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Kids, cash and credit

From the Salem News, April 11, 2006

Jay Asser is investing in Domino's Pizza and tracking the company's stock online while Ashley Gonzalez is taking a close look at the strategy of short-selling stocks.

If Asser and Gonzalez were in their 30s, or even 20s, many would think nothing of their daily fixation on the ups and downs of the stock market.

But both are sophomores in Salem High School's “Investing Your Money” class, a 10-week course taught by teacher Carol Carr that covers topics like the stock market, savings bonds and accounts, CDs and 401(k)s.

The course isn't mandatory, and many high schools across the state and country have yet to institute financial planning or management classes, according to a national organization that promotes financial literacy among youths.

“It makes no sense to me to let our kids leave our schools without knowing how to manage their own finances or plan for retirement,” said Carr. “Every single kid who leaves here is going to get a job and start getting a paycheck and they should know what to do with it.”

But many high school students are flunking out when it comes to finances.

Seniors at 10 Massachusetts high schools scored slightly better than their peers nationally in the latest survey of personal finance knowledge conducted for the JumpStart Coalition for Personal Financial Literacy, a Washington, D.C.-based nonprofit.

The 205 Massachusetts seniors answered 55.1 percent of the 31 questions on the survey correctly. Nationally, 5,775 seniors surveyed in 37 states averaged correct answers on 52.4 percent of the questions. The survey asks questions on subjects such as credit card interest, ATMs, loans, inflation, taxes, retirement and investment options.

The survey showed that nationally, few seniors understand that interest on savings accounts may be taxable; that stocks are more likely to have a higher return than savings bonds, savings accounts and checking accounts over time; and more than half thought retirement income paid by a company was called Social Security or a 401(k), versus a pension.

Questions that garnered the most correct answers from students were in such areas as bank savings accounts, ATM terms and conditions, sources of income and credit history.

“While Massachusetts students faired slightly better, they still had failing scores in a subject that they will have to grapple with in their daily lives,” said Lt. Gov. Kerry Healey, who along with Gov. Mitt Romney declared April as Youth Financial Literacy Month in Massachusetts. “Close to 400 teachers in 200 Massachusetts cities and towns have taken government-funded financial literacy training to introduce it in the classroom. That's encouraging, but I think that financial literacy needs to be just as important in our schools as math, science and reading. To get there, we have a lot of work to do.”

Local schools take action
But high school students across the North Shore are learning some serious personal finance life lessons, thanks to teachers such as Carr, Gloucester High School's Ann Grassetti, and Danvers High's Meghan Symmes.

Symmes, an advanced math and accounting teacher, makes her students bring in major credit card offers they receive in the mail to examine the traps that could get them into debt. Carr gives students a pretend $34,000 annual salary and charges them with figuring out how to cover monthly expenses. Grassetti, who teaches and leads her school's business development program, has, in the past, had students invest small amounts of their money in the stock market. Some of her students invested $5 or $10 a week to buy one stock worth $100 within a 10-week period, for example, as a means of gradually grasping the stock market.

The results of the teachers lessons are often humorous, and a little alarming.

Students in Carr's class learn what their take-home pay will be after taxes, and what rent, utility payments, car or school loans will cost them, not to mention personal expenses.

“When they looked up the cost of apartments on the North Shore, some of them said. 'Is this $850 for the year?'” said Carr. “When I told them the apartment costs $850 a month, their mouths dropped open. When they found out how much the interest on a car loan would be, many of them said 'I'll just walk to work then.' They try to avoid situations that will strain their budget, but they're learning how to budget long-term. They're also seeing just how easy it is for $34,000 to whittle down to nothing.”

The Danvers course explores similar challenges. Senior Lindsay Madden got a taste of financial reality when she began budgeting her expenses in Symmes' class.

“The budgeting lesson really surprised me because of the amount of money I'll need to make to be able to keep the lifestyle I want..shopping, going out with my friends, once I get to college,” Madden said.

'Pay yourself first'
Carr has two class mantras: “Time is money, and money needs time to grow,” and “Pay yourself first.” She also often starts her class by saying, “If I knew then what you're learning now in this class, I would be retired by now.”

Ask Carr's students and they will repeat her lessons back as if on autopilot because she's driven home the need to plan and save.

“'Pay yourself first' means start putting aside money each week now while you're young,” said Gonzalez, who has a Certificate of Deposit, or CD (which many students in Carr's class initially thought stood for compact disc) and puts money aside in her savings account each week. “College is expensive and I'm going to face a lot of challenges ahead that I need to start saving for now.”

Gonzalez said she also has retirement on her mind. “I've learned (in this class) that I need to start investing now because the baby boomers will probably take all the Social Security money.”

In her Danvers High class, Symmes teaches students about the pitfalls of falling into debt. She often makes them figure out how long it will take to pay off a credit card that has a balance of $11,000 with an annual percentage rate of 27 percent.

“When they see that it will take them something like 60 years to pay off some of their credit card balances at some of the interest rates you see now, while only making a minium payment, all the kids are in shock,” said Symmes. “It brings things into perspective.”

Unfortunately, the students' reaction is often 'I won't get credit cards,' said Symmes. “I have to explain to them that not having a proven track record with credit will hurt them 10 years down the road. It's not about credit itself being a bad thing; it's about showing you can manage your credit.“

Trying trading
At Gloucester High, Grassetti has used tools in her classes such as Sharebuilder.com, a site that allows those 18 or older to buy stocks for as low as $4 per investment.

“I left it up to them to invest in what they want,” said Grassetti, who used to run a stock club for students. “Some invested in penny stocks and they got a few cents back on each one. It's definitely a learning experience for them about how the stock market works.”

Grassetti also has lessons on the amount an item, such as a car, will eventually cost when interest and fees are figured in. “I try to teach them about debt by showing them what will happen if they buy a car they can't afford,” said Grassetti. “They have no idea what they'll end up paying later. They think in the now and they're very immediate too in their actions about the future.”

Grassetti said another teacher at Gloucester High is using a high school financial literacy program from the National Endowment for Financial Education called HiFi to teach freshman the basics of interest rates, taking out a loan, balancing a check and credit cards.

Last semester, a team in Carr's investing class came in seventh out of 180 teams that participated in a competition called the Stock Market Game, www.smgww.org. The virtual 10-week game gives student teams the ability to hypothetically invest $100,000 in the stocks of their choice.

Using the game, Carr teaches students about dividends, stock exchanges such as the Nasdaq and NYSE, stock indexes like the Dow Jones industrial average, the need to diversify stock portfolios, definitions of terms like price to earnings ratio, and ultimately how to identify factors that affect how well a company's stock performs.

“The game becomes very real to them because they invest in companies they have an interest in and follow what the companies do every day,” said Carr. “It's really taught them just how volatile the stock market is and how much it's affected by world events.”

Down the line, Carr hopes to introduce more basic classes on topics such as credit cards, insurance, and college preparation, such as filling out applications for financial aid.

On Symmes' wish list are fantasy stock market games available online that let students pretend to invest in interests that hit home.

“I'd like to use stock games that let kids use fake money to invest in a music band and watch to see how the band's stock is negatively or positively affected when they release an album or if the lead singer ends up in trouble,” said Symmes. “It would be a fun way for them to learn about a hard subject.”

Survey says: Students need to learn more about money
The JumpStart Coalition for Personal Financial Literacy 2004-2005 survey results.

Of 5,775 high school students in 37 states, the survey found:

The average financial literacy score was 52.4, up from 52.3 percent in the 2003-2004 survey;
The average score in 1997-1998 was 57.3 percent;
More than half knew that a recently enacted federal law allows them to check their credit rating free once a year;
16.7 percent have taken a money management or personal finance course, down from 20.1 percent in 2004;
Those who have not bounced a check had average financial literacy scores of 53.4 percent, versus those who have bounced checks who had an average score of 45.8 percent;
Those who blamed serious family financial difficulties, such as the inability to pay their bills, on bad luck had an average financial literacy score of 49 percent; those who blamed serious financial difficulties on buying too much on credit averaged financial literacy scores of 55 percent.