When it comes to the subject of financial education, it’s hard to ignore one of the latest pieces of work from Time Magazine’s Amanda Ripley.
Her book, titled “The Smartest Kids in the World: And How They Got That Way,” points out the danger of a fact that is becoming more and more known: the US is nowhere near the top education system in the world.
Her primary concern is the fact that American classrooms lag behind other nations in science, math and reading scores is bad for business. It puts us at a crucial disadvantage, Ripley says, when it comes to molding the next generation for high-paying jobs in an increasingly global economy.
Her wider point is a correct one (i.e. mediocre schools suck) but her focus doesn’t hit close enough to home. She’s right to point out that the shortcomings of our education system will eventually cripple our ability to remain “no. 1,” but if there’s any area in which younger people suffer, and Millennials in particular, it’s with money-management skills.
“By and large, people are pretty clueless,” Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania, told the L.A. Times.
Mitchell’s assessment of people’s financial intelligence might be blunt, but it isn’t made without merit. The levels to which Millennials are leaving various levels of education without the skills to handle their imminent salaries is shocking, so much so that it’s been a common subject amongst media platforms like the L.A. Times, USA Today, Forbes and the New York Times.
Each has had its say on the issue that is financial illiteracy. And each time, it’s been common for these sources to begin their articles with a question that highlights their argument before even getting into it.
“Suppose you had $100 in a savings account and the interest rate was 2 percent a year. After five years, how much do you think you would have if you left the money to grow? More than $102, exactly $102 or less than $102?”
“Is the stock of a single company usually safer than a mutual fund?”
“Sara works full-time at the Big Save store and earns $2,500 per month. Who pays the contributions to Social Security on the $2,500 per month in wages she earns?”
These are, relatively, simple questions. Yet the results detailing the amount of people that were actually able to answer them correctly are almost always shocking. The writer, in turn, always comes around to pointing the finger at education, and with good reason.
It is, after all, one of the great shames of our society that in a nation that graduates college students with an average of over $26,000 in debt, only 13 states require financial education courses in high school.
The consequences? People are walking into new stages in life, with all the knowledge of the war of 1812 and not enough capability to understand the very loans that will cripple their finances for years to come.
The solution, by the way, to all of this is fairly obvious as well, which makes it all the more frustrating that it isn’t made policy in 37 states.
“Because learning decays quickly, it’s best to provide assistance just before a decision is made,” wrote the New York Times’ Richard Thaler. “High school seniors should receive help in how to think about a student loan, and how to make sure that the education bought with the loan offers good prospects for repayment.”
Unlike most deep-rooted problems in society, the consequences of this particular issue are easy to identify.
People who can be as smart as ever in their respective fields, but simultaneously lacking in their understanding of the financial implications of a relationship, buying a home, investing or worse, are approaching their 30s without any true idea of how to save.
“I freeze. I have no idea where to even start with this,” Paige Worthy, the subject of this USA Today article, said two years ago. ”Part of me feels like I’m way too old to be flying by the seat of my pants like that.”
Too old indeed, but it is, unfortunately, a case that has befallen many Millennials.