Consider the following quiz.
1. Suppose you have $100 in a savings account that earns 2% interest per year. After 5 years, how much would you have if you left the money to grow?
A. More than $102
B. Exactly $102
C. Less than $102
2. True or False: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but total interest over the life of the loan will be less.
3. True or False: Buying a single stock usually provides a safer return than a stock mutual fund.
These are a few of the 28 questions asked each year in TIAA's Personal Finance Index survey to assess the general level of basic financial literacy among American adults. The results are not encouraging.
On average, U.S. adults correctly answered just 48% in the 2023 survey, down slightly from last year and a failing grade by any standard. This has major real-life consequences, as people with low levels of money knowledge are 4 times more likely to have difficulty making ends meet and are 3 times more likely to be encumbered with excess debt. According to the National Financial Educators Council, financial illiteracy costs the average American over $1,800 per year, translating into $430 billion across the adult population including over $120 billion in credit card interest and fees. Meanwhile, nearly 1 in 20 retirees on Social Security are still making student loan payments. Closer to home, rates of personal bankruptcy in Tennessee are the 5th highest in the nation behind Alabama, Kentucky, Mississippi, and Nevada.
Of most concern, younger adults fared the worst, with members of Gen Z (age 26 and below) with an average score of 38% and only1 in 10 able to answer 75% correctly (a solid "C"). This disturbing outcome once again highlights the critical need for more fulsome financial education in our public schools.
The Hamilton County School District has taken up the challenge and is elevating its game beginning in the fall term. The district has partnered with Next Gen Personal Finance and the Tennessee Financial Literacy Commission to add rigor and depth to its half-credit, semester-long financial literacy course and is targeting primarily junior and senior-level students to better prepare them as they leave for college or enter the workforce. The school district is also collaborating with the CFA Society of East Tennessee to incorporate real-world financial expertise into the learning experience. As a result, students will graduate from Hamilton County High Schools much better prepared to make sound financial decisions and avoid the debt and spending traps that have entangled so many young adults.
Next Gen Personal Finance is a not-for-profit organization dedicated to the ambitious mission of delivering essential financial education to every student by 2030. The organization was established and funded in 2014 by a California entrepreneur and provides a rich curriculum as well as an array of additional resources, all free of charge to schools. Hamilton County is taking advantage of the Next Gen materials and is currently introducing them to finance instructors during summer professional development sessions.
The Tennessee Financial Literacy Commission was created in 2010 to improve financial outcomes for Tennesseans by introducing critical money concepts in schools. The commission has focused most of its efforts on introducing money concepts to elementary and middle school students but is expanding its reach into secondary schools. Beginning with the class of 2013, every Tennessee high school student is now required to complete a 1/2 credit class in basic financial literacy, but the state mandate is unfunded and relies on each individual district to create and administer its own program. Results have been mixed and the mandate has often taken a back seat to competing priorities for administrators and teachers across the state. Nevertheless, the requirement represented a huge step forward and will receive more attention going forward.
Beginning this coming term, Hamilton County is leading the way. Not only is the district utilizing the best-in-class Next Gen curriculum, but it is elevating financial literacy to a core requirement and targeting older students closer to the time they must contend with college financing, employment, debt, and investment decisions whose consequences will have long-lasting impacts of their lives.
The school district has also teamed up with the CFA Society of East Tennessee which is serving as a resource and offering volunteers to visit classrooms and support instructors. The Chartered Financial Analyst designation or CFA is considered the gold standard in the investment profession, requiring an average of 900 hours of study, passing 3 challenging 6-hour examinations, and adhering to a rigorous code of ethics. The CFA Institute is a truly international organization with over 190,000 CFA Charterholders across 163 countries. The CFA Society of East Tennessee (encompassing Chattanooga, Knoxville, and upper East Tennessee) has adopted an outreach mission to improve financial literacy within its footprint, coinciding nicely with the far-sighted efforts of the Hamilton County Schools.
Hamilton County's commitment to prioritize financial education and adopt the Next Gen curriculum places our system in the vanguard of districts within Tennessee and could serve as a template for collaboration aimed at improving financial literacy and overall wellbeing of Tennesseans. Good news.
(Answer key: 1. A; 2. True; 3. False)
Christopher A. Hopkins, a chartered financial analyst, is co-founder of Apogee Wealth Partners in Chattanooga.