Financial education should be nationally mandated, but we need to start in New Mexico.
Currently, high schools in New Mexico lack required education about basic economics, interest rates, or the financial tools and terms required to create a financially stable life. A simple financial literacy course must be a fundamental part of New Mexico high school education.
With the average college student carrying over $2,000 in credit card debt and $20,000 in college loan debt, it’s no wonder that the number of 18- to 24-year-olds declaring bankruptcy has nearly doubled in the last 10 years. But it is a failure of the education system to allow these students a diploma without a simple financial literacy course, not only because it endangers their individual financial lives, but because it endangers the financial stability of our state and our nation.
A national problem
With only 27 percent of adults feeling well-informed about managing household finances, and with U.S. consumer debt at a colossal $2.44 trillion in April 2010 (according to the Federal Reserve’s G.10 report on consumer credit), leaving financial education up to parents perpetuates a financially illiterate population.
Our current lack of financial smarts exacerbates our nation’s fiscal problems:
• Student debt is bad and getting worse. Some 45 percent of college students are in credit card debt, with an average debt of $3,000 according to Jumpstart coalition. And with a national average of more than $20,000 in student loan debt, people in the 18-to-24 age bracket spend nearly 30 percent of their monthly income on debt repayment. That’s double the amount spent in 1992.
• Mortgage crisis: A recent Fed study found, unsurprisingly, that those who score higher on financial literacy tests also are much less likely to experience a foreclosure.
• Household debt: The average household with debt carries approximately $10,000 to $12,000 in total revolving debt and has nine credit cards. And in 2005, the household savings rates dipped to minus 0.5 percent. This means that Americans spent all their disposable income and dipped into savings or increased their borrowing. By comparison, Japan sails past us with a positive household savings rate of about 3 percent, and frugal Germany and France kicked our bankrupt back pockets with savings rates of 11 percent and 12 percent (respectively).
• Poor retirement planning: Boston College ran a study that showed that Americans scoring lower on financial literacy tests were less likely than their peers to opt into an employee 401(k) account.
• National debt: With a national debt soaring past $13,000,000,000,000, Uncle Sam isn’t setting the best example. However, as a democracy, our leaders are accountable to the people, so it is no wonder that a nation full of financially illiterate people is failing to dig itself out of debt. A sound financial education could result in better national fiscal policy.
A New Mexican solution
A half-semester course on state history is a requirement of the New Mexico school system, yet financial literacy is not. A simple, three-week course could easily cover the basics of interest rates, student loan debt, spending control, credit cards, credit scores, mortgages, and saving for retirement. It would take minimal effort on a statewide level that would have lasting effects on the stability of our economy.
Currently, only seven states mandate a personal finance course to graduate, according to the National Council on Economic Education. It is time New Mexico became the eighth. While a New Mexico history requirement is a valuable addition to our state curriculum, a financial literacy course is desperately needed to improve the financially stability of New Mexico’s next generation.
Elisa Cundiff is the blogger behind NMPolitics.net’s Balder and Dash. E-mail her at elisa@nmpolitics.net.