Teach the Children

John Perdue knows firsthand the importance of financial literacy. Traveling his state, the three-term West Virginia treasurer has seen students unable to balance checkbooks, residents forced into bankruptcy, and even his own daughter burdened with credit-card debt.

Parents, educators and legislators across the country are voicing concerns that many, if not most, young people are ill-prepared to manage their finances. As a result, a growing number of states -- including West Virginia -- are responding with mandatory financial-education courses for high-school students.

Meanwhile, federal and state government agencies, financial firms and others are offering programs and Web sites to better educate teens, parents and teachers about money matters.

"For too long we have thought that economics is what they do at MIT and not what you do when you make day-to-day decisions," says Robert Duvall, president and chief executive of the National Council on Economic Education, a New York-based organization that provides training and educational resources for teachers. "Every high-school graduate should have a course in economics because you need that skill set in this complicated world."

Today's teens need financial education even more than their parents did at the same age, says Carrie Schwab Pomerantz, senior vice president and chief strategist for consumer education at Charles Schwab Corp. That's because kids today are less likely than previous generations to ever receive a pension and more likely to graduate with credit-card debt and student loans.

A 2006 survey by Schwab found that a growing number of teens have access to credit cards, and many are getting into debt. Nearly a third of 13- to 18-year-olds surveyed owed money to a person or a company. The average debt was $230, but 14% of those in debt owed more than $1,000. A March survey by Schwab found that most teens also have unrealistic expectations about their earning potential and know little about investing basics.

In April, the brokerage firm launched SchwabMoneyWise.com in April, a site designed to help parents teach their kids the basics of budgeting, saving and investing, in part through activities that parents and children can do together.

Among those pushing for financial education in the schools is the Jump$tart Coalition for Personal Financial Literacy, a nonprofit organization based in Washington, D.C. High-school seniors flunked the Jump$tart 2005-06 test on personal finance and economics, with an average score of 52.4%.

"I think we need to look at financial education not as a one-shot deal," says Laura Levine, Jump$tart's executive director. "It needs to be available at several points and early. They need to get it in a formal education and at home."

Slow Progress

Legislators and school boards are slowly getting on the bandwagon by requiring schools to provide classes in economics and personal finance, and to work economics into math and history courses. But change takes time because of the need for teacher training and the difficulty of fitting new courses into existing graduation requirements.

Currently, 17 states require high-school students to take an economics course in order to graduate, up from 14 in 2004 and 13 in 1998, according to the National Council on Economic Education. Seven states require a personal-finance course for high-school graduation, up from six in 2004 and one in 1998.

Mississippi will require students who begin high school in 2008 to take an economics class before graduation. But first the teachers have had to brush up on the subject. Since training began, scores on the course material among prospective economics teachers, many of whom have a social-studies background, have risen to 84% from 62%.

In Ohio, legislation approved in December requires high-school students to be taught personal finance. The state treasurer's office is developing a financial-education program that will be phased in starting with students who enter high school in 2010, or possibly sooner. "We want students to know what [financial] choices they're making," says Richard Cordray, the state treasurer. "We want them to stay out of trouble rather than get into trouble."

The Home Front

Many educators also argue that parents need to get more involved in teaching their children about finances.

A recent survey by Hartford Financial Services Group Inc. found that 70% of college students said their parents were their primary source of information about personal finance. The company has teamed up with the National Collegiate Athletic Association to produce the Playbook for Life, a national program to teach students about personal finance.

Ms. Pomerantz of Schwab says parents should teach youngsters about budgeting, saving and investing. The mother of three recommends starting an allowance when a child is only about five, "to make savings a habit." Older children, she says, should open a brokerage or bank account. She recommends that youngsters first save in a basic index fund and then add individual stocks. Additionally, she says, they need to get a credit card and to learn to pay it off each month.

"We need to teach them how to manage credit cards wisely," she says. "It's like teaching them to drive before they leave home."