keys to having a more financially literate society. I do not believe that financial education, as a standalone solution, is an effective solution.”

  • What else needs to be done to promote financial literacy among future generations?

“We are society that is afraid to talk about money – it is a taboo topic and that is a shame. There is a lot of research that points to financial socialization through family and friends as an important means of learning sound financial practices. If we could encourage parents to be open about their finances with their children and have an open dialogue about where money comes from and how things fit into the budget, I think that would help future generations.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“The federal government should keep the well-being of consumers in mind regulating financial institutions and, more importantly, financial products. Rather than mandating financial education for citizens, simplifying the financial system and financial products should be a priority. Will it happen? I am doubtful, but hopeful. We have people like Elizabeth Warren in congress giving consumers a voice. I think the financial crisis brought some awareness to the consequences of a financially illiterate society coupled with a complex, unregulated financial system.”

- Jodi Letkiewicz, York University

Lascelles Anderson

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“The single most underappreciated concept in financial economics for the average person, to my mind, is the concept of compounding, especially in this context, interest compounding. Properly understood, it would lead the average person to aware of the importance of this concept in all parts of economics, at both the micro as well as at the macro levels.”

  • What else needs to be done to promote financial literacy among future generations?

“A few years ago, I was a member of a university committee with a main focus at substantially broadening the study of economics in public education. This committee was made up of individuals from education and business colleges as well as administrators from K-12 education and two-year colleges. This effort should be substantially broadened, with emphasis not only on teaching modules like The Stock Market Game, but with substantial emphasis on the evolution of capitalism, especially financial capital in an international context, and the implications this development for huge challenges to local policy-making in developing countries.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“I do not think that this is responsibility of the federal branch of government. It should be front-and-center for K-12 education officials and for higher education, especially in two-year colleges.”

- Lascelles Anderson, University of Illinois at Chicago

Lorna Saboe-Wounded Head

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“I don’t know that there is one most important thing that we can do. There are many policies, programs and initiatives in place that show knowledge and behavior change in regard to personal financial management. I think an approach that is effective is to focus on the basic skills need to manage finances. Individuals and families need to recognizing their needs vs wants, set financial goals, and understanding personal values. Then education should focus on how to achieve the financial goals through budgeting, tracking expenses and regularly saving. The education should occur in school settings, communities and in the workplace and be designed in a way that the audience needs will be addressed.”

  • What else needs to be done to promote financial literacy among future generations?

“Money is an issue that no one talks about but underlies most individual and family decisions. Within families, I think it is important to talk about how money is managed so children can develop a healthy perspective toward developing their own management skills. At every life cycle stage, different personal finance issues arise. It isn’t possible to teach about every possible financial decision that will need to be made throughout someone’s life. If individuals and families have a healthy perspective of financial issues and consequences of financial decisions, financial literacy skills will develop.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“The Consumer Financial Protection Bureau is a step toward addressing the issue by the federal government. Unfortunately, there is not 100% support for the Bureau. I would like to see the federal government continue to support funded programs that address the issue of financial literacy. Many of the financial issues the federal government is dealing with stem from poor financial decisions not only by the government, but also consumers. I think the position the government is currently in with the budget deficient will make it difficult to make any substantial headway on the issue.”

- Lorna Saboe-Wounded Head – South Dakota State University

Alicia Dowd

  • What is the single most important thing that we can do to help the average person become more financially literate, or at least make personal finance easier?

“The single most important thing we can do to help the average person become more financially literate is to realize there is no such thing as an average person, but to pay attention to all the variation around what we think of as typical. People of any race or gender in affluent and middle class homes are more likely to be part of formal, mainstream financial institutions and to have pension plans through their place of employment. Income, race, and ethnicity are all correlated, with Latinos and African Americans disproportionately living in poverty. As we’ve seen in the housing mortgage crisis, low-income communities of color are particularly vulnerable to aggressive, sometimes unscrupulous financial schemes. Naturally this engenders distrust. We need to invest in community organizations that can help people navigate the variety of financial providers and get information about spending and saving that fits with their personal investment goal. People of all income groups need to be able to turn to trusted advisors to be able to identify good personal investment options from all the marketing hype by banks, lenders, and retailers. ”

  • What else needs to be done to promote financial literacy among future generations?

“The single most important thing that we can do is to teach students in public schools the basic math and economic market concepts that are the foundation of what we need to know to take control of our personal finances. We should not do this by adding “personal finance” classes; I think that would be a turn off for lots of young people. As any parent of a teenager might point out, kids are not very future oriented on a personal level, but they do care about the world and social issues. Topics like interest rates, savings, bonds, rate of return can be taught in projects that span classes like social studies, science, and math, for example a project to build a community garden or to improve air quality with a mix of public and private financing. Educational researchers emphasize the importance of active learning and projects that take on real-world problems—this applies to learning financial concepts as well. Teachers need the time and resources to help kids learn both in and outside the classroom, whether through visits to museums, science centers, businesses, or the halls of government. Adequate public school financing is the foundation for future financial literacy.”

  • Should / will the federal government address the issue of financial literacy in any substantive manner?

“Yes, the federal government plays an important role here, particularly when it comes to college financing. For example, federal regulations make counseling about college loans a requirement. The growing loan debt among college graduates—too often unmanageable debt for students who borrowed more than they should have—shows how necessary these counseling requirements are. The problem goes the other way too. Some students don’t borrow enough and work too much. This makes it hard for them to finish their coursework and leads to college drop out. But, there are simply not enough pre-college counselors in high schools to help students plan on paying for college in a way that’s right for them. The ratio of counselors at community colleges, which enroll the majority of low-income and Latino college students in the country, is nearly 2000 students to one counselor — not much chance that a student can receive tailored advice to fit their personal situation.

Federal requirements should ensure that counselors are in place to help students make good use of federal subsidized loans and other financial aid. Some college advising can be done through fun apps and social media—like the USC Pullias Center for Higher Education’s Pathfinder game—but there is no replacing the human touch.

There are other valuable policies the federal government is putting in place too, like requiring colleges and universities to make their tuition pricing more transparent and encouraging states to create community-based college savings plans.”

- Alicia Dowd – USC