UC Working To Boost Local Financial Literacy

Full article: 

UC-working-to-boost-local-financial-literacy.pdf

The list of causes for our financial crisis has grown long, including the aggressive interest rate policy of the Federal Reserve Bank, greed, the poor enforcement of regulations, and the government's long tradition of promoting home ownership. In addition to the missteps of federal regulators and businesses, millions of individuals also made mistakes, buying houses they could not realistically afford and racking up substantial consumer debt. Careful observers of the economy now suggest that many individuals in the U.S. are not informed enough to make prudent decisions about their personal finance. This is a serious concern, since information and rationality, according to economists dating back to Adam Smith, are prerequisites for the proper functioning of a market economy.

Robert Shiller, an economics professor at Yale University and co-developer of the S&P Case-Shiller Housing Price Index, argues that many people don't have good information and do not understand the very basics of personal finance. For example, researchers from the Federal Reserve Bank of Atlanta, the University of Geneva and Columbia University reported that many recent home buyers incorrectly responded to the following question: What will a $300 item cost after it goes on a "50 percent off" sale? Researchers have found that people who lack personal financial literacy tend to make serious financial mistakes such as borrowing too much and failing to shop around for the best mortgage. Anna Quindlen, columnist for Newsweek magazine, asks that Americans face up to our high level of financial illiteracy. She argues that the big unspoken issue behind the financial mess is that Americans just don't understand the basics of the economy.

April is Financial Literacy Month in Ohio - a good time to call attention to our personal financial responsibility. If today's adults are so ill-equipped to navigate the complex financial system, the situation does not bode well for our young generations. The Jump$tart Coalition, which promotes better financial literacy, found that high school students' scores on a national financial literacy test have been decreasing over the last decade. In 2008, American high school students correctly answered only 48 percent of the questions - an all time low. Ohio students scored even worse, trailing the national average by approximately four percentage points.

In December 2007, even before the current financial crisis was this acute, the Ohio Legislature passed a bill requiring all students to study economics and personal finance to graduate from an Ohio high school. The first students affected by the legislation are those who will enter high school as ninth graders in 2010. The legislation mandates that schools should use the expertise and resources at universities and in the community to help them meet the needs of students. While the need for this legislation seems all too obvious, some have asked if the schools are up to the challenge.

Our region shows some glimpses of hope. The UC Economics Center for Education & Research has been involved in an initiative to offer financial literacy services to area schools. These services include teacher training and making connections between businesses and local schools. The goal is to ensure that every student in Greater Cincinnati region will receive quality financial education to support the financial decisions they will face throughout their lifetime.