Passing along financial know-how

Today’s high school seniors have some work to do before they can be called financially literate. The nearly 7,000 high school seniors from 40 states who took the 2008 Jump$tart Coalition for Personal Financial Literacy survey answered an average of 48 percent of the questions correctly. That’s a drop from 52 percent in 2006 and 57 percent in 1997.

The 31-question quiz covers everything from credit cards to taxes to how interest works. Did you know that compared to savings bonds, stocks have the highest growth rate over long periods? Just 17 percent of the seniors did. Only one-third knew that retirement income paid by a company is called a pension. Maybe getting that question right is less important for this generation.

So what should we do?

UMake it a requirement. Minnesota’s Jump$tart chapter president and high school teacher Jim Eisenreich thinks a personal finance class should be mandatory in high school. “If it’s important enough, you require it, just like English and math.”

However, some research has shown that students who take a financial literacy course still bounce checks and make other financial boo-boos five years later. But Richard Todd, a vice president at the Federal Reserve Bank of Minneapolis, hopes a course would create “somewhere in the back of the brain the awareness ‘I do need to be careful about money, I do need to be careful about what people are trying to sell me.”’

UMake it family finance. Some teens may receive financial counseling from a bank or credit union. But the majority learn about money through what they witness at home. Given the nation’s low savings rate and the growing number of delinquent credit cards, auto loans and mortgages, it looks as though plenty of adults are in no position to teach their children how to use debt safely and how to budget.

Instead of hiding their financial ignorance from their kids, why not make it a family project to better understand money issues? Plenty of free resources are online or in the community; it just costs time.

Moms and dads who are up to speed on such topics should take every chance to involve their children in day-to-day household finances. Co-sign a credit card and allow them to make little mistakes under your supervision rather than catastrophic ones while in college. Put them in charge of the grocery budget for the month. Open a mutual fund and follow its performance together.

UMake changes. Homeowners haven’t always been able to pay down credit card debt with home equity. Credit cards haven’t always been marketed to teens. Late fees and overdraft fees didn’t used to be such cash cows for banks. Financial institutions need more consumer-friendly policies and less fine print.

Test your financial smarts and take the entire quiz at: www.startribune.com/kaching.

1. Which of the following is true about sales tax?

(a) The national sales tax percentage rate is 6 percent.

(b) The federal government will deduct it from your paycheck.

(c) You don’t have to pay the tax if your income is very low.

(d) It makes things more expensive for you to buy.

2. If your credit card is stolen and the thief runs up a total debt of $1,000, but you notify the issuer of the card as soon as you discover it’s missing, what is the maximum amount that you can be forced to pay, according to federal law?

(a) $500

(b) $1000

(c) Nothing.

(d) $50

3. Many savings programs are protected by the federal government against loss. Which of the following is not?

(a) A U.S. savings bond.

(b) A certificate of deposit at the bank.

(c) A bond issued by one of the 50 states.

(d) A U.S. Treasury bond.

Answers: 1 (d), 2 (d), 3 (c)

X Kara McGuire writes about personal finance. Write to her at kara@startribune.com or at the Star Tribune, 425 Portland Ave., Minneapolis, MN 55488.