LOS ANGELES — The current economic crisis is providing a teaching moment about the perils of financial ignorance for parents and their children alike.
Millions of Americans are learning the hard way about the pitfalls of teaser mortgage interest rates and runaway credit card debt. Sadly, their kids might be doomed to repeat the mistakes.
Financial instruction at home and in the nation’s schools is skeletal at best, educators say. American youngsters who can Twitter, text and blog with ease are clueless when it comes to balancing a checkbook or understanding retirement savings.
“We’ve been going for years without that education, and it’s one of many factors contributing to the whole mess we’re in,” said Karen P. Varcoe, a consumer economics specialist for the University of California.
The good news, Varcoe said, is that teenagers are keenly interested in learning about money. Arming them with fundamentals might help them weather the next recession better than their parents.
At an exhibition hall near Glendale last week, dozens of 11th- and 12th-grade students participated in a financial literacy program sponsored by the nonprofit educational group Junior Achievement. The hands-on event was an attempt to thrust teenagers into the grown-up world of budgeting and bill-paying. The students were assigned adult identities, with children and incomes, then required to navigate a host of financial obstacles, such as getting a mortgage and paying for medical insurance.
Steffy Sulub, 17, morphed into a 33-year-old married woman trying to make ends meet on $42,516 a year. Budgeting for a house and car, while still eating three times a day, is hard work, she discovered.
Sulub’s own family is in tough financial straits, she said.
“It’s kind of scary, thinking about doing this on my own,” she said. “People our age are just let out on our own when we don’t even know what to do.” It’s a dangerous cycle, said Adam Levin, chief executive of consumer education Web site : Parents are so pre-occupied with — or embarrassed by — their financial affairs that they don’t have time to mentor their kids about money. Cash-strapped schools are struggling simply to teach the three Rs. And many businesses have no incentive to teach future customers how to read the fine print.
“Finance companies are better off with customers being financially illiterate,” Levin said. “And financial literacy organizations have to scratch and claw for every penny—it’s like going into battle with a weapon but no ammunition.” Many young people agree that acquiring good money habits and setting financial goals are critical to success, according to surveys and studies. But high school seniors correctly answered less than one-half of the questions on a 2008 test of basic finance knowledge, said the Jump$tart Coalition, a financial literacy group.
Nearly three-quarters of the 1,000 teenagers surveyed for Charles Schwab financial services company in 2007 predicted an average annual salary of $145,500 for themselves. But just 13 percent knew what a 401(k) plan was.
Just 7 percent of people aged 19 and 39 said they feel financially secure, according to a survey from the American Savings Education Council and AARP. More than 80 percent said they already have some type of nonmortgage debt.
Last spring, more than 46,000 teenagers took a personal finance test from the Treasury Department, but only 35 students achieved a perfect score. Currently, only nine states require students to demonstrate proficiency in personal finance.
Although many young people attribute their financial knowledge to their parents, only 30 percent of students surveyed for Schwab said their parents ensured some economic education.
Paul D. Golden, a spokesman for the National Endowment for Financial Education, said his parents never talked to him about finance.
“Money is still a taboo subject, and the concept is becoming less tangible,” he said. “Kids see parents punch in numbers at an ATM and watch as it spits out money.” Teachers are often just as intimidated..
For years, Judy Mullan, 62, was the queen of financial faux pas.
She signed quit-claim deeds and raided her retirement savings while she was young. But she mended her ways and earned a securities license before launching the finance class at Daily High this year.
“I’ve made all the mistakes,” she said. “Nobody taught me anything, and I wasn’t asking questions either.” She inundates her students with flow charts and guest speakers, and carts around a binder stuffed with work sheets on the difference between credit and debit. Students write resumes and investigate their families’ budgets.
Yair Pablo, 18, said he helps his parents calculate their net monthly income.
“Now I realize how many bills there are to pay,” Pablo said.
“But knowing that makes me feel safer, because I know how much I can spend.” As the economy worsens, demand for financial education seems to be booming.
Web sites like and Bank High School offer free lesson outlines, worksheets and activities. In the summer, Creative Wealth International puts on Camp Millionaire programs to teach children about money management and investing.
Tapping their pencils as they pored over their budgets, the Glendale teenagers crowded around a table blanketed with calculators.
“We have to pay for trash too?” one student whined.
“You pay for everything,” said Jon Kutas, a volunteer from the financial consulting company Deloitte.
“I don’t want to grow up; this stuff is expensive,” another student mumbled.
Armando Magana, 17, agonized over expensive cars and unaffordable utilities.
He grew up watching his parents neglect their bills, he said. Just like them, he used to blow through his cash. Learning about budgeting tricks is helping him “take control,” he said.
“I was scared about money because I never knew how to make it work for me,” Magana said. “But now, knowing that money is pretty much what runs my life makes living it a lot easier.”
