Virus outbreak pounds those without rainy day funds

Only 21 states require high school students take a personal finance course

This feature is part of InvestmentNews’ April financial literacy series in observance of National Financial Capability Month.

Economic devastation created by the COVID-19 outbreak highlights a vulnerability many Americans have in their financial lives – the lack of an emergency fund.

Establishing such a cash reserve is among the principles taught in financial literacy courses. Advocates for increasing the availability of financial education at the high school level are using the coronavirus outbreak to help make their point.

“For middle-income and upper-middle-income families, this is a teachable moment,” said Billy Hensley, chief executive of the National Endowment for Financial Education.

The pandemic comes at a time when other changes in the economy are already increasing stress on personal finances, such as the move from defined benefit to defined contribution retirement plans, the rise of the gig economy, increasing credit card debt and declining credit scores.

“When a black swan event hits, it’s all amplified, and people become more financially strained,” said Nan Morrison, chief executive at the Council for Economic Education. “This is yet another event where there’s a crisis, and we discover again that people don’t have financial resources.”

Morrison’s organization tracks the extent to which financial literacy is taught at the state level. As of early this year, 21 states require high school students to take personal finance course work. That represents a net increase of four states since the last survey in 2018.

The report also indicates that 25 states require a course in economics, an increase of three since 2018. But five states do not have personal finance learning requirements, and the number of states that test students on their economics and personal finance skills is declining.

“You have to wonder why it is we’re still not thinking of personal finance as an important element of children’s education,” Morrison said.

Breakthroughs

Last year, there were a couple of breakthroughs, according to the CEE report. In North Carolina, the legislature approved a bill that required high school students to take a full-year course in economics and personal finance to graduate.

In Florida, there was a more modest victory for financial literacy. The state legislature approved a bill that mandated that all high schools offer personal financial literacy as a one-semester elective.

The Florida law came after about six years of lobbying. The Florida Council on Economic Education teamed up with the Financial Planning Association of Florida, among others, to push the measure across the finish line.

Charlie Fitzgerald III, a principal at Moisand Fitzgerald Tamayo in Orlando and a member of Florida FPA, was one of the investment advisers advocating for the bill at the Florida statehouse.

“As financial planners, we get it,” Fitzgerald said of financial literacy. “We see the benefits of smart money decisions. We see the consequences of bad money decisions. You’ve got to start this education before young people go into the adult world.”

The politics of financial literacy can get complicated. Educational policy is often set at the local level, creating tensions between school-district officials and lawmakers and giving lobbyists more ground to cover.

There’s also potential resistance from teachers themselves, who get fed up with curriculum mandates and also can be concerned about the lack of subject matter expertise to offer financial literacy courses.

California lags

California is one state where the struggle to beef up financial literacy in high schools continues.

“California leads in so many areas, but not this one,” said Bruce Kajiwara, owner of Kajiwara Wealth Advisors in Sacramento who is lobbying for financial literacy legislation as a member of the California Society of CPAs.

A bill introduced in February would require the integration of a financial literacy program into an economics course. There is bipartisan interest in the measure, but the road to approval likely will be arduous.

“Nobody wants to give up anything,” Kajiwara said. “Everyone’s holding their ground.”

But the best way to ensure financial literacy is to require a stand-alone course in the subject, according to Hensley. Only six states do so.

It’s not enough just to offer students tips about personal finance, such as how to find the best bank account, he said. It’s better to have a holistic curriculum.

“A lot of things out there are financial information,” Hensley said. “But that’s not financial education that makes you the CFO of your life.”

Giving high school students a grounding in financial literacy is as important as teaching them civics, Fitzgerald said.

“Financial literacy is the language of commerce,” he said. “Until you learn it, it’s a foreign language.”