Making money matter to young Iowans
If you were offered $10 today, but given the option to instead receive $11 in a year, what would you do?
You would come out ahead if you chose to receive $11 in a year. That’s because if you had chosen the $10 and invested it at 5 percent, you would have only $10.50 accrued in a year.
That’s the time value of money at work, just one of the many elements of financial literacy. Lacking the fundamentals of how money works in our economy can have disastrous effects on one’s ability to cobble together a good life. Indeed, some studies show that poor financial management can even lead to bad health.
The time to teach financial literacy – saving, spending, charging, investing – should be long before a young person opens up his or her first banking account. And that was the impetus for the Financial Literacy Summit in Des Moines.
Hosted by the Governor’s Office and the Iowa Department of Education, the summit challenged educators, students and the public at large to step up their game on becoming financially adept. Financial decisions, participants heard, touch every facet of life, from purchasing a car to creating an emergency fund.
“We’re hosting this summit because money and the ability to make smart financial decisions touches us all, whether you’re a student, a parent, an educator, business owner or citizen,” said Brad Buck, director of the Iowa Department of Education. “Financial literacy means having the skills to make good decisions about money.”
Buck said education in Iowa works to ensure that all students graduate ready for college or career.
“In schools, we go to great lengths to ensure our students can read and solve math problems, and that’s very important,” he said. “But so are financial skills, and that doesn’t get as much attention.”
Gov. Terry Branstad said there is a growing interest in financial learning throughout the state, in part because of the soaring cost of college.
“I know from personal experience about importance of limiting personal debt,” he said. “I had to take out student loans – but borrowed only as much as I really needed to. Still, it took years to pay off.”
There should be top-of-mind awareness toward financial literacy, he said.
“Financial literacy should be part of an ongoing conversation, in our homes, in our schools and in our communities,” Branstad said.
Lt. Gov. Kim Reynolds said that while students ideally learn financial skills at home, that isn’t always the case. And because of its importance, schools need to ensure their charges are learning financial literacy.
“We need to make sure all students have the opportunity to learn the importance of financial skills,” she said.
Financial skills are a part of the state’s academic standards. But new courses don’t necessarily need to be created to work in financial literacy education, participants said. Financial literacy could readily be worked into existing coursework, such as social studies, literature and math. Other options include partnering with the private sector, such as Junior Achievement.
“One of the important aspects of 21st century skills is that they are meant to be taught in a variety of settings,” said Stefanie Wager, financial literacy consultant at the Iowa Department of Education. “Some schools do it after class, while others work it into social studies and the like.”
Understanding the concepts of financial literacy is one thing, but it’s also important to know the consequences.
As an example, said Adam Carroll, chief executive officer of the National Financial Educators, people who use credit cards tend to spend 12 to 18 percent more than when using cash.
Carroll called this phenomenon financial abstraction, when money becomes abstract, or less tangible, than behavior toward spending changes. The less tangible the money – such as in the form of a credit card – the less likely people are going to pay attention to their financial decisions.
To illustrate his point, Carroll talked about an experiment he did on his children, all of them avid Monopoly players. All were in some way lenient with one another in playing the game, such as allowing a sibling down on his luck to pay back his sister when he was short of money. That all changed – when real money was substituted.
“Suddenly, all three kids changed their strategies,” Carroll said. “They developed strategies to maximize their money, to hold onto it.”
Students need to be taught financial strategies early on.
“If kids today are given financially relevant experiences, and are given guidance, then they are much more likely to be responsible financially in their lives,” he said.
Two Adel-Desoto-Minburn high school juniors attending the summit were ahead of the game, having already had some financial literacy classes. But they also knew there was much more to learn.
“I need to learn all of what the different financial terms mean,” said Hunter Mandernach. “I want to make sense of it all and learn how certain things work.”
“We need to learn how to manage our money better,” said Jacob Hardy. “You want to have money down the road for emergencies, retirement, college – college is really relevant to us.”