Running head: COMMON CENTS 1

Common Cents

Introduction

“Papa’s here, turn the television down please.” My Mama always alerted the children that

Papa was about to come into the family room. You see Papa had worked very hard all day and he

deserved to enjoy a peaceful dinner. We didn’t mind because we knew that Papa never forgot his

time with us and every Friday after his peaceful dinner he would call us to sit around his chair.

Friday was payday. Payday, a current term reserved for cash advance companies, was always on

Friday. We loved payday on Friday because on Saturday we usually went shopping and maybe,

just maybe, we would get enough money on Friday to purchase what we had seen the week

before. Sometimes, however, it took several Fridays and several Saturdays of dreaming to

purchase the prize. My Papa was special though. Sometimes on Fridays, as we discussed the

week’s events, Mama would tune in and she would tell Papa that not only did we do our

homework without her asking us to, and wash the dishes on Tuesday, but we also carried all the

groceries into the house for her and even dusted her bedroom! We loved it when Mama tuned in,

because Papa’s eyes would light up and he would smile and then he would reach way back into

his back pocket, pull out his wallet again, and give us more money! He called it a bonus. I

vividly remember those days and Papa and Mama’s beautiful smile. What would Papa teach us

today when we sat around his chair on payday? If he were attempting to teach us financial

concepts so as to participate in our global economy, he would have to do more than take out his

big wallet? Things have changed. It would seem the sophistication of our marketplace has

evolved into a complicated process that is difficult even for the financially literate individual.

But who are the financial literate? No one knows. Maybe Bill Gates or Warren Buffet, or Papa is.
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While the 20th century seemed to focus on basic literacy, some say the 21st century has begun a

campaign for financial literacy. The United States has demonstrated clear commitment to

financial literacy; however, there is no consensus as to how to define financial literacy in

educational circles as well as business circles. The United States government, assisted by

Jump$tart (A national coalition for financial literacy), has embraced this definition: “Financial

literacy is the ability to use knowledge and skills to manage financial resources effectively for a

lifetime of financial well-being” (Remund, 2010, p. 285). The educator would ask, what are the

skills? The skills must be defined in order to measure, thus to teach them. It is important to begin

by defining financial illiteracy, building a theoretical base for future research, and encourage

financial literacy experts in business communities to partner with educational communities to

solve the financial literacy problem.

Financial Illiteracy K-12

Once children enter an elementary school classroom, they already have adopted an

attitude of give and take. As soon as a child begins to talk, “want” is large part of their

vocabulary. An online survey conducted by Northwest Mutual in 2003 revealed that “70% of

parents say that kids in the U.S. feel a sense of entitlement: They expect to have whatever they

want, when they want it” (Godfrey, 2006, p. 1). According to one estimate, children 12 years

and under, or elementary school children, influenced parental spending by more than $600

billion in 2000. Godfrey (2006) also reports that adolescents spend an average of $265 per

month. Whose money are kids spending when they spend an average of $2000 a year at

Starbucks, a statistic reported by the popular corporate chain? “In 2004, teen spending reached

over $125 billion” (Godfrey, 2006, p. 1). A crisis exists. Mr. Robert Duvall, recent president of

the National Council of Economic Education (NAEE), stated “fewer than 20 percent of today’s
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high school students’ graduate with the basic skills and knowledge needed to make economic

and personal financial decisions” (Hurst, 2005, p. 1). Alan Greenspan, former Federal Reserve

chairman, stated “our children are financially illiterate and unable to inherit the global economy

unless we start to educate them in elementary school” (Godfrey, 2006, p. 1). 21st Century

Community Learning Center, a federal after-school initiative, worked with approximately 2000

students for five years to develop financial literacy. The students were given a pre-test and the

average score was 24.3% of possible 100% (Godfrey, 2006). Unless parents, educators, and

corporate America come together, the crisis will continue

(http://www.councilforeconed.org/news/story).

Financial Illiteracy of Parents

American parents carry over $1.5 trillion on credit card debt and will pay more than

$24 billion in credit card fees for the upcoming fiscal year. Americans aged 25-34 have the

second highest rate of bankruptcy (just after those aged 35 to 44). The bankruptcy rate among

25-34 year olds increased between 1991 and 2001, indicating the GenXers were more likely

to file bankruptcy than were young baby Boomers at the same age. Personal savings as a

percentage of disposable personal income decreased from 11.2% in the early 1980s to 0% in

the first and second quarters of 2005. Between the years 1992-2000, disposable personal

income rose 47%, but personal spending climbed by 61%. At the same time, the overall

personal savings rate fell from 8.7% of disposable income in 1992 to zero in 2000

(http://www.networksfinancialinstitute.org/Finance/factsfigures).

Theoretical Implications
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The research findings above suggest that vicarious learning situations exist and

correlations exist between the financial literacy of the parent and the financial literacy of the

child. In a study recently published by Lusardi, Mitchell, and Curto (2010), they propose

financial literacy is strongly related to sociodemographic characteristics and family financial

sophistication. Looking back on past experiences, there is no doubt that Papa trained me to work

hard and save in ever-so-elementary ways. This socio-cultural influence has shaped by financial

decisions to date. Remember Papa’s smile? That smile of approval for a job well done and

consistent rewards are still sought. As an educator and concerned with the financial future of our

children and our country, I question the intervention of a more behavioral learning approach. A

cognitive behavioral approach is certainly related to a socialcultural approach but difficult to

enforce. While the cognitive-behavioral learning theory hopes to change a person’s behaviors by

educating the person and reinforcing positive experiences that will lead to fundamental changes

in the way that person reacts, the socialcultural influences remain and are also being reinforced

either by the parent or those within the “comfort zone” of the participant. The “comfort zone” of

the participant deserves a definition in this setting. Individuals of like character, behaviors, and

backgrounds tend to stay together for security reasons. This “comfort zone” is one of the most

influential scaffolding tools available to the student while learning. The question remains: Is it

possible for educators to alter thinking processes so students may think more clearly about the

choices they make and the behaviors in which they engage? How do the social-cultural and

cognitive-behavioral learning theories juxtapose with financial literacy? Must we examine the

social constructs of the student’s life before introducing behaviors necessary for financial

success? The simple becomes difficult when we attempt to break through our own belief systems

and deal with the dichotomies of our own internal realities and those of a broader world
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perspective. As an educator, how can we assist our students to unlearn spending behaviors

inconsistent with financial literacy guidelines? The educator, understanding that ideas are

transmitted through many different channels, also understands the priority of cultural influence.

This delicate balance of education and socialization must interact to increase financial literacy in

the United States of America.

Educational Perspective

Pre-college and undergraduate course requirements fall short of requiring basic personal

financial management as a part of the core curriculum. It is an issue that continues to be

addressed at the state level, however, not at a nationwide level. When Federal Reserve chairman

Ben Bernanke attended a Jump$tart new conference in 2006, he stated that financial literacy is

“vital to the future of our economy” and called for improved financial education in our nation’s

schools (minding the campus, n.d.). No matter that policymakers seem to be promoting

mandatory economic education in our school systems, less than one-half of all states require

even a basic course in economics. Testing for financial literacy is even declining. “Seventeen

states now require students to take economics, up from thirteen in 1998 and twenty-two require

testing which is down from twenty-seven in 2002” (McNiel, 2007, p.1). According to McNiel

(2007) Education week proposes a goal that all states eventually require an economics course for

graduation. Personal finance classes are practical and required by seven states currently. Due to

curriculums that are weighed heavily with mathematics, English, and science to appease No

Child Left Behind, personal finance classes take a back seat, however, leaving little time for

personal finance education classes, money made available through the National Assessment of

Educational Progress (NAEP) to measure high school student’s knowledge of economics. Forty-

nine states actually offer economic classes. Rhode Island is the only state without classes offered
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in Economics. The National Assessment of Educational Progress (NAEP) administered a first-

ever test, according the (http://nces.ed.gov/nationsreportcard), accessing the economic literacy of

High School students. The NAEP plan to administer the test again in 2012. The test was given

to 11,500 students at 590 public and private schools. On a zero-300 point scale, 42% of students

scored in the range of 160 and 3% scored above 200.

Business

There seems to be no lack of effort on the part of financial institutions to offer their

assistance in combating financial illiteracy. One needs only to access the web sites of your local

bank to obtain free financial literacy training opportunities for adults as well as children. Many

state school systems offer free financial literacy curriculum downloads on their websites

sponsored by banking organizations. Financial institutions, community organizations, businesses,

and policymakers recognize the critical state of our nation’s economy and have provided

curricula to answer these needs. Money Smart, a curriculum designed by the FDIC, is one

example of the efforts of America’s major financial institution and the government to promote

and fund financial education. Money Smart was developed in 2001 to teach adults financial

knowledge, however now has expanded their efforts to K-12. The FDIC provides this

curriculum free of charge and as of December 1, 2006, had distributed over 350,000 copies

(http://www.fdic/gov/consumers/consumer/moneysmart) a longitudinal evaluation of the impact

of Money Smart was also researched April 2007. Money Smart curriculum includes self-taught

modules based on: banking, borrowing, budgeting, saving, credit history and how it affects your

credit future, loans, and home ownership. The study consisted of 631 respondents after a

proposed sample of 1,621. Of the (39%) of respondents who took the post-test: (43%) opened a

checking account, (37%) opened a savings account, (28%) began using direct deposit, (95%)
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who began using a budget were still using their budget to make financial decisions, and (55%)

indicated they always pay their bills on time which was a (12%) increase from the beginning of

the course (research study). The curriculum was taught between November 2004 and September

2005. The follow-up survey began February 2006. The results certainly suggest a hypothesis

that financial education creates positive changes in financial decisions. The current student

population, also known a the Net Generation, those born 1998-present, are the future of our

financial institutions. What they choose to do with their earnings will affect our future economy

both negatively and positively. Cudmore, Patton, Ng, and Mcclure (2010) propose that while

banks now cater to older investors, (of course, they have money), financial institutions need to

see our next generation as a wise investment for the future of their organization. This fact

enlightens us as to why there is focus on financial literacy training as a banking endeavor.

Although financial institutions are joining the financial literacy campaign, they propose “there is

no easy answer regarding how best to deliver financial education information”

(http://www.fidc.gov/bank/analytical/fuy/2004fy.html) Financial institutions are not versed in

behavior modification theories, educational methods and strategies necessary to tackle this crisis

alone. Banks know the skills, but do they know how to communicate them?

Conclusion

Parents, students, businesses, policymakers, and school systems are asking the same

question. What does our economic future look like as an individual and as a nation? The

question will be answered based on what we decide to do with the current financial opportunities

that we have both independently and corporately. Short-term financial decisions will continue to

affect long-term financial outcomes. Incomes will continue to vary and the marketplace will

continue to vie to survive. Corporate rules and governmental policies will change. Papas and
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Mamas will continue to smile and children will continue to perform. Unless we unite and

organize our efforts as parents, businesses, and educators to define financial literacy, our futures

will be bleak. Unless we unite and organize our efforts to modify negative spending patterns,

both as adults and students, our futures will be bleak. Unless we unite and organize our efforts to

require financial literacy classes in our elementary, middle, and secondary schools as a part of

the standard curriculum, America will no longer be known as the strongest economic force in the

world. To do this, more research in the areas of how education affects financial decisions both

short-term and long-term is needed. Questions need to be answered such as: What are our best

methods and design for teaching financial concepts? What kind of environment is needed to

promote interest in our economic futures? Can we involve parents so as to influence the strongest

socio-cultural bond? Nan Morrison (2010), current president of the NAEE, states, one need

only to look at today’s headlines to see that our mission could not be timelier. An understanding

of economics is essential to our ability to make informed decisions as consumers, savers, and

citizens. At a personal level, young people need to learn how to make sound financial decisions.
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References

Council for Economic Education (CEE). (2010). Nan Morrison to become President and Chief

Executive Officer of the Council for Economic Education. Retrieved from the Economic

Web site http://www.councilforeconed.org.

Cudmore, A., Patton, J., Ng, K., McClure, C. (2010). The millenials and money management.

Journal of Management and Marketing Research.

Federal Department Insurance Corporation (FDIC). (2004). an Update on Emerging Issues in

Theory and Practice. Retrieved from Federal Department Insurance Corporation Web

Site http://www.fdic.gov/bank/analytical/fyi/2004.

Godfrey, N. (2006). Making our students smart about money. (Cover story). Education Digest,

71(7), 21-26. Retrieved from Academic Search Complete database.

Hurst, M. (2005). Economic, financial education gains ground in states, report shows.

Education Week, 24(26), 8.

Jump$tart Coalition. (2006, April 10). 2006 Survey: Financial literacy shows slight

Improvement among nation’s high school students [Press Release]. Retrieved from Web

site http://www.jumpstart.org/news.cfm

McNeil, M. (2007). Report finds lack of economics instruction. Education Week, 26(42), 6.

Minding the Campus. (n.d). Retrieved from http://www.mindingthecampus.com/originals

National Center for Educational Statistics (IES). (2010). Retrieved from the US Department of
Education Institute of Education Sciences Web site http://nces.ed.gov/nationsreportcard
Remund, David. 2010. Financial literacy explicated: The cast of a clearer definition in an
increasingly complex economy. Journal of Consumer Affairs, 44 (2): 276-295
Lusardi, A. & Mitchell, O. & Curto, V. 2010. Financial literacy among the young.
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Journal of Consumer Affairs, 44 (2): 358-380.

Networks Financial Institute at Indiana State University. (2010). National Adult Financial
Literacy Research Overview. Retrieved from the Networks Financial Institute at
Indiana State University Web site http://www.networksfinancialinstitute.org.