Pay Dirt: Don't know much about finance?

I guess it takes a mortgage crisis to get financial literacy the attention it's due. With even middle-class Americans overextended, President Bush in January announced a President's Advisory Council on Financial Literacy. He said then that "personal financial crisis, if accumulated to too many folks, hurts our country."

Federal Reserve Chairman Ben Bernanke elaborated on the issue Wednesday at an event in Washington, D.C., saying: "In light of the problems that have arisen in the subprime mortgage market, we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace."

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. College students took the quiz for the first time this year and scored an average of 62 percent.

The 31-question quiz covers everything from credit cards to taxes to how interest works. It's not easy: Chances are teens haven't had any experience with half of the topics covered.

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.

This year, for the first time, Jump$tart released Minnesota results. High school seniors scored 53 percent -- slightly better than the national average, but certainly not enough to earn us bragging rights.

So what should we do?

Make 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. Because high school students typically don't make important financial decisions, they "tend to not retain much of what they learn in formal courses about buying a house, investing in securities, purchasing insurance or saving for retirement," writes SUNY-Buffalo Prof. Lewis Mandell in his report.

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.'"

Make 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.

Make 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. Consumers need to shift their priorities from shopping to safety nets and start to live within their means. Wall Street must stop creating financial products they would never sell to their parents or friends. Unfortunately, we're all getting a crash course in what happens when profits are put before people.

Kara McGuire • 612-673-7293 or kara@startribune.com.