LEXIS-NEXIS® Academic Universe-Document

LEXIS-NEXIS® Academic

June 13, 1999, Sunday, FINAL EDITION

SECTION: VIEWPOINTS, Pg. 2H

LENGTH: 681 words

HEADLINE: UNEDUCATED CONSUMERS CREATE BANKRUPTCY BOOM

BYLINE: LEWIS MANDELL

BODY:

A recent Buffalo News editorial described how a new bankruptcy-reform bill, passed by the House of Representatives, ignores the concerns of some consumers. The editorial, however, overlooked one aspect of the bill that is targeted to consumers, and may help stem the record tide of bankruptcy filings in this country: Education.

The bill calls for schools throughout the United States to begin offering personal finance curricula to their students as a way to prepare them for the financial complexities of modern life. This education component of the bill was based, in part, on testimony I presented last spring to a congressional committee investigating trends in bankruptcy. My testimony painted a discouraging picture of the financial skills of teen-agers. I cautioned that most teens graduate from high school without having received an adequate education in personal finance, which makes them prime candidates for bankruptcy in adulthood.

Consider, for instance, the eye-opening results of a personal finance exam that I designed for the Jump$ tart Coalition for Personal Financial Literacy. The test was administered to 1,500 seniors at 65 high schools across the country. The students correctly answered just 57 percent of 31 multiple-choice questions about the basics of money management, saving and investing, spending and credit.

More shocking was the fact that only 10.2 percent of the students scored a "C" or better on the exam. Further analysis revealed that personal bankruptcy rates were the highest in states where students performed the poorest on the exam, suggesting that financial illiteracy is a contributing factor in the nationwide bankruptcy increase.

These results seem to indicate that too many consumers are simply unequipped to deal with the many financial decisions that confront them daily. Making matters worse, every year our nation's high schools graduate millions of students who lack the skills required to make important personal-finance decisions.

Nevertheless these young consumers are the primary targets of aggressive marketing by companies in the financial services industry. While a wide array of choices can help to improve the lifestyle of consumers who possess the sophistication to evaluate them, it confers no such benefits on others.

The financial choices confronting many Americans can be bewildering; poor decisions often have an irreversible negative impact on their financial livelihood, which may result in the need to file for bankruptcy.

Given this evidence, it may seem logical that high schools would readily begin to incorporate personal finance courses within their curriculums. However, just seven states, including New York, currently require completion of any type of personal finance course in order to graduate from high school.

Pressure from parents, educators and business leaders is needed to spur legislative action mandating the development of personal finance curricula within high schools in all 50 states. The House-passed legislation would help achieve this goal.

The Bankruptcy Reform Act of 1999 encourages states to develop personal finance curricula designed for use in elementary and secondary schools. It also calls for the development of a financial-management program for debtors, to help them avoid repeating the mistakes that precipitated their bankruptcy filing.

We live in an era of instant credit, online banking, electronic commerce, Roth IRA TV commercials, and minute-by-minute reports on the rise and fall of the stock market. Sending our children out into this world without first giving them a sound understanding of personal finance is a bit like pushing them out of an airplane without a parachute.

They deserve better from adults who have a responsibility to prepare them to successfully deal with today's economy. For this reason alone, the Bankruptcy Reform Act deserves serious consideration. LEWIS MANDELL is dean of the University at Buffalo School of Management and author of "Our Vulnerable Youth: The Financial Literacy of American 12th Graders."

LOAD-DATE: June 15, 1999