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February 2013 Brief: Volume 20, Number 5

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Financial Literacy Is Important for Legislators Too!

 

by Deborah D. Thornton

 

 

“It’s not your salary that makes you rich, it’s your spending habits.”
– Charles A. Jaffe, syndicated financial columnist and author.

 

There has been significant discussion about the federal budget in the last six months, because our elected officials are spending more than they are taking in taxes – even with tax increases. Now the discussion has moved to the Iowa Legislature. The state of Iowa is “rich” because the “spending habits” of the last two years have been conservative. There are Legislators and special interests influencing these Legislators that would like to see this change. Before going on a spending spree, these Legislators need to learn more about financial literacy.

 

According to the National Council of State Legislatures (NCSL), financial literacy is the “specific knowledge and concepts consumers need to know to manage their money and build wealth.”[1] The concepts include creating and managing a budget, investing for retirement, and understanding how to buy a house or start a business. These concepts are important for increasing “economic security for lower-income families” and for managing the tax money collected by the state.

 

In 2012 Legislators in 28 states considered financial literacy requirements, with significant new legislation passed in ten states. Iowa was not one of them. The programs included teen financial awareness, development of non-profit education programs, K-12 testing requirements, and support for college and adult financial education.[2] This is not to say that there is no interest in financial literacy by our state government. The Iowa program for college costs is managed by the State Treasurer as part of his 529 plan responsibilities. Other initiatives include financial literacy requirements for clients of community action programs and K-12 financial education. However, I can vouch for the fact that for at least one recent graduate of Iowa’s public schools – whose parents have worked hard to try to teach financial responsibility – the information provided by both teachers and parents went in one ear and out the other.

 

This, unfortunately, is pretty normal (for consumers, students, and Legislators), as recent research shows. The 2012 Financial Literacy Survey by the National Foundation for Credit Counseling discovered that 56 percent of adults admitted they did not have a budget for managing their money. Forty percent recognized they have no idea what they’re doing and gave themselves a C, D, or F on personal finance. One-third of Americans do not pay all of their bills on time. Many are now saving less than they did a year ago, and few have any non-retirement savings.[3]

 

In most of the households surveyed, the women (61 percent) said they were primarily responsible for managing the money, and almost half said they wanted to be more informed about financial management. Parents think they’re talking with their children about financial management issues such as needs and wants (57 percent) but only one-fourth of their children remember these conversations.[4]

 

A survey by Visa found that 85 percent of parents think that a course in personal finance should be a high school requirement.[5] Yet where there is a course, in either college or high school, over 50 percent of parents gave it a below-average grade, while one-third gave it an “F.”[6] At the same time, parents (81 percent) recognize that it is their responsibility to teach their children about money. Unfortunately, it’s hard to teach something you don’t know much about..

 

The teachers, who are also part of those who don’t use budgets and don’t manage their money well, in general admit they’re not qualified to teach this material. Only 11 percent have taken a workshop on teaching personal finance according to the National Endowment for Financial Education (NEFE) and over 60 percent said they “don’t feel qualified” to teach financial management.[7] In many cases, banks and other local organizations come into the schools and teach units on financial management, including budgeting and saving. The programs offered by the NEFE in conjunction with the Iowa State University Extension Service and the Iowa Bankers Association (IBA) are comprehensive and well-researched, providing a solid background on basic financial management. These are often conducted for the schools by local banks and non-profits during October, financial literacy month.

 

Schools often focus on financial education in March and April in preparation for the National Financial Capability Challenge test offered by the U.S. Department of the Treasury. In 2012, Iowa had 88 high schools participate, with almost 3,500 students taking the test. Of these schools, thirty received a $1,000 recognition check from Iowa Student Loan for outstanding achievement.[8] Unfortunately, participation was down nationally last year, and the website no longer exists. This may be an indication that the Department of the Treasury has finally recognized that they are not qualified to teach this material, based on the Federal government’s current financial record.

 

There was also no research information available about how qualified State Legislators think they are to teach financial literacy, or how well they manage their own money – much less our state tax dollars. As the Legislative session continues, with more and more proposals for spending the Iowa taxpayers’ money on everything from roads and bridges, mental health, education, special tax breaks and pet projects such as resorts and bike trails, the financial management skills of the State Legislators will become self-evident. Taxpayers will then see if the state ends up rich or poor, and how much of our income we are allowed to keep for our own use.

 

Hopefully, in the meantime Iowa State University or the IBA will conduct a financial literacy workshop specifically for Legislators.

 

(Endnotes)
[1] “Financial Literacy - 2012 Legislation,” National Council of State Legislatures, August 23, 2012, <http://www.ncsl.org/issues-research/banking/financial-literacy-2012-legislation.aspx> accessed on January 11, 2013.
[2] Ibid.

[3] “Financial Literacy Survey Exposes Significant Gaps in Grasp of Personal Finance Skills,” National Foundation for Credit Counseling, April 2012, <http://www.nfcc.org/newsroom/newsreleases/SIGNIFIANT_GAPS.cfm> accessed on January 11, 2013.

[4] “Capital One’s Annual Back-to-School Shopping Survey Reveals Gap in Back-to-School Budget Expectations between Parents, Teens,” Capital One, August 15, 2011, <http://phx.corporate-ir.net/phoenix.zhtml?c=70667&p=irol-newsArticle&ID=1596344&highlight> accessed on January 11, 2013.
[5] “Mom and Dad ‘MIA’ on Teaching Money Management?,” Practical Money Skills, May 24, 2011, <http://www.practicalmoneyskills.com/about/press/releases_2011/0504.php> accessed on January 11, 2013.
[6] “No Triple ‘AAA’ Rating for Schools that Fail to Teach ‘Safe Spend,’” American Express, August 2011, <http://about.americanexpress.com/news/pr/w011/safespend.aspx> accessed January 11, 2013.

[7] “Are Teachers Making the Grade in Personal Finance Education?,” May 4, 2010, <http://nefe.org/NEFENEws/PressRoom/PressRelease/UWMADISONRELEASESTUDYONTEACHERSCAPABILITY/ tabid/835/Default.aspx> accessed on January 11, 2013.
[8] “30 Iowa High Schools Win $1,000 for Strutting Financial Know-How,” Press Release, Iowa Student Loan, June 18, 2012, <http://www.studentloan.org/Docs/News-Releases/Iowa-High-Schools-Win-ISL-Release-061812.pdf> accessed on January 10, 2013.

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.


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