Jump-Starting Financial Literacy

CPAs can add the spark.
BY STANLEY H. BREITBARD

EXECUTIVE SUMMARY
IN TODAY’S COMPLEX FINANCIAL WORLD, Americans more than ever need training to help them cope with debt, saving, retirement planning and similar concerns. The Jump$tart Coalition for Personal Financial Literacy is a nonprofit organization dedicated to raising the level of financial knowledge throughout the United States.

SINCE SAVING AND SPENDING HABITS FORM EARLY, the best way to help Americans solve their financial problems seems to be with education starting as early as kindergarten and lasting through 12th grade. Jump$tart believes schools are the place to get the job done.

IN ASSOCIATION WITH TOP EDUCATORS AND ECONOMISTS, Jump$tart has established benchmarks for financial literacy in grades 4, 8 and 12. For example, in grade 4 students learn that people can get income by earning wages and salaries or by receiving monetary gifts. In grade 8 they learn about rent and interest and by grade 12 they understand that income relates to the decisions they make about jobs, careers and education.

JUMP$TART GIVES CPAs THE OPPORTUNITY TO USE THEIR expertise to help improve Americans’ financial survival skills. They can do this by joining an existing coalition state board, by helping organize a chapter in the 20 states without one or by becoming involved in an organization such as Junior Achievement that gives CPAs opportunities to teach young people about business.

THE CONTRIBUTIONS CPAs MAKE TO THE FINANCIAL literacy cause can have a significant impact on young people by improving their chances to find jobs, buy homes, educate their children and retire comfortably.

STANLEY H. BREITBARD, CPA/PFS, is chair of the California Jump$tart Coalition. He was national director of personal financial services at PricewaterhouseCoopers until his retirement. His e-mail address is bbard@earthlink.net .
   
t a time when the financial world is becoming more complex, education to help consumers cope is woefully lacking. American households carry significant credit card debt, personal bankruptcies are on the rise, savings rates are declining and workers mismanage the defined contribution plans they they need for retirement. One organization working to remedy this situation is the nonprofit Jump$tart Coalition for Personal Financial Literacy, an umbrella organization for corporations, government agencies, foundations and others dedicated to improving financial literacy throughout the United States.

Jump$tart provides accountants a unique opportunity to contribute their knowledge and leadership skills to make a difference. CPAs regularly see the results of poor financial education when they counsel clients who have made bad business and investment decisions. The coalition focuses the resources of organizations and individuals dedicated to raising the level of financial literacy, giving CPAs an opportunity to leverage their volunteer efforts. This article describes Jump$tart’s work and explains how accountants can become a part of this critical effort to improve financial literacy in the United States.

“Strategies must be developed to overcome the education deficiencies that all too many of our young people have. Just as the marketplace has responded to an increased demand for conceptual job skills by increasing the range of education options available to individuals, efforts to provide consumers with information and training about financial matters throughout their lives must also be expanded.”

–Alan Greenspan, April 2003 address to Jump$tart Coalition.

FINANCIAL STATE OF THE UNION
The absence of personal finance education can take an enormous toll. Large numbers of people are in financial distress or unable to achieve their goals. Here are some shocking facts: Some 40% of Americans live beyond their means. Average credit card debt per household rose to $8,562 in 2002 from $2,985 in 1990. More than half of American workers between the ages of 45 and 54 did not have any kind of retirement account in 1998.

Financial ABC’s
A survey showed many high school students scored poorly on their knowledge of money and business. Those who used a credit card had even lower scores and those who felt “very sure” about their money skills demonstrated less expertise than the ones who felt “somewhat sure.”

Average scores on the national Jump$tart survey declined to 50.2% in 2002 from 57.3% in 1997.

Approximately 51% of students surveyed said a bank certificate of deposit is not protected by the federal government.

About a third said retirement income from a company is called Social Security.

Half believed earnings from savings accounts are not taxed by the government.

Source: “Financial Literacy: A Growing Problem,” Lewis Mandell, PhD, Jump$tart Coalition for Personal Financial Literacy, 2002.

Spending and saving habits form early. American teenagers spend more than $172 billion a year. One in three 18- and 19-year-olds carries a credit card. College freshmen get an average of eight credit card offers their first week of school. University administrators report they lose more students to credit card debt than they lose to academic failure.

The best way to attack the problem seems to be with education, beginning as soon as kindergarten and lasting through 12th grade. What can kindergartners and first-graders learn? Plenty. They see their parents at the ATM getting cash and using plastic cards to pay for groceries, clothing and other items every day. It’s not too early to introduce five- and six-year-olds to the concepts of money and banks.

Exhibit 1 : Sample Survey Test Questions
The Jump$tart Coalition asked the following questions to test high school students’ financial knowledge.

1. Maria has applied for a credit card. She is an 18-year-old high school graduate with few valuable possessions and no credit history. If Maria is granted a credit card, which of the following is the most likely way the credit card company will reduce its risk?

a) It will charge Maria twice the finance charge rate it charges older cardholders.
b) It will require Maria to have both parents cosign for the card.
c) It will make Maria’s parents pledge their home to repay Maria’s credit card debt.
d) It will start Maria out with a small line of credit to see how she handles the account.

2. Adam must borrow $10,000 to complete his college education. Which of the following would not be likely to reduce the finance charge rate?

a) If he went to a state college rather than a private college.
b) If his parents took out an additional mortgage on their house for the loan.
c) If the loan was insured by the federal government.
d) If his parents cosigned the loan.

3. Ron and Molly are the same age. At age 25 Molly began saving $2,000 a year while Ron saved nothing. At age 50, Ron realized he needed money for retirement and started saving $4,000 per year while Molly kept saving her $2,000. Now they are both 75 years old. Who has the most money in his or her retirement account?

a) They would each have the same amount because they put away exactly the same.
b) Ron, because he saved more each year.
c) Molly, because she has put away more money.
d) Molly, because her money has grown for a longer time at compound interest.

To see the correct answers, the complete test and how the students answered the questions, go to www.jumpstart.org/upload/surveyresultsapril2002.doc ..

Children need to learn financial survival skills, and schools are the best place to get the job done. Why is it better to teach young people in school classrooms? Why not help parents teach their own children? The answer is we should be doing both. But the best starting point is in school because most parents themselves are poorly informed about personal finance issues and frequently make bad role models. Even financially savvy parents find it difficult to talk to their kids about money.

Many organizations are attempting to solve the financial literacy problem. The Jump$tart Coalition brings them together. The coalition unites 140 constituent groups such as the NASDAQ Education Foundation, Merrill Lynch, Bank of America, Junior Achievement, the Federal Trade Commission, the National Council on Economic Education and the National Education Association. The coalition’s objective is to encourage the teaching of personal finance in all grades.

Jump$tart also creates public awareness on the need for financial education. Toward that end the organization surveys the depth of high school students’ financial knowledge and publicizes the results. Its 2002 poll (its third biennial survey) reached more than 4,000 high school seniors in 179 schools across the United States. (See exhibit 1 , above, for some sample questions.) Participating students answered 31 multiple-choice test questions on saving, investing, spending, taxes, retirement, insurance, credit use, inflation and budgeting; 68% flunked the test. This represents a huge increase from the 59% who failed in 2000 and the 44% who did so in 1997. These results show a dramatic need for formal financial education of young people.
“This year the California Society of CPAs is launching a financial literacy initiative. The CPA profession is at the heart of sound financial decision making, and our members take this responsibility very seriously. Teaching California residents sound financial practices is just one more way we achieve our goal of protecting the public while rebuilding its trust.”

–Steven Wimmers, CPA, chair,
California Society of CPAs.

The national coalition—in association with top educators and economists—has established standards and benchmarks for financial literacy at grades 4, 8 and 12. The 26 standards define income, money management, spending and credit and saving and investing skills these target ages should master. For instance

In grade 4 students are taught that people can get income by earning wages and salaries or by receiving monetary gifts from others.

In grade 8 students learn that people also can earn income from rent and interest.

In grade 12 students develop an understanding that people’s income reflects choices they make about jobs and careers, education and skill development.

Jump$tart provides a clearinghouse of materials on personal financial education, much of which is free to anyone at www.jumpstartclearinghouse.org . The repository contains a variety of books, pamphlets, workbooks and interactive games and videos to help children learn about money. The coalition also puts these vast resources and depth of expertise to use educating policy makers. Proposed state legislation to add some form of personal finance education to public school curricula jumped 300% in 2002.

Exhibit 2 : State Jump$tart Coalition Efforts
Here’s a sampling of what some state coalitions are doing:

California . Teaches personal finance to teachers; holds semiannual member meetings; educates and informs state politicians and other policy makers; and is creating a Web-based link of personal finance issues to California math standards.

Georgia . Sponsors “Georgia Saves,” which encourages lower-income Georgians to start savings plans.

Iowa . Holds teacher training conferences; and partners with business, labor and community-based organizations to provide personal finance information.

Mississippi . Conducts “Money Matters” seminars; and succeeded in getting the state’s governor to proclaim April 2003 “Financial Literacy for Youth Month.”

New Hampshire . Holds annual “MoneySmarts” teachers’ conference; and created a student advisory committee.

Wisconsin . Holds annual Institute of Financial and Economic Education for teacher training; and holds money conferences with programs for children and parents.

Jump$tart has supported the formation of 30 state coalitions. They operate autonomously but exist for the same reason as the national organization—to promote personal finance education in schools. The state groups in some ways mirror the national organization, with representatives from the state affiliates of national groups and businesses. State Jump$tart coalitions create projects and programs tailored to the special circumstances of their regions. ( Exhibit 2 , above, shows some of the state programs).

CASE STUDY
M ichael Eisenberg, CPA/PFS, principal of Michael M. Eisenberg Accountancy Corp. in West Los Angeles, finds Jump$tart a perfect way to contribute his unique skills to the betterment of the community. In his practice Eisenberg provides financial and estate planning, taxation and consulting services to individuals and businesses. He first heard about Jump$tart at meetings of the California Society of CPAs personal financial planning committee.

Today Eisenberg participates with Jump$tart in several roles: He is on the board of directors of the California coalition, instructs teachers in financial education and works to inform policy makers of the need to raise the level of financial literacy. “It feels good to use my professional expertise to help society solve some of its major problems.” And, he says, his Jump$tart experience has made him a more effective financial adviser because he has learned that he needs to educate his clients on basic financial concepts.

Eisenberg was recently appointed chair of a new state society committee charged with improving the personal financial knowledge of Californians, part of the society’s initiative to increase financial literacy. He says the committee will be able to move more quickly by working closely with Jump$tart instead of creating programs from scratch.

California Jump$tart created the “Financial Smarts for Teachers” program to help educators with their own financial lives. Eisenberg found his experience teaching in the pilot program worthwhile because, he says: “I helped the teachers become more comfortable with financial issues. I loved the experience of getting up in front of 60 strangers and helping them with concepts they knew nothing about.”

CPAs NEEDED
CPAs have a long tradition of service to nonprofit organizations. Jump$tart gives them the opportunity to be involved in something that relates directly to their professional expertise. Financially savvy consumers mean greater demand for accounting and tax services. Promoting fiscal responsibility also is good public relations for CPAs, firms and the profession. And last but not least, teaching people financial survival skills promotes positive social change. The case study tells the story of one CPA’s involvement with Jump$tart.

State Jump$tart coalitions offer many ways to participate: CPAs can provide leadership by joining an existing state board or by helping organize coalitions in the 20 states without them; they can instruct teachers in one of the many state-sponsored programs; and they can help raise money and get in-kind donations for the various coalition programs.

CPA Mitchell Freedman, principal of Mitchell Freedman Accountancy Corp. in Sherman Oaks, California, participates in all aspects of the state’s Jump$tart coalition. Freedman helped organize the coalition, serves as treasurer and member of the board of directors, raises donations and conducts teacher workshops.

There are many opportunities for CPAs to participate in personal finance education. As a coalition Jump$tart partners with other organizations that have similar goals. Two are particularly suitable for CPA involvement. The National Council on Economic Education and its state affiliates train teachers to include personal financial skills in their classroom lessons. Junior Achievement uses volunteers to teach business and financial concepts with the cooperation of educators. See “ Practical Tips on How CPAs Can Help ” at left for information on how to contact and join these organizations.

PRACTICAL TIPS ON HOW CPAs CAN HELP

Here are some ways CPAs can get involved in helping to raise financial literacy:

Join a state Jump$tart coalition board. Click on your state’s information at www.jumpstart.org/states.cfm and contact the group’s leader.

Help organize Jump$tart in a state without a coalition. Contact info@jumpstartcoalition.org for more information.

Join the board of a state affiliate of the National Council on Economic Education. Check out www.ncee.net/network/directory.php .

Volunteer for classroom teaching. Contact your local Junior Achievement by using the directory at www.ja.org/near/near_map.asp .

Check the descriptions many coalition member organizations have written of their need for volunteers, funding and in-kind services. These profiles are archived at www.jumpstart.org/ff.htm .

SPARKING SUCCESS
By joining forces with the Jump$tart Coalition and its partner organizations, CPAs can help make a difference in personal finance education. Teaching young people basic financial survival skills improves the chances they will be able to find jobs, save money, buy homes, educate their children and retire comfortably. Some will go even further and succeed beyond their own dreams.

AICPA Efforts to Improve Financial Literacy
T he AICPA and the AICPA Foundation have long been committed to educating Americans about the importance of managing their finances. In the past year alone, the Institute reached out to many audiences—from students to women investors—and provided them with information to make sound tax and financial planning decisions. In the coming year the AICPA will bring these efforts together to underscore the CPA’s role as protector of the public interest in teaching Americans of all ages how to save, invest and spend money wisely.

Teaching Students and Educators
One way to educate young Americans about money management is to teach them about the CPA profession. Several years ago the AICPA introduced the CPA Information Package (iPACK), a collection that includes a video, teacher’s education handbook and student career guides. The 15-minute “Takin’ Care of Business” video features five successful young CPAs pursuing various career paths. The education handbook contains 15 lesson plans with objectives and teaching procedures, student learning activities and solution sets. It covers financial statement analysis, budgeting and forecasting, cost-benefit analysis, writing a business plan, ethics and the time value of money. These lessons show students the importance of understanding financial concepts and how they relate to real-world situations. For more information on the iPACK, go to www.cpa2biz.com/CS2000/Products/CPA2BIZ/CPA+iPACK.htm?cs_catalog=CPA2Biz .

The AICPA is also reaching students by educating their teachers about personal finances. Last year the AICPA Foundation provided funding for “Financial Smarts for Teachers,” a program California Jump$tart created to help instructors understand their own financial lives (see “Case Study”).

Two new television programs funded by the AICPA Foundation focus on teaching middle and high school students about personal finance and the accounting profession. Geared toward junior high school students, Pennywise teaches basic money management concepts such as the history of money, checking and savings accounts, ATMs and budgeting. Business Building Blocks, aimed at early high school students, provides information on accounting principles such as financial planning, budgeting and forecasting. Both programs aired on PBS YOU in the summer of 2003. The foundation is considering other distribution channels.

Already in its second year, the AICPA student recruitment campaign has attracted more than 80,000 high school and college students interested in the CPA profession. The campaign’s Web site, www.startheregoplaces.com , features games to help students understand the important role CPAs play in the success of business. The site is introducing new scenarios that allow students to practice managing money in several business contexts.

Investing With Knowledge
Forty-five million Americans have more than $1.8 trillion in 401(k) plans. How can they trust their money is being handled wisely? Last year the AICPA provided technical review for a handbook for CPAs and other financial managers, Prudent Investment Practices: A Handbook for Investment Fiduciaries, developed by the Foundation for Fiduciary Studies. It identifies 27 essential practices anyone who has legal responsibility for managing another person’s money should follow. The handbook references the appropriate code sections, regulations and laws to help users map out prudent investment and risk management strategies. CPAs can order the handbook at www.ffstudies.org .

Managing Finances for Today and Tomorrow
For the second year in a row, the AICPA and Money magazine have sponsored Women’s Financial Health Week, reaching an estimated 80 million consumers through print, television and radio coverage. Some 13,000 women participated in the program in January 2003 by visiting the official Web site and chatting online with a Money senior editor and a group of CPA personal financial specialists. Women also took part in a financial comfort quiz that offered personalized recommendations to strengthen their budgeting skills.

For more than 15 years, the AICPA has written articles to help consumers across America learn how to understand their finances. The Institute’s money management series covers personal finance and small business topics such as saving for college, tax planning, getting out of debt, preparing for retirement and incorporating a business. The AICPA also creates public service announcements and distributes them to state CPA societies, which place them in community and regional newspapers and on local radio stations.

Disaster planning. No one ever expects to be affected by a catastrophe. Unfortunately, each year, thousands of Americans are. To help them recover from the financial devastation of disaster, the AICPA and the National Endowment for Financial Education (NEFE), with support from the AICPA Foundation, jointly developed a disaster recovery guide. Offered free of charge by local American Red Cross chapters, it guides people through each stage of financial recovery. Already, more than 83,000 copies have been distributed. During September’s Hurricane Isabel, the AICPA reached out to state CPA societies to help them work with Red Cross chapters in their areas to provide financial services to victims of the disaster.

—Cheryl Gravis Reynolds, AICPA communications division, New York City

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