ERIE, Pa. — Here’s $1,000. It’s a loan, offered at 20 percent interest. If you accept it, how much are you expected to pay back in the first year?
If you say $200, you’re correct. You’re also more financially aware than most Americans: Nearly two-thirds of the U.S. population cannot calculate an interest payment, according to a 2016 study by the FINRA Investor Education Foundation.
FINRA surveyed more than 27,500 Americans, asking basic questions about financial risk. Respondents were deemed financially illiterate if they missed three of five given questions.
In those households, problems compound faster than a payday loan. Consumers who do not understand basic financial concepts tend to borrow more, and at higher rates. They also pay more in transaction fees.
“If two-thirds of our population were book-illiterate, that would be considered a national crisis. We would be addressing it at every level of our educational system,” said Greg Filbeck, director of the Black School of Business at Penn State Erie, The Behrend College. “Financial literacy also can hold families back, but as a culture, we tend to not show the same level of concern for an issue so central to our lives.”
Twenty-six states, including Pennsylvania, have no curriculum requirement for basic K-12 financial education. Students are not learning to budget, and that’s costing them money: Roughly a third of all bank fees and interest-rate overcharges are due to errors or oversights by borrowers.
Two years ago, Filbeck and Jessica Zhao, professor of finance, surveyed teachers in 53 high schools. They asked about numeracy — the ability to grasp basic financial data — but also about students’ confidence when handling finances.
“That aspect shouldn’t be overlooked,” said Jason Pettner, a 2018 Black School of Business graduate who expanded the surveys and presented learning plans to teachers in Pittsburgh, Warren, and Buffalo, New York.
“People fear what they don’t understand, and when they don’t understand budgeting or the basics of investing, they miss out on opportunities,” he said. “They plan for the future by putting money under the mattress.”
Pettner’s passion for financial education began at home: He was just 10 when his father died. A financial planner helped the family invest the insurance money — a financial life raft that carried Pettner into college.
Last year, he and two classmates — Ben Lowery and John McDermitt — trained teachers at more than 40 high schools to incorporate basic financial awareness in their lesson plans. A partnership with the CFA Society of Pittsburgh could expand the effort to 85 more schools in Pennsylvania and West Virginia.
“Teachers are fighting an uphill battle,” Pettner said. “The data shows that this works, but it takes manpower. We need more people going out and talking to these classes.”
He tells his own story when he meets with teachers. It gives them perspective.
“This isn’t just about data sets,” Pettner said. “This is about people’s lives being changed through financial education. That change doesn’t occur overnight, but if you start early and stay with it, it really isn’t difficult to put yourself on solid financial ground.”