The Education Solution

Education can help to prevent the next financial crisis; that was the consensus of experts who testified Aug. 24 before the House Financial Service Committee's subcommittee on oversight and investigations.."Too many Americans lack the skills and knowledge to make appropriate financial decisions," said Shawn Mitchell, president and CEO of the Community Bankers Association of Kansas. "Our nation's mounting consumer debt, falling savings rates, skyrocketing personal bankruptcies and the proliferation of high-cost nonbank fringe providers point to a need for better financial education."."The credit crisis and mortgage meltdown are largely because many American consumers do not understand their financial decisions," said Taylor Petty, who also testified..Petty, a graduate student at the University of Kansas, said the education system is failing its students. "Eighteen to 25 years olds are the fastest growing age group of bankruptcy filers. One in five bankruptcy filers are college students and college freshman average over $3,000 in credit card debt," he said..Katheryn Nemeth Tuttle, assistant vice provost for student success at the University of Kansas, testified that the average debt of a graduate KU student is $22,478, an increase of $4,200 in the last six years. She offered the following:.• The average financial literacy score in a study of KU students was 3.26 on a 1-6 scale where 6 represents the highest level of knowledge..• 82 percent of KU students think it is important to learn more about money management and credit and debt management..• 84 percent said it is important to learn more about saving and investing..Chris Wolgamott, representing Meritrust Credit Union, further articulated the need for financial education efforts. Citing a 2009 Harris Interactive Financial Literacy survey, he said, "forty-one percent of adult respondents gave themselves a C, D or F letter grade regarding their knowledge of personal financial," he said. "Current statistics point to increasing personal debt and a continued spend first and ask questions later financial culture.".Mitchell said schools are not teaching financial literacy. Referring to an unnamed Kansas banker, Mitchell explained: "This banker has observed that our students are extremely technologically literate, but very financially illiterate when it comes to dealing with real world financial concepts. Due to the structure of current curriculums, which are geared for preparing students for college and passing assessment tests, our educational system is neglecting to teach our young people real life skills. The importance of these life skills classes is being overlooked and undervalued. We are sending our children out into the world with a PC and the latest checkbook software and assuming that they are smart enough to become financially literate on their own. The current curriculums have great relativity, but if we do not also teach our children how to live within their means we haven't taught them how to live well.".Mitchell, who has been at the CBA Kansas helm for a year and a half, previously was president/CEO of the $25 million Farmers & Merchants State Bank in Wakefield, Kan. He cited two Kansas banks that have undertaken financial literacy efforts on their own..The First National Bank of Frankfort, he said, purchased textbooks for the consumer family science teacher at the local school. "This specific textbook leads students through a lesson in which they write checks and balance their checkbooks. The checks are used for real life items such as gas and groceries. The bank doesn't actually process the checks, but the students are able to know their balance and track expenses," he testified..First Option Bank in Osawatomie and Paola, supplies check balancing kits for business classes at two local high schools. "The kits are published by Internal Training Services and provide materials for training on how to open a checking account and prepare a deposit slip, proper technique for writing checks, how to maintain a checkbook, etc.," Mitchell said..Throughout the hearing, other witnesses spoke about other existing financial literacy education programs, such as the Missouri Council on Economic Education, American Century Investment's "Yes You Can" program, the Money Smart Financial Camp, the Community in Schools Reality U, Money $mart, Kansas Investments Developing Scholars, Save@Schools, and The Stock Market Game. Furthermore, the University of Kansas offers a Student Money Management Service through its student union..Sandy Praeger, Kansas Commissioner of Insurance, concluded her testimony by stressing the need for lifelong learning. And Tuttle said we should look harder at providing financial education when students are employed or hired for their first full-time job. Furthermore, Gayle Voyles, director of the University of Missouri at Kansas City Center for Economic Education said: "A plan of action is needed for integrating economic and financial education into state standards, training teachers, implementing curriculum, and verifying behavioral impacts."."Financial literacy is the key to creating an American economy that is not driven by consumption, but instead appropriately balances consumption with savings and investment," summarized Marc Wilson, Kansas Securities Commissioner. "Were Americans as prodigious savers as they are consumers, then the United States would have an alternative path out of the recession … That approach is to make capital available to the private sector not by purchasing unneeded or unnecessary goods, but instead by placing excess cash into bank deposits, commodities, equities and government and corporate bonds as did our forefathers. Transforming consumers into investors through financial literacy is a goal greater than preventing hardship or fraud, it is also the path toward turning our nation from the world's largest debtor into — once again — the world's largest creditor."