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Donald C. Fry: Schools need to focus on financial literacy

The topic of financial literacy in the United States is being raised more often in policy circles and in the media.

The reason, experts say, is that studies to gauge the level of financial literacy in our nation and in Maryland have yielded some highly worrisome findings.

A recent ground-breaking national study conducted by the FINRA Investor Education Foundation found “significant gaps” in the financial literacy of Americans. On average, American adults are able to answer only three of five fundamental financial literacy questions correctly.

“Many people do not seem well informed and knowledgeable about their terms of borrowing. A sizeable group does not know the terms of their mortgages or the interest rates they pay on their loans,” reported George Washington University researcher Annamaria Lusardi in a June 2011 paper for the National Bureau of Economic Research.

“The majority of Americans lack basic numeracy and knowledge of fundamental economic principles such as the workings of inflation, risk diversification, and the relationship between asset prices and interest rates,” Lusardi wrote.

Such holes in the knowledge of average citizens only exacerbate personal financial problems. They even served to worsen the economic effects of the Great Recession, experts say.

Growing concern for employers

Meanwhile, the financial literacy of youth entering today’s workforce is a growing concern among employers.

“Too many young people have not been exposed to the dangers of spending money they don’t have and using credit cards without considering the consequences,” according to a report posted on the website of the Fort Meade Alliance, a group of business advocates that supports the sprawling military base in Anne Arundel County.

Many young people don’t realize that there are a significant number of jobs for which financial records are considered in evaluating potential employees. This includes jobs that require security clearances. Candidates can be disqualified from consideration for such jobs if they have a history of not meeting financial obligations, according to the Fort Meade Alliance.

This and other studies showing financial literacy to be alarmingly low across the nation have led, among other things, to increasing calls for more structured financial literacy content to be taught in public schools.

One of the most recent advocates to voice such sentiment is Federal Reserve Governor Elizabeth A. Duke. “School-age children should be taught financial literacy concepts to help prepare them for the complicated financial decisions they’ll need to make later in life,” Duke said May 24 in a speech delivered at a Boston conference.

“Younger workers, a majority of whom will not have pensions, will need to make complicated decisions about their target amounts of retirement savings, portfolio allocation, and asset management using 401(k) plans, individual retirement accounts, and other non-tax advantaged accounts,” she explained.

She stressed the importance of having a financial literacy course or curriculum in schools and student achievement tests on the subject.

“If our schools can’t spare the resources to provide financial literacy as a subject unto itself, I believe that the concepts required for sound financial decision making should, at a minimum, be incorporated into existing subject areas,” said Duke.

It’s up to the state school board

Last year, Virginia became the fourth state in the nation to implement a required financial literacy course for high school graduates. Beginning this fall, ninth-graders in Virginia will be required to pass a course in economics and personal finance as part of their graduation requirement.

Few in education question the value of students learning economic basics and personal financial management. But many contend that a separate financial literacy course is not needed to accomplish that objective.

For example, elements of financial literacy are currently embedded throughout elementary and secondary education in Maryland’s public schools, a Maryland State Department of Education official recently told members of the Greater Baltimore Committee’s Education and Workforce Committee.

For several years business advocates in Maryland, including the Greater Baltimore Committee, have supported legislation to include a course in financial literacy among the state’s public school graduation requirements. But the bills have failed in the General Assembly, largely due to the state school board’s opposition to it on the grounds that lawmakers should not micromanage curriculum in our public schools.

The school board may have a point. But that puts the ball squarely in the school board’s court.

The evidence is mounting that something more must be done to better educate Americans about basic economics and personal finance and that whatever our current public school systems are doing isn’t working well enough. On the recent study I noted earlier by the FINRA Investor Education Foundation, the financial literacy results for Maryland residents were not significantly better than the disappointing results for the nation as a whole.

The Maryland State Board of Education would do well to move away from what are currently less-than-integrated tactics to fold financial literacy into our state’s public school subjects and develop a more strategic approach to imparting critical financial management life skills to future generations.

Donald C. Fry, president & CEO of the Greater Baltimore Committee, writes a monthly column for The Daily Record. His email address is