Carter: The poor state of financial literacy

Finances have been on my mind recently, as my wife and I are in the process of buying a new house, and I keep stumbling across various media that remind me how poor (no pun intended) our financial literacy is in America.

That's not to say I'm some sort of financial genius. Far from it. But you don't need to have a degree in business, economics or math to understand basic finances. Or at least, you shouldn't.


However, it seems a lot of people can't even answer simple financial questions.

A reporter on our staff forwarded me a transcript of a recent episode of the "Freakonomics" podcast the other day, called "Everything you wanted to know about money (but were afraid to ask)." One of the first segments is an interview with George Washington University economist Annamaria Lusardi where she talks about a simple three-question, multiple-choice survey she and another economist came up with to determine financial literacy.


Take the test yourself and see how you do:

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Suppose you have $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?

A. More than $102 B. Exactly $102 C. Less than $102 D. I don't know

Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?

A. More than today B. Exactly the same as today C. Less than today D. I don't know

Do you think the following statement is true or false? Buying a single company stock usually provides a safer return than a stock mutual fund.

The answers are A. More than $102, C. Less than today, and false.

How did you do? If you got all three correct, good job. You have a basic understanding of key financial concepts like numeracy, inflation and risk diversification. You would also be in the minority. About 70 percent of Americans who took this simple survey got at least one question wrong.

There are a number of reasons people are miserable about their financial situation these days, but much of it can be traced back to not being financially literate or ever being sufficiently taught financial literacy.

Since the recession, many school systems across the country have incorporated financial literacy into the curriculum. In Maryland, it is folded into social studies and math courses. Other states, like Virginia, require mandatory personal finance and economics course for freshmen.

Carroll County Public Schools has required a financial literacy course as a graduation requirement since 2006 and financial literacy is incorporated into the eighth-grade curriculum in Family and Consumer Science classes.

I remember having a social studies class in either the seventh or eighth grade in Harford County that covered some aspects of financial literacy, where the group of people who came in gave us bright neon-colored checkbooks and pens (this was the early 90s, mind you) to use during the curriculum and we also "played" the stock market, choosing about 10 different companies to "invest" in and doing weekly check-ins on our stocks in the newspaper.

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Balancing the checkbook stuck with me, although, with the advent of online banking where you can check your balance with a few taps of your smartphone and debit cards that have largely replaced written checks — and cash for that matter — does anyone actually do this anymore?

After that section of my social studies class, which was one day a week for about six to 10 weeks, I would guess, there was little more offered in the way of financial literacy throughout high school. And as a communications major in college, the most rigorous math course I had to take to get my degree was a class called "Math and Culture" that involved a lot of writing and not a lot of math.

Despite being an otherwise good student in math courses, my enjoyment of mathematics was derailed my senior year of high school when I took pre-calculus and my eyes glazed over with talks of sine and cosine. In hindsight, I wish I would've satisfied my math requirement in college with an economics course or two.

Financial literacy really should be something that is incorporated into every year of schooling from sixth-grade on up, in some capacity or another. It's a life skill none of us should be without. Not everyone needs to understand high-level investing or complex terms tossed around on Wall Street, but how many people really come out of high school or even college with knowledge of how to check their credit score, what to do if they want to buy a home or how to best start saving for retirement and how much they should realistically borrow for major purchases?

Money might not buy happiness, but better understanding how to manage it will certainly make us less miserable.

Wayne Carter is the editor of the Carroll County Times. Reach him at wayne.carter@carrollcountytimes.com.

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