Young People & Money

Scholastic achievement is widely regarded as a prerequisite for future success. Trouble is, prevailing circumstances challenge the validity of this time-honored belief. Given the mounting complexity of our information-age economy and the extent to which financial decisions will shape young peoples' quality of life, there's good reason to think beyond the academic basics when it comes to identifying what skills students must develop to thrive as newly independent adults. Decades ago, when the United States was the world's leading industrial power, our educational system was founded on a simple premise: proficiency in reading, writing and arithmetic was enough to provide a solid and enduring foundation for young peoples' future success. Unfortunately, this view is threatened by a world that's drastically changed since 1948 when curricular standards were first established and laws were enacted requiring minors to attend school. Over the last half century, almost every aspect of our day-to-day lives has dramatically changed; and yet, strangely, our educational system hasn't. It's remained impressively stagnant in its curricular approach to preparing young minds for 21st century challenges. In short, an institution we rely on to be smart for us has failed to adapt.

Although a degree is a prized and widely pursued symbol of accomplishment, the once rigid linkage between academic achievement and upward mobility has, of late, become disturbingly tenuous. Case in point: a thought provoking percentage of college grads are struggling to reap the rewards that academic success has traditionally provided. Although this problem has many component parts, one aspect in particular stands out. As a matter of standard industrial protocol, students spend their formative years in a classroom setting and are subjected to a grueling regimen of lectures and tests. At the far end of a long painstaking process, high school and college students receive a firm handshake and a formal certificate. In a moment of eagerly awaited ceremony, begowned graduates toss their tassled caps triumphantly skyward and are generally thought to possess the requisite skills to prosper in the work-a-day world--without any personal finance training whatsoever. As a model of flawed industrial design, the situation is roughly analogous to designing a formula 1 race car without a steering wheel.

If high school and college exist to provide young people a framework for future success, a key factor has somehow been overlooked. In an act of preparatory omission that borders on cruelty, teens and twentysomethings are grilled on all manner of varyingly relevant academic minutiae, and yet, aren't taught to competently manage the economic power that higher education provides. At great cost, this aspect of youth development is sorely neglected. Dan Ianicolla, the U.S. Treasury's former Deputy Secretary for Financial Education, spoke to the consequences when he said, “The downstream adult problems of rising bankruptcy rates, low savings rates and the abuse of credit can all be traced upstream to how our educational system fails to prepare young people for their financial futures.”   

In a nation where 33% of high school students and 84% of college undergraduates carries a credit-card, it's odd that personal finance isn't taught in grades K - 12. To further complicate matters, many adolescents are financially illiterate. Few know anything about investing, the importance of building good credit, the dangers of debt, or even how to create a budget and balance a checkbook. Remarkably, though the ABCs of personal finance aren't discussed in California's classrooms, the financial industry and some of the biggest names in it are keenly aware that a significant number of young people are fiscally clueless. In April 2008, the JumpStart Coalition (a non-profit advocacy group bankrolled by a who's-who of for-profit firms, namely: Bank of America, Capital One, MasterCard, Wells Fargo and VISA) commissioned a nationwide study to measure high school seniors' financial awareness. The survey instrument, designed by Lewis Mendell, professor of Finance & Managerial Economics at SUNY Buffalo, asked 12th graders to answer 49 multiple-choice questions in a wide range of personal finance topics. All told, 6,586 students and 40 states participated in this landmark effort. The survey's findings? Nearly half of high school seniors are financially illiterate. The average score: 48.3%; a result which--interpreted by most academic standards--is clearly failing.

If the 'what' is greater upward economic mobility, the 'how' is financial literacy, an essential catalyst for bringing it about. For adolescents, an inability to intelligently manage money is a tremendous liability because, over time, economic choices will play an increasingly significant role in shaping their opportunities and prospects. Despite students' varied academic talents and disparate vocational interests, knowing how to competently manage a buck is universally relevant to their quality of life. With no media fanfare or political hoopla to mark the occasion, we've crossed an invisible socio-economic threshold and have entered a whole new era in which young people cannot afford to learn the ABCs of personal finance the old fashioned way: by haphazardy stumbling through the early innings of their financial lives learning costly economic lessons on their own. In the blink of a generation, the level of financial expertise required to transform a series pf paychecks into a desirable quality of life has skyrocketed. Even the nature of currency itself--what forms it takes and how it changes hands--has been fundamentally altered by technological progress and rapid financial innovation. To wit: anyone who came of age before the advent of the Internet and the proliferation of personal computers would, if miraculously wooshed to present day, be astonished by what passes for legal tender. Not so long ago, commerce was tangibly anchored to the exchange of goods and services for payment in a form of currency that felt real and could be touched: coins and cash. Nowadays, our economy's lifeblood is oddly ethereal; it gushes through cyberspace in great digital torrents and is forcibly propelled through the electronic ether by the widespread use of credit cards, ATMs, debit-cards, checkout payment kiosks and, of course, the Internet. Though teens and twentysomethings may exhibit supreme confidence in their ability to negotiate most modern-day obstacles and flaunt unnerving proficiency with hi-tech gadgets and sophisticated technology, many are struggling to make sense of their financial lives at a time when knowing how to intelligently manage a buck is essential to their future welfare. The upshot? Financial literacy is as important as knowing how to read, write and add. 

To be sure, warning signs abound. Consumers' purchasing power (a point illustrated in recent years by consumers' eagerness to assume crushing debt loads in pursuit of stubbornly buoyant real estate values) has, in many cases, been dangerously over-extended by the double-edged miracle of credit. Of course, in a newly virtual and increasingly cashless economy, the urge to splurge is understandably difficult to resist. Meanwhile, countless other social and environmental factors encourage consumption. To minimize transactional friction in the ongoing exchange of goods and services for money in its many splendid forms, commerce is no longer impeded by the need to carry and pay for purchases with cash. The pace of economic activity has been further accelerated by the elimination of procedural barriers (for instance, the need to sign for credit card purchases on charges of less than $25) that may have once prompted a momentary sense of fiscal consciousness and restraint. In short order, credit has replaced cash as the prime currency. In our technologically robust 21st century economy, it's never been easier for young people to casually--and, in some cases, recklessly--disassociate financial choices from their consequences. Ironically, though modernity has given money an otherworldly quality, the implications of habitually mismanaging it are as real as ever. And a growing body of research shows that adolescents are especially prone to financial error. A 2008 poll by the National Association of Retail Collection Attorneys found that 25% of college students will run up a debt to celebrate with friends and use credit cards to raise spending cash. Moreover, 23% of survey respondents say they ignore overdraft fees and are undeterred by the prospect of spending months or even years paying off a debt. 

Over the long-term, young peoples' financial attitudes and habits are made all-the-more important by the fact that, as those who're nearing retirement today will heartily attest, there's a much larger economic picture in play. The financial realities of everyday life have been dramatically altered by another game-changing development as well. Case in point: how people plan and save for distant financial goals like retirement has also shifted. Employer funded pensions--once the bedrock of workers' future economic security--have all but disappeared. And this trend is validated by economic data. For instance, the Investment Company Institute estimates that U.S. pension assets now total $2.2 trillion vs. $4.2 trillion held in 401K type plans. Of course, this signals a sizable and growing disparity between two very different retirement funding approaches. In the private sector, employer sponsored pensions are being eliminated in favor of a new retirement strategy, one that relies more heavily on personal initiative and a loosely stitched patchwork of tax-advantaged, (mostly) self-funded and individually-managed retirement savings accounts--think 401Ks and IRAs. To be sure, this wrenching socio-economic adjustment is evident in the millions of workers who (however reluctantly or begrudgingly) are participating in the adventure of capitalism on a far more intimate level than ever before. In the last decade, stock ownership in the U.S. has risen 60%. Moreover, nearly two-thirds of all equities are now "professionally" managed on behalf of individual investors by the likes of Fidelity and Vangaurd. With every paycheck, people from all walks-of-life dutifully pool their pre-tax contributions into mutual funds, pensions and other employer sponsored retirement plans. Stocks and bonds (which prior generations of students and nascent professionals cavalierly dismissed as the play-things of the super-rich) have suddenly become the basic building blocks on which adolescents' future economic security will depend. Thanks to our ownership society's growing bias toward defined contribution plans (as opposed to the more traditional defined benefit variety), it should be glaringly apparent to all but the grossly uninformed that the ongoing economic responsibility of saving, decision-making and risk-taking has passed from employers (who've traditionally shouldered this weighty obligation) to young people; a great many of whom are woefully unprepared for this awesome and newly inherited responsibility. The takeaway point? When it comes to constructively managing the many disparate yet loosely interrelated facets of one's financial life (which, in turn, requires knowing how to establish, incubate, and eventually hatch a decent sized retirement nest-egg; fortify a personal balance sheet; and manage a dizzying array of conflicting economic goals and priorities that span vastly different time horizons) teens and twentysomethings are, by default, having to go-it-alone without any practical financial guidance.

This would be a laughable matter were it not for the looming enormity of what's at stake for those who're a half-century or so away from retirement. Given all that hinges on adolescents' fiscal prowess, one might sensibly conclude that, well before graduating school and kindling their careers, they should become fiscally knowledgeable and responsible, and do so at a much younger age than prior generations of adolescents. Although the gravity of this point may be lost on the current crop of youngsters, the financial decisions they'll make in their 20s and 30s will largely determine whether they're eating caviar or corn chips in their 60s. And since the macro-economic landscape is riddled with cavernous potholes, this too creates a sense of urgency when it comes to providing youngsters a broad and functional framework to productively manage their financial lives. One particularly ominous source of economic concern is the unknowably large magnitude of the fiscal strain that retiring baby-boomers will, in due course, exert on pay-as-you-go entitlement (Ponzi) schemes like Social Security, Medicaid and Medicare. In the not-too-distant future, when senior citizens exit the workfore en masse, many-if-not-most will expect their perceived due. Regrettably, the economic outlook for retirees is darkened by a worrisome confluence of factors, chiefly: 1) The acute economic strain that many municipalities, cities and states are presently under. According to The Atlantic (January/February 2011--pg. 38), this group's combined debt has vaulted from $1.7 trillion in 2004 to $2.4 trillion in 2010--a 40% increase; 2) the sheer (and growing) magnitude of Uncle Sam's indebtedness; 3) escalating anxiety about the continued ratcheting-up of our Treasury's debt ceiling--$14.3 trillion at last count; 4) Standard & Poors recently announced downgrade of U.S. debt, and lastly; 5) concern about the continued willingness of foreign central banks to purchase oodles of our allegedly risk-free and impressively low-yielding government issued IOUs. For a government that, according to Congressman (R-Wisc.) Paul Ryan, must borrow 42 cents of every dollar it spends, one gets the sneeking impression that it might have been the U.S. economy's primacy that Bruce Springsteen was singing about in his toe-tapping smash hit Glory Days.  

It's true, numbers with lots of zeros behind them can be downright numbing. Nevertheless, according to the U.S. Treasury's esteemed number crunchers, as recently as July 2010, $4.07 trillion of our national debt was held overseas--most notably by countries like China and Japan. Alas, this doesn't bode well for Uncle Sam's future ability to bankroll entitlement promises for today's youth. Waiting patiently and passively for these niggling details to amicably and miraculously sort themselves out is one (perhaps naively) optimistic approach. Alternatively, teens and twentysomethings may want to take a comprehensive extra-curricular interest in their financial lives and proactively acquire the fiscal knowledge and confidence to intelligently manage them. To be sure, there's plenty of incentive for them to do so. If high school graduates and college students begin this non-academic learning process early enough, the upside could be huge. Just imagine: if adolescents preemptively acquire the fiscal street-smarts to establish a decent emergency fund; monitor and minimize spending; grow savings; and capitalize on their multi-decade investment time horizons by investing a portion of their future paychecks in tax-deferred and tax-free retirement savings accounts, they just might secure their economic futures. In light of our financial world's evident fragility, the dizzying complexity of its inputs and outputs, and a growing sense of unease about its underlying faultline trigger points, there's reason to ask if today's adolescents will, in their golden years, enjoy the luxury of a solvent social safety net if they fail to aggessively nurture their nest-eggs and force-feed their piggy-banks. 

Though high school and college students' fiscal proficiency is undeniably important, this aspect of their educational development is brazenly ignored. This is deeply troubling because, to judge by today's decreasingly egalitarian standards, financial illiteracy's lifestyle rewards are depressingly abundant and gloomily self-evident. And, by way of proof, one need only observe our nation's sprawling retail sector to glimpse first-hand what bleak scenarios may await current and future generations of fiscally feckless citizens. This somber message is writ ominously large on the weary and often well lined faces of credit starved and perennially net-worth challenged individuals. Granted, some of these poor souls are in dire economic straits for reasons that are beyond their personal control. After all, an adverse combination of poor timing, bad luck and chance events can conspire to derail one's best laid hopes and plans. And so, for mysterious reasons, some folks lack sufficient earning power to escape poverty; an unsatisfactory condition which our government defines as any four member household whose annual income is $23,000 (nationwide average) or $77,000 (in the S.F. Bay Area). Regrettably, according to 2010 census data, roughly one-in-seven Americans meets this unhappy criterion. On a cheerier note, the United States is also home to a vast and comparatively more affluent population of households that (and this may be because they haven't yet perfected the art of continually living within, or, better yet, beneath their means) are constantly maxed-out and perpetually struggling to outpace the bill collector(s). It's worth emphasizing that a non-zero percentage of this demographic includes visibly aged Americans who--and, truth be told, it's downright painful to observe--are toiling well past their youthful primes in an ongoing effort to supplement a meager social security check. Of course, financial literacy isn't and never will be a societal cure-all. Nevertheless, it's hard to imagine how its acquisition and productive application early in life could possibly hurt the average teen or twentysomething today. No-doubt, there are millions of decent, hard-working, salt-of-the-earth types out there who, if given a chance, would pull the average youngster aside and charitably offer them this nugget of hard-earned life wisdom: "If you're going to transform a series of paycheck into the kind of wealth you'll someday need to enjoy a decent retirement, don't Mickey Mouse around; acquire the fiscal know-how and discipline to steer this non-trivial process to a successful conclusion. Oh, and don't procrastinate--time and money are precious; so be careful how you waste them." 

Curiously, unlike macro and micro economics (classes that introduce students to obscure and mostly impractical monetary concepts like market structure and equilibria, the anatomy of a business cycle, elasticity theory, and the derivation and interpretation of supply and demand curves) personal finance is conspicuously absent from our golden state's educational agenda. Given California's precarious economic condition (As of July 1, 2010, California's budget deficit--the annual gap between what it spends and collects in tax revenues--is $19.1 billion. Meanwhile, its total indebtedness is a far more impressive $83.5 billion. According to our State Treasurer's office, the interest payment on this lofty sum claims about 7% of our golden state's perennially late budget. Furthermore, some experts estimate that California is also about $60 billion short on its pension obligations. And, as if all this wasn't enough to sharpen a point, here's another zinger: $10.85 billion. According to S.F. Chronicle's business section, this is how much California borrowed from the U.S. Treasury to pay unemployment benefits.) and horrid credit rating, perhaps this curricular oversight makes a certain amount of backward strategic sense. On a less speculative note, the lack of practical financial instruction in California's classrooms is cause for concern because--as anyone who's begrudgingly indentured to their weekly 9-to-5 will surely attest--to make the most of a paycheck, teens and twentysomethings must: 1) capitalize on time's wealth compounding power; 2) be appropriately mindful of the opportunity cost of squandering it; 3) sensibly distinguish between "needs" and "wants" in their day-to-day spending choices; 4) understand how taxes and inflation work and why these phenomena may impair their bottom lines; 5) assemble, manage and ocassionally rebalance a sensibly diversified portfolio of stocks, bonds, real estate and commodities, and finally; 6) understand how these disparate asset classes are likely to perform, both with respect to one another and through varying phases of the economic cycle.   

Proficiency in all of these areas is profoundly necessary because, though Newtonian physics makes the world go-round, money makes it work. Financial concepts like debt, cash-flow, interest, growth and value are deeply embedded in the capitalistic fabric of our mostly free-market economy. Moreover, as guiding tenets, they apply as rigidly and remorselessly to individuals on a micro-level as they do to institutions that may someday hire them. The proliferation of credit cards in recent years shows how much the financial landscape has changed. Before they became commonplace wallet accessories, credit cards were exotic novelties that gave their owners an almost blinding aura of economic prestige. Initially, as a matter of strict operating prudence, credit card companies exhaustively vetted a prospective applicants' credentials. In fact, they routinely did so before offering to mint and mail a shiny plastic card bestowing a high-dollar credit limit. Before the financial industry's feverish promotion of collateralized debt instruments (which enabled creditors to profitably underwrite unusually risky loans and, by and large, avoid the economic fallout of rising customer defaults by cleverly repackaging this risk and selling it to allegedly "sophisticated" third party investors whose purchase decisions were, often times, misguided by the credit rating agencies' glowing AAA endorsements), just about anyone with a credit card was rightly considered to be financially astute and responsible. Remarkably, lending standards have since loosened to the point that financially under-educated high school and college students were (until the recent passage of consumer friendly legislation which curbed abusive lending practices to minors) flooded with offers of in-store-financing and "pre-approved" credit card solicitations received via snail and e-mail. 

For adolescents, the odds of financial mishap resulting from the abuse of credit are heightened by our consumer culture's pervasive influence. To wit: in many of our nation's most renowned cities and towns, shopping is no longer merely an idle distraction, but rather, a widely celebrated national pastime. Young people, who're naturally inclined toward risky behavior and seldom pause to contemplate the future consequences of their financial habits and attitudes, are all the more likelty to acquire and unwittingly reinforce poor fiscal habits that may haunt them as adults. Meanwhile, a constellation of other factors may indiscreetly nudge adolescents toward fiscal irresponsibility. Case in point: youth spending is seldom curtailed by the pressing need to satisfy a long list of other financial obligations; the kind that are irksomely abundant for many-if-not-most working professionals--things like a mortgage or rent payment, household bills and expenses for food and transportation. And it doesn't help matters that adolescents can often raise money by extending their needy hands and asking bank of Mom and/or Dad for it. Sadly, in the work-a-day world, financial capital isn't so easily acquired. Oh well, as they say: easy come easy go... All of which may explain why high school and college students could be in for a rude and wholly unexpected awakening when their independence day finally arrives and they're suddenly responsible for managing the day-to-day particulars of their financial lives.        

There's another X-factor in the mix that may impair young peoples' economic judgement. When it comes to promoting their materialistic expectations and applauding their care-free spending habits, corporations wield tremendous clout. Of course, profit seeking firms that cater to the whims and wants of this artificially affluent demographic are understandably keen to court and accommodate their yen to spend. As author Juliet Schor, professor of economics at Harvard University, points out in her book, Born to Buy: "Companies spend lavishly on advertising that's specifically designed to appeal to, and, if at all possible, exploit young consumers' impusive tendencies. Needless to say, corporations cen be very shrewd and calculating in their well coordinated efforts to secure teens' and twentysomethings' patronage. And the numbers are telling. Businesses spend billions recruiting and retaining top-notch marketing talent. Schor's book argues that, to get the biggest bang from their advertising dollars, companies looking for a competitive edge will hire youth psychologists who (owing to their scholarly expertise when it comes to plumbing the murky interrelationships between the conscious and sub-conscous) are uniquely qualified to crawl into young peoples' heads, figure out what makes them tick and spike commercial advertising with subliminal messaging that promises to deliver a potent subliminal punch. No-doubt, the overarching economic imperatives of capitalism ensure that corporations will do almost anything in their earthly power to enhance their bottom-lines and optimize the ROI (return on investment) of their vast advertising budgets. To be sure, Born to Buy offers a fascinating and richly detailed behind-the-scenes look at the elaborate techniques companies employ to inspire cultish brand loyalty among young and impressionable consumers.

Think adolescents lack economic clout? Think again. According to Packaged Facts, tweens (a demographic comprising consumers between the ages of 8 to 14) directly or indirectly influence $40 billion in spending a year. In 2011, spending by young adults is expected to reach $209 billion. Not surprisingly, high school and college students are inundated with slick advertising that's artfully designed to relieve them of their dollars and sell them everything from fast-food and fashion accessories to cell phones and sneakers--and everything imaginable in-between. In the tug-of-war that's being waged for young peoples’ hearts and minds, there appears to be a significant and growing tension between commercial and academic influences. Though it's often difficult to tell which faction is winning, it's revealing that shopping centers in the U.S. outnumber high schools and they attract over 200 million consumers a month. Interestingly, in many states, the biggest tourist draw is no longer a historical, cultural or even natural attraction, but rather, a mall.

Though the commercial world purposefully presents itself as a kind of alluring technicolor dream-coat, if one looks past this pleasing superficial veneer, it's apparent that continued over-exposure to commercial stimulus can have serious side-effects. In October 2006, Lorrin Koran, professor emeritus of psychiatry at Stanford University, published the findings of a first-ever study documenting the prevalence of compulsive spending disorder. Koran found that over 5% of U.S. adults suffer from this condition. Commenting on the study’s findings, Koran warns “compulsive shopping can cause people to go deeply into debt and even lie to loved ones about purchases; long-term consequences can include bankruptcy, divorce, embezzlement and, in some cases, suicide.” Though few adolescents will adopt these overtly self-destructive patterns of behavior, they face gale-force headwinds on other fronts as well: stubbornly low personal savings rates; escalating living costs; soaring tuition; stagnant wages; stringent bankruptcy laws and the cut-throat imperatives of global capitalism jeopardize young peoples’ future economic prospects.

Not surprisingly, in recent years, signs of financial stress have become more broadly evident among high school and college students, a group not generally thought to be plagued by money troubles. According to BusinessWeek (Nov. 14, 2005), in 2004, the average credit card debt among 25-to-34 year olds was $5,200—a 98% increase from 1992 levels. Although this may not seem like a crippling sum, it’s the median amount; half of young adults owe more. Rising education costs add to students' debt burden. According to Kiplinger (Oct. 2008), in 2006, the average debt carried by college graduates was $16,432 and the maximum debt load of the top 8% of student borrowers was $40,000. Robert D. Manning, author of Credit Card Nation, says “Young people are taking on levels of debt that would've been impossible for prior generations of students. And this is partly because access to credit is no longer based strictly on income.” Manning cautions that “Generations X and Y have a razor-thin margin for financial error.” Tamara Draut, author of Strapped: Why America's 20- and 30- Somethings Can't Get Ahead, cautions “this debt-for-diploma system is strangling young people right when they're starting out in life. It's creating a sense of futility, a sense that, no matter what they do, they're not going to be able to get ahead.” Increasingly, financial problems are forcing teens and twentysomethings to delay traditional rites of passage. After graduating school, many are moving back home to live with their parents. According to Money Magazine (Oct. 2006), though 25% of children between the ages of 18 to 24 lived with their parents in 1990, this figure rose to 52% in 2000. Meanwhile, the vice-like power of the pocketbook is affecting young peoples' prospects in other ways as well: many are putting off buying their first home, postponing marriage and delaying having children. Scores of books—take your pick; there's Suze Orman's Young, Fabulous, and Broke, Boomerang Nation by Elina Furman and Anya Kamenet's Generation Debt—offer a more detailed accounting of the financial difficulties young people face.

Despite financial literacy's ability to help students get their financial lives started off on the right foot and avoid costly economic mistakes later in life, policy makers who're responsible for setting scholastic policy and enforcing curricular standards don't deem this non-academic topic to be worthy of study. At the time of this writing, only seven states (Alabama, Georgia, Idaho, Illinois, Kentucky, New York, and Utah) offer financial literacy programming at the high school level. These forward thinking states require 12th graders to satisfy minimum proficiency standards in personal finance before graduating high school. Given the many sizeable and far-reaching benefits that may result from providing adolescents the fiscal wherewithal to intelligenty manage an income (the lifeblood of their labors), one might expect the Department of Education to revisit existing curricular standards and make the completion of personal finance training mandatory in schools nationwide.

This hasn’t happened... But, as we'll soon see, the problem is largely one of context. By and large, the Department of Education lacks the means and methods to combat this problem. And, somewhat ironically, the dysfuntional economics of education itself are largely to blame. With massive budgetary shortfalls forcing California to close state parks, issue pink slips to teachers, shutter schools and either cut or eliminate youth enrichment programming in areas like art, music and physical education, there's legitimate cause for skepticism as to whether California schools will ever acquire the political will and wallet necessary to expand its already burdensome curricular workload. The economics of education are further strained by the mounting legacy expense of paying healthcare and retirement benefits to a large (and still growing) population of now retired teachers and other administrative staff. Collectively, these factors exert tremendous financial pressure on a system that's frightfully underfunded as it is. Add to this a renewed sense of political urgency to improve student performance in less progressive subjects like reading, writing, and arithmetic, and it's not hard to understand why youth financial literacy may not soon vault to the top of our golden state's educational agenda.

As a kind of P.S. to the above, the business of education suffers from a debilitating structural problem as well. When it comes to matching 21st century challenges with novel solutions, public schools aren't trail blazing innovators. In part, this is because there's no viable market alternative to public education when it comes to the unmatched nationwide scope and scale of services that it provides. In stark contrast to the private sector, a hyper-kinetic arena in which firms survive by correctly anticipating and quickly accommodating their customers' needs in a fiercely competitive environment, the Department of Education operates in a comparatively sedate realm; one in which its "customers" are, by force of law, a captive audience. Unfortunately, this exceedingly cozy dynamic doesn't give entrenched interests (a diverse and often dicordant patchwork of interests including teachers unions, parents and policymakers) a sufficiently compelling survival incentive to periodically review and refresh its value proposition. Because the Department of Education is thickly insulated from free-market forces and the adaptive qualities that they expertly foster, it can afford to be somewhat indifferent to the needs of the politically disempowered constituency that it serves. Bill Gates, an iconic and reasonably astute businessman, has (with characteristic brashness) blasted our educational system's effectiveness; he said, “America’s high schools are obsolete. By obsolete, I don’t just mean that our high schools are broken, flawed, and under-funded… By obsolete, I mean that our high schools—even when they’re working exactly as designed—cannot teach our kids what they need to know today… This is not an accident or a flaw in the system; it is the system.”

Which begs an important question: Is financial education likely to produce significantly higher levels of personal wealth over the course of a lifetime? To reframe this question, is there any empirical evidence to suggest that one's fiscal knowledge and net-worth are positively related? There is. A study by Annamaria Lusardi, professor of economics at Dartmouth College, and Olivia Mitchell, professor of insurance and risk-management at the University of Pennsylvania, offers compelling insight. After quizzing people on simple calculations--such as compound interest and percentages--and comparing respondents' test scores to the magnitude of their personal wealth, they discovered a striking correlation between one's financial acumen and economic affluence. Those who understood the mechanics of compound interest, for instance, had a median net-worth of $309,000 vs. $116,000 for those who missed such questions.

Despite financial literacy's whopping legacy payoff, there are other equally compelling reasons for students to preemptively bone up on the financial basics. Simply put, financial knowledge and its rigorous application to everyday life and the ongoing pursuit of personal goals isn't merely an economic matter; more importantly, it's a key determinant of one's overall quality of life. Arguably, a generation or so ago, financial literacy was less influential in terms of its impact on the future trajectory of one's life. Going back to the Carter administration, conventional wisdom firmly held that finishing school and getting a decent job with a stable (and preferably blue-chip) employer was the surest path to lasting economic security. Of course, such thinking was fashionable at a time when large paternalistic firms could, for the most part, be safely trusted to: 1) altruistically look after their employees' interests; 2) pay their healthcare expenses, and, 3) at the far end of a 30+ year career, spring for a gold watch and a ritzy retirement. With the dawn of the 21st century, a growing cultural fascination with money and widespread interest in learning what it takes to attain and thereafter maintain a dignified threshold of economic wealth, perhaps now is a good time to rethink scholastic policy pertaining to what subjects students must study if they're to prosper outside of academia. It's not unreasonable to suggest that students' future interests may be better served by assigning cellular biology and ancient history (though fascinating subjects) a distant back seat to the teaching of personal finance. 

Business headlines make an equally pursuasive argument for scholastic reform. Apart from a shrinking list of government and tenured teaching jobs, lifetime employment is frustratingly elusive. Stubbornly high unemployment and under-employment (which seems to have reached epic proportions of late) puts a giant exclamation mark on this point. The abrupt and mostly unexpected collapse of colossal and once respected firms (think Enron, WorldCom, AIG, Freddie Mac, Lehman Brothers; over three hundred large-enough-to-fail U.S. banks and a few domestic automakers) calls longstanding assumptions about job security into question. In recent years, the middle-class has noticeably shrunk. Bottom line oriented businesses, many of which are vocationally preoccupied with pleasing shareholders and right-sizing their balance sheets, have, with industrial strength and efficiency, shifted much of their domestic operations and manufacturing (General Electric is emblematic of this trend since it long ago moved the bulk of its production overseas--in part to avoid paying higher U.S. taxe rates) to other countries to exploit significantly lower labor costs. This process, multiplied by all the large-and-small profit seeking companies out there, has idled millions of rank-and-file U.S. employees. Moreover, an alarming percentage of workers who're nearing their golden years are forced to rethink their economic preparedness for retirement. And this is partly because of complex and astonishingly flexible accounting rules that have permitted firms in the public and private sector to, by overstating the value of the assets on their books and making rosy assumptions about future investment returns, exaggerate their ability to fund future employee entitlement obligations. And so, through the magic of accounting, many employers enjoy tremendous discretionary leeway in how they manage and ultimately fund their employees' pension and health care plans. Barron's, a popular and widely read investment weekly, recently reported that, among S&P 500 companies, only 25 or so have fully funded employee pensions. To be sure, there's no shortage of weighty ballast to support the timely argument that modern-day circumstances require a significant but sorely neglected emphasis on financial literacy in our schools.  

All of which raises a more titillating question: will today's students and tomorrow's newly minted professionals realize the promise of the American dream by pinning their hopes of future affluence to the threadbare notion that hard work and devoted service to one (or even multiple) employers will, in due course, pave the way to the good life? Facts and figures suggest otherwise. According to statistics, young adults will switch careers ten times over the course of their professional lives. The financial difficulties resulting from a much higher frequency of cyclical unemployment, a likely byproduct of greater workplace churn, underscores a growing need for adolescents to acquire the fiscal know-how to cope with a more turbulent labor market. Shockingly, even elite college grads aren't exempt from financial worry. According to the Bureau of Labor and Statistics, half of employed college grads are working in positions that don't require degrees. Median compensation levels for Americans 25 and under with a four-year degree have actually fallen 12% from 2000 to 2008. The economic malaise triggered by our financial sector's near collapse in 2009 has far-reaching consequences for young peoples' future earning power. Graduating into hard economic times makes it that much harder for new grads to get ahead. Lisa Kahn, a Yale economist, studied the lifetime impact of recessions on younger workers' earning power. Kahn examined college graduate career paths from 1979 to 1989 and found that, for every 1% increase in the national unemployment rate, starting incomes for college graduates fall by as much as 7%. A lingering disparity in the unemployment rates of younger and older workers is also troubling. According the the Bureau of Labor and Statistics, 15.3% of 25-to-34 year olds are unemployed whereas the average nationwide unemployment rate is 9.5%. The National Association of Colleges and Employers reports that only one-in-five college grads who's applied for a job in the last year got one.

Paradoxically, though boosting the percentage of college educated participants in the workforce has long been a staple of U.S. government policy, the law of supply and demand dictates that whenever the number of graduates in the labor pool exceeds demand for them, the value (though, generally speaking, not the cost) of higher education falls. In a dynamic and tightly integrated global economy, countries like China and India produce millions of motivated and technically skilled graduates--many of whom are eager to experience a middle-class lifestyle. And blue or white collar jobs are easily dispatched to virtually any part of the world, this too may adversely affect developed countries' college graduates. Chances are, to get ahead, young people will need to make the most of whatever money they make. And this is especially true at a time when most new economy jobs don't pay particularly well. A study by the National Employment Project, which crunched employment data, found that 75% of new jobs in 2010 came within industries that, on average, pay less than $15 an hour. 

It's true: stellar grades and an impressive extra-curricular record will generally attract the attention of desirable employers and enhance one's job prospects. Trouble is, the mostly academic knowledge that's acquired in the getting of a degree doesn't provide students the fiscal savvy they'll soon need to effectively manage an income. And this too is well documented. Thomas Stanley, who wrote The Millionaire Mind, studied the habits and varyingly eclectic personal histories of the super-rich and found little-to-no correlation between academic accomplishment and long-term affluence. Of the millionaires he sampled, the median college GPA was 2.9 and the average SAT score was 1190; hardly indicative of the rarified academic performance needed to get into Harvard. More importantly, even a brand name education obtained at one of the pricier and typically more prestigious Ivy Leage schools won't guarantee lasting economic success. Even those few and exceptionally fortunate students who manage to claw their way into a top-tier school, graduate with marketable skills and parlay their academic exploits into an outsized paycheck aren't promised much in the way of lasting wealth either. And the reason why is simple: a paycheck (no matter how large) is a short-term solution to a long-term problem.  

Of course, this is all just part-and-parcel of a larger and potentially much thornier dilemma: financial responsibility can’t be legislated. It's a matter of discretionary choice. Luckily, this hasn’t discouraged our elected representatives in Congress from enacting bold forward-thinking legislation that requires employers (of a certain size) to automatically enroll new hires in 401K-type plans. Although this hopeful exercise in default choice architecture is probably well-intentioned, and possibly even helpful, it wrongly assumes that young professionals will, once enrolled in a 401K plan, be sufficiently inspired to continue funding their retirements at a time in their lives when they're easily distracted by less abstract and more immediate desires. Apart from the obvious problem of being able to opt-out of this clever default arrangement, the long-term efficacy of such a Band-Aid approach is (to be kind) questionable. And the reason why is clear: more than half the U.S. labor force works for companies that don't offer 401K plans.

The takeaway point? If adolescents are to make the financial sacrifices necessary to brighten their future prospects, their economic choices should be guided by an appropriate sense of personal urgency and a clear unvarnished appraisal of the long-term challenges they face. Curiously, though the term “ownership society” is frequently bandied about by jabbering politicians and our chatterbox media, there’s been no substantive follow-up explanation of what, exactly, this cryptically undefined term means. Chances are, if the next generation of taxpayers isn't very careful, they'll someday find out.

Once upon a time, parents could easily teach their kids the ABCs of personal finance. It was a simple affair. Today, many Moms and Dads are understandably befuddled by the burgeoning complexity of their own economic lives. Not so long ago, knowing how to handle a checkbook and maintain a savings account was enough to get by. Clearly, the formulas for success have changed. Nowadays, young adults' financial progress is inextricably linked to their nuanced understanding of credit scores, the mechanics of debt, investment acumen and countless other factors that, until recently, didn't exist or were practically irrelevant. To be sure, getting ahead in the 21st century requires a good deal more than a steady paycheck (a need which our educational system narrow mindedly addresses); it requires financial literacy and its sytematic application to everyday life. To capitalize on the economic potential of an academic degree, students must learn how to: 1) create a functional budget; 2) select, oversee and periodically rebalance their retirement and/or brokerage account assets; 3) use personal finance software to track personal spending and chart their economic progress over time; 4) responsibly manage debt; 5) establish and improve their credit to minimize borrowing costs; 6) explain how state and federal taxes work and understand why they account for the disparity between one's gross and net pay; 7) combat inflation's wealth eroding effects; and finally,  8) balance a checkbook.

Though many Moms and Dads are understandably eager for their kids to morph into fiscally productive and mostly self-reliant adults, many lack the time, patience and expertise to tackle this multi-faceted project solo. And the reasons why aren't hard to guess; many parents are stretched dangerously thin as it is by the escalating demands of work and home. According to a Fleet Boston study, only 25% of parents expressed confidence in their ability to teach their kids the ABCs of personal finance. Moreover, almost half of parents say they don't set a good example for their children when it comes to how they manage their household finances. Another study by VISA found that (81%) of parents think that personal finance should be taught in school.

Although it stands to reason that financial literacy acts as a springboard for high school and college students' future success, it indirectly benefits parents as well. Why? Because, as veteran moms and dads might rightly guess, when their kids run into financial trouble, their knee-jerk response is to ask Mom and/or Dad for a bailout. And, rightly or wrongly, when it comes to rescuing their children from fiscal discomfort, parents generally feel obliged to reach for their wallets or hit the nearest ATM. Meanwhile, the underlying problem--young peoples' dysfunctional relationship with money--is charitably dismissed as a one-time incident and is often ignored. To be sure, this is an unnecessarily costly remedy for all concerned. Why? Because adolescents who don't learn to competently manage their financial affairs will be costlier for their parents to support. But here's the real kicker: apart from lessening the long-term economic burden of parenthood (which amounts to a sizeable penny considering that it now costs roughly $250,000 to raise a kid from age 0 to 18. Meanwhile, according to Money magazine [Aug. 2010, pg. 99], a third of parents are simultaneously struggling to support and/or care for aging loved ones), Money 101 workshops will enhance parents' quality of life in another respect as well by sparing them the tedious (and often thankless) chore of having to repeatedly lecture their kid(s) about the importance of handling their finances responsibly and explaining how, exactly, they should do so. And since money can be an emotionally charged topic, the recurring prospect of strained or stormy parent-child relationships can easily interfere with or prevent open and constructive dialogue on this topic. 

Many parents are understandably concerned about their kids' fiscal competence. A 2008 Parents & Money survey by Charles Schwab found that 93% of parents with teenage children are worried that their kids will make poor financial choices, including: overspending and living beyond their means (67%), getting in over their heads with credit card debt (65%), failing to save for emergencies (60%), or failing to stick to a budget (57%). A third of parents expect that their golden years will involve helping their kids financially. In 2008, The Hartford Financial Services Group polled parents with children between the ages 16 to 24 and found that 55% of respondents worry that their kids won't become financially independent without ongoing monetary assistance from them.

Until now, parents looking to provide their children a sound and well rounded financial education have faced a difficult choice, they could either: 1) tackle this thorny topic on their own and hope for the best; or 2) trust their children to master the ABCs of personal finance on their own while, at the same time, avoiding costly missteps along the way. For parents caught on the horns of this sizable dilemma, Money 101 workshops offer a complete, cost-effective turnkey solution. An interactive hands-on learning environment and personalized lesson plans will familiarize students with everything from the nuts-and-bolts of budgeting and taxes on up through the basics of investing and planning for retirement—and everything in between.