Or maybe not. Capital One conducted a survey of high school seniors to determine how many of these young adults are prepared to handle finances on their own. The company asked the students to rate their own levels of knowledge of personal finance. The results may be interesting, but they don’t reveal anything about financial preparedness.
If you ask students or anyone to rate their own knowledge, they can’t produce accurate answers. According to the survey results, 65 percent of the male students rated themselves “highly knowledgeable” about personal finance while only 49 percent of the female students rated themselves the same. With this information, Capital One came to the conclusion that young men are more prepared to handle personal finances independently than young women. That is the wrong conclusion here. This only proves that male students rate themselves higher than female students rate themselves.
Asking people to rate themselves is more a measure of confidence than actual knowledge. When it comes to knowledge, there are things you know, things you know you don’t know, and things you don’t know you don’t know. Think of the “known unknowns” and the “unknown unknowns” popularized by Donald Rumsfeld a few years ago. The world mocked him for sounding somewhat ridiculous, but in the case of this survey, students may not realize how many aspects of personal finance of which they have no knowledge.
Perhaps, in addition to finance, schools and parents should be teaching high school students how to understand statistics to better help detect false conclusions drawn from inadequate data. If drawn from a large enough sample size, we might conclude than male high school seniors are more likely to rate their personal finance knowledge highly, but we should not conclude that boys are more mentally prepared to handle their own finances than girls.
I’ve often written here about the disappointing lack of financial education in schools, and it’s this same dearth of vital information that has apparently led to a new special airing on ABC this Friday:
Schools teach us almost everything, but not “Money 101.” For the basics on finance, turn to UN-BROKE: What You Need to Know About Money. It’s an unconventional look at the fundamentals of everyday finance with all the facts about credit cards, mortgages, stocks and bonds, investing and 401(k)’s, in a fresh new format combining information and humor. The one-hour special airs FRIDAY, MAY 29 (9:00-10:00 p.m., ET) on the ABC Television Network.
Here’s an example video of actor/producer Seth Green’s take on the MTV show “Cribs”:
I encourage you and your families to watch the show, as TV networks almost never take time out of their programming schedule to present the kind of information that, while basic, refuses to graduate to “common knowledge.”
Personally, I plan to set the DVR to record it, and then skip the commercials.
If there is a college graduate in your life, he or she is about to receive a number of gifts. The first gift will be the realization that it can be difficult to find a job in this economy right now if the goal is to get a job in the same field of study as the degree. Without a job, our graduate might have little choice but to move back in with mom and/or dad and weather through the recession with curfews as if life were to replay high school.
The next gift will be the shock of the real world in the form of a job. Suddenly the graduate will have to report to work, perhaps at 8:00 am. It might have been easy to blow off early morning classes, but consequences in college were limited compared to the thread of being fired in the first month on the job.
Soon after that, perhaps six months after graduation, the first student loan payment will be due, shackling the graduate into earning enough money to pay off college debt in ten or more years.
If there is a college graduate in your life this year, consider these graduation gift suggestions.
1. Free room and board. There is a time and place for the “sink or swim” mentality, which comes from the idea that throwing a baby into a pool will force it to instantly learn to swim in order to survive. I’ve never known anyone to take this literal approach, but in the current state of the economy you could do your graduate a favor by allowing her to start her career without having to worry about the first several rent checks.
Rent-free living should not last forever.
2. Clothing. Every job has expected attire, even if the environment is very casual. Professionals need professional clothing, whether for interviews or in the office. The graduate is going to need to project an image in the workplace, and clothing is important to making that happen. A gift certificate would work well for clothing, allowing the graduate to choose her attire, but some guidance may be necessary because not every graduate has experience in dressing appropriately for professional situations.
3. A computer. Powerful and reliable notebook computers are relatively inexpensive now. Remember to pre-load important software for someone who will be starting their first post-college job: financial management software. I use Quicken 2009, which is available on sale here, and I still prefer the robustness and flexibility of desktop software like Quicken over web-based financial management like Mint and Quicken Online
4. A gas gift card or monthly commuter pass. Transportation is one of the many expenses new workers have to pay up front before receiving their first pay check. If your graduate has a job lined up and a place to live, she should have determined her transportation needs.
5. A car. If you have the means, a used car would make a good gift for the graduate as well. It doesn’t have to be the latest model, but employers expect employees to have reliable transportation; a clunker that breaks down once a week and causes the new employee to be late arriving to the office will not make a good impression and will not do any favors for career advancement.
6. Cash. Money is helpful when wielded for the forces of good. If you trust the graduate to use the money responsibly, to pay down debt for example, cash can be a good way to go. But don’t give cash if you will be offended if the recipient chooses to use the money for vacation or entertainment. If you cannot give cash with no strings attached, don’t give cash — try a gift card.
7. The gift of mistakes. The last thing a graduate wants is to be told what choices to make. Some guidance is helpful, particularly in choosing the first job out of college, as many graduates do not know the effect this choice can have on earning potential for the rest of the graduate’s life. But let them make mistakes, and when they do, help them interpret them as learning opportunities.
If you are a parent of a graduate this year, what gifts, if any, will you be bestowing upon your graduates?
Students and former students, what gifts have you received or would you have liked to receive?
Although the latest figures indicate job loss is slowing, at 8.9% the unemployment rate is continuing to increase. Some unemployed individuals who want to take classes to build skills while looking for a job experience some roadblocks:
Searching for work can be a full-time job. Finding time for all your responsibilities and desires can be a challenge in addition to tailoring resumes, connecting with contacts, traveling to interviews. There may be more daylight in the summer, but there are still only twenty-four hours in a day.
If you expect long-term unemployment and want to use the time to go to college full time, under current rules, you lose your unemployment benefits. You have to be actively searching for work in order to qualify, and full-time education usually disqualifies you.
Financial aid is based on the prior year’s income, so newly unemployed individuals may not qualify despite their lower income this year.
The key to building a strong community, a competitive country, and prosperous world is education. This is true not only for education in finance, but for education in science, history, and the arts. It’s good to hear that education is back on the agenda. President Obama wants to change the rules to benefit the millions of unemployed individuals who want to increase their knowledge.
The President has proposed using current rather than the prior year’s income to determine whether an student qualifies for the Pell Grant, financial aid for low-income families. Another proposal would ensure that students would not lose their unemployment benefits while enrolled in classes and training.
As the proposal takes shape over the next few weeks a government website, Opportunity.gov, will provide resources for unemployed individuals who wish to expand their knowledge through education. States will also be sending letters to residents receiving unemployment benefits to inform them of the new opportunities coming soon.
President Obama has proposed a number of changes that will affect how college students qualify for and receive loans to finance higher education. The plan calls for significant changes and like many other changes in the government over the past month, it is causing some controversy.
Currently, the government subsidizes student loans offered by banks and other private companies, like Sallie Mae, the biggest college loan company. Low interest rates are offered to students, and in turn, the federal government pays lenders to take on this debt. These subsidies are costly, and eliminating them in 2010 would save $4 billion each year according to Education Secretary Arnie Duncan.
The money saved will be used to increase the level of money distributed to students as grants, making college more affordable to more people. Lenders are concerned about this plan. Sallie Mae stands to lose seventy-five percent of its loan origination business to the government, and banks will lose the ability to offer low-interest government-backed student loans. Without subsidies, it’s unlikely that banks will be able or willing to offer competitive products, and that could reduce choices for students shopping for loans.
Having done all of my formal schooling in New Jersey, some of it more successful than the rest, I was excited to see a short story in NJ’s Daily Record about a bill passing through the NJ State Senate that would require basic financial skills to be taught in High Schools.
This is sorely needed in all public schools. Too many graduates don’t know how to write a check, balance a checkbook, deal with credit card bills, or what goes on when buying a house. All of those topics, and hopefully more, would be included in the proposed classes.
The goal of the pilot program will be to ensure that high school graduates in the pilot districts receive instruction on budgeting, savings and investment, credit card debt, and other issues associated with personal financial responsibility. At the conclusion of the pilot program, the commissioner will report to the Governor and the Legislature on the feasibility of implementing the program on a Statewide basis.
Many of the comments on the Daily Record story are concerned with overloading the curriculum and/or extending the school day. Some have questioned whether the new class should replace Home Economics.
This is Home Economics. In my Home Economics class, we learned how to make pancakes and pillows. I would be much better off having learned to balance a checkbook. Besides, my Home Economics class was in 6th grade, and these new classes would be in High School. I recommend using “Finance 101″ to replace European History.
If the only value of higher education is the money you earn throughout your lifetime with your college degree, then SmartMoney’s recent study might help you decide where to matriculate. Ivy League schools don’t pay off as much as one might expect. The magazine surveyed the annual salaries earned by graduates of 50 of the most expensive four-year schools, three years and fifteen years after graduation. The data were used to determine a “payback ratio.” You can compare payback ratios of different schools to get an idea of whether and how fast the cost of tuition will pay off in terms of income earned.
Here is what SmartMoney has to say about this survey’s approach:
Ultimately, we weren’t trying to measure the quality of education or colleges’ selectivity. Other rankings take ample care of that, and dedicated students will thrive at any of these fine schools. But with boutique private colleges coming under heavy criticism for spiraling costs, our payback numbers certainly raise questions about the actual “return” on an educational investment.
“Return” is more than the financial benefits you receive from an education, and putting that aside to look just at the dollars creates an interesting comparison. But this shouldn’t be the only factor or the deciding factor when choosing a college. There is a tendency for business-minded folk to measure everything through “ROI” (return on investment) or to look purely at numbers through a “cost/benefit analysis.” Decisions based on pure financial anlysis don’t necessarily result in happiness or satisfaction with long-term goals.
Here are the top 5 public schools, liberal arts schools, and Ivy League schools based on SmartMoney’s “payback ratio.”
Last year, I asked in high schools should require money management classes. My point of view is that such classes should be optional and/or lessons in personal finance can be incorporated into other classes throughout middle school and high school. Not everyone agrees with me, however, considering the state of financial distress many in this country face.
A commenter wrote in to describe his experience with a specific money management curriculum called Real Money, Real World, part of the Your Money NOW program sponsored by the Ohio Treasurer of State.
Schools can devote as little as 90 minutes or as much as a grading period to the program.
It works like this: Students get jobs and salaries based on their current GPA (the higher your GPA, the better paying job you get). Several booths are set-up with different signs relating life events. Students go to each to add children, housing, entertainment, cars, etc into their budget. At the end, they have to have a balanced budget.
I helped out at one of these events at my local high school and it was great to see these kids doing the math and complaining how much kids cost or how they can’t buy the clothes they want because their job doesn’t allow it.
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Here are the top 5 public schools, liberal arts schools, and Ivy League schools based on SmartMoney’s “payback ratio.”
