DAILY JOURNAL: Support state SB 1080 to improve financial literacy in California

April 04, 2012

By Blair Schlecter

Currently, there is no requirement in California that students be taught anything about financial literacy in our K-12 public schools. As a result, our citizenry emerges from our educational system unprepared to manage their money, avoid scams, and invest wisely. This state of affairs is completely unacceptable. In fact, the lack of financial education is already having a deleterious effect on our society. The recent financial crisis demonstrates what can occur when financial tools, such as adjustable rate mortgages and mortgage backed securities, are poorly understood.

Fortunately, the state is taking a good first step towards addressing this challenge. Senate Bill 1080, introduced by Senator Ted Lieu, is currently working its way through the state legislature. Senator Lieu has been a firm and long-standing proponent of financial literacy, having sponsored several previous, unsuccessful bills to make financial literacy part of the school curriculum in California.

The elements of the bill are twofold. First, it would authorize school districts to provide some instruction on personal finance in the economics class currently required in public schools. Second, it requires the state Department of Education to develop a personal finances curriculum the next time the state's mathematics and history-social science curricula frameworks are reviewed and adopted.

As noted by the bill, California does not have an official statewide policy or educational plan to teach financial literacy. The state's public school curriculum is set by state law, and includes instruction in a variety of topics such as math, science, and history. One semester of economics is now required, but instruction on any component of financial literacy is discretionary. As a result, many citizens lack sufficient knowledge of how to properly manage, save, and invest their money. When combined with the recent growth of online savings and retirement accounts, which increase the average person's access to the financial system and markets, this lack of knowledge is a recipe for disaster.

The bill's proposed legislative findings are startling. According to a 2007 national survey, nearly 50 percent of homeowners with adjustable rate mortgages did not know how their adjustable rate mortgages will adjust or reset. The national annual savings rate declined from nine percent in the 1980's to about negative 0.4 percent of after-tax household income, a level not seen since the Great Depression.

When combined with the recent growth of online savings and retirement accounts, which increase the average person's access to the financial system and markets, this lack of knowledge is a recipe for disaster.  Lack of financial literacy lowers standards of living and limits prosperity. Teaching economic and financial literacy not only reduces staggering high school dropout rates by giving students a powerful rationale to stay in school, it also allows them to develop their human capital - the prospect of over $1 million more in lifetime earnings compared to a high school dropout.

Financial literacy is also important to helping individuals help themselves and avoid future financial trouble. It is key to arming people with knowledge about financial scams, particularly the poor, who are often targeted for predatory lending and other frauds. Without financial literacy, our state and country cannot be competitive in this global economy.

In five or 10 years, the costs to our society from lack of instruction in financial concepts will only increase. We should act now. Financial literacy is a big issue that no one is talking about. Make an effort to change that. The passage of SB 1080 is uncertain. The bill needs your support and the support of friends and family.

Please contact your local representative and the governor's office to let them know that you support SB 1080 and that financial literacy is important to you. Together, we can ensure that financial literacy is a core part of our educational system in California.

Blair Schlecter is an attorney and serves on the Board of Directors of the California Council on Economic Education (CCEE), a non-profit organization that educates teachers and students in economic and financial literacy (www.ccee.org). Mr. Schlecter can be reached at blair@legalwritingandappeals.com.