How to Minimize a Future Foreclosure Crisis: A Strategy for High School Financial Literacy Education

by Kara Karpman
Duke University

Semifinalist

Can education be an effective preventative measure to lessen the likelihood of a future foreclosure crisis? Frankly, I'm not sure. It's hard to predict behavior. What I do know is that content and presentation are important motivators for learning. However, good information without good presentation just won't be as powerful and won't create lasting impressions. What is clear is that personal finance messages have to carry us forward through a lifetime. We need to develop a foundation of good habits, reinforce them frequently, and reward them so they stick with us. I advocate a two-pronged strategy: developing a no-nonsense content delivered through a series of frank and powerful visuals.

We have only to consider the financial impact of the retail industry on consumer behavior to understand the power of messaging. It's everywhere and it's constant. It says, buy, buy, and buy. By the time high school students are ready to become homeowners, they will have spent billions on other products with plenty of opportunities to develop bad habits. We have to counteract that effect with a volume of messages portraying the pitfalls of poor spending choices.

Be responsible; don't count on a safety net. My uncle told me that the most effective lesson he learned as a teenager came from my grandfather who said, "Son, if you want to become a teenage dad be prepared to work at a minimum wage job for the rest of your life. Say goodbye to the expensive car, big house and upscale lifestyle you see in magazines and on TV. Not only will you never achieve them, but you will have no one to blame for your mistake but yourself. You are the driving force behind your choices."

I heard this story many years ago when I was just a kid. Obviously it made an impression on me because I still remember it, but I came to appreciate its true meaning better when I saw a commercial on TV about drugs. I was older then and marihuana use was prevalent in my middle school. I was looking for a way to deal with the peer pressure. Suddenly my color TV turned black and white. There, on the screen, was an egg bubbling and burning up in a large frying pan. The caption read: your brain on drugs. Later in high school, I was exposed to a very gory re-enactment of the consequences of drunk driving. Again, the message was sobering. I still remember it every time I get behind the wheel.

The other day, I saw a commercial about buying a new Volkswagen car: "...it's as easy as your signature," it said. I don't blame the ad for trying to entice me, or for misleading me. They're in the business to maximize sales. That's why it is so important to create visuals to educate young people to become more judicious shoppers, to know how to distinguish between what they want and what they need and to prioritize their spending habits among competing interests. For example, a visual of a stack of expensive electronic gadgets, toys, candy and designer paraphernalia from K-12 juxtaposed next to a visual with the same amount of money placed into a college fund should teach the value of sacrifice and good investment.

Students should be taught to distinguish between bad debt and good debt, and how to understand the good deals from the bad ones. This can mean the difference between financial health and ruin. They should understand that when they sign their credit card slip, or a loan document, they are entering into a legal, binding contract with serious consequences if they don't pay up. Explain that soon many of them will be signing student loan papers. Discuss the differences between private and government lending programs. Show them loan documents. Encourage them to read them and to ask questions, if they don't understand the content. Link all of these concepts to where they can go for honest, reliable and comparative information.

That car commercial I saw, like hundreds of other product commercials, suggests that credit is easy when the truth is starker. If you don't have the money to buy for cash or pay off that loan you are signing, you don't own your purchases. They can be repossessed or your wages garnished to pay for them. Students should be shown visuals where that new car or furniture are being hauled away, or a home being foreclosed. Make the visuals, "comparative." Have students categorize the visuals as "in the red," or "in the black." Ask students to differentiate between the scenarios, to describe the personal finances of someone who is living in a home versus the family that is foreclosed upon and in a homeless shelter. Have them make up their own comparative commercials and ads to illustrate the concepts they are learning.

Lessons should have real-world applications. Make your first message about work: "Without a good job, you are going nowhere, fast!" I would explain that they have to start investigating options while they are still in high school. Encourage them to visit the counseling office, take tests to discover their aptitude(s), and show them where to look up projections on future labor need(s) and salaries by profession.

Teach students that while wages are stagnating, life's expenses will only keep growing as they get older and marry, start a family, are looking to buy a home, or deal with a catastrophic illness or the loss of a job or health insurance. Have them plan a week's worth of meals for a family of four on $100, then have them go to a grocery store for a reality check.

Further, teach students the value of a paycheck by showing them one, a real one. Include a visual to demonstrate how tax, health and disability insurance, and other deductions quickly shrink the "gross wage" PIE into the "net pay" SLICE, which is further shrunk to a SPOONFULL after meeting your living expenses.

Stack up piles of money representing principle and interest on a 15-year and a 30-year loan. Display another stack of money representing savings when you prepay your mortgage principle each month.

Hold mock job interviews. Use them to explain how a poor credit history just lost them the job of their dreams. Simulate an exit interview because they've lost their job to downsizing. Ask them to role play the impact of each of these scenarios first assuming the persona of a financially responsible individual, then someone who is an irresponsible spender. Use it to explain the importance of planning for hard times by saving early and often.

Show them the financial benefits of living with mom and dad as opposed to getting their own apartment when they are first starting out in the workplace. Show them how they'll be able to pay back those student loans a lot quicker, or save for a down payment on a home of their own, if they do. It might cut into their independence a little, but it's a cheaper and wiser thing to do, if they are given the option.

Financial literacy should teach high school students that their social security entitlement will not resemble that of their grandparents or great-grandparents, and why. Create a visual showing them still working at age 75 because they didn't open a supplemental retirement account. Create another visual that contrasts that bad choice with that of a responsible 23 year-old job holder who has opened a 401(k) and is putting money into a tax deductible IRA account each year. Link this positive behavior to rewards that are meaningful and timely. Demonstrate how participation in retirement plans translates into more disposable cash by reducing current tax liability. Show them how much money they will need, after inflation, upon their retirement if they want to maintain a reasonable standard of living. Now, scroll into the future and show that young worker at age 75 enjoying her free time.

Use current events footage to explain the impact of globalization. Show them a visual of who will be competing for their future job. Explain that the competition will be coming not only from the student sitting next to them in their classroom, or the ones who attend the same school, but from every kid growing up in every country on the planet. Demonstrate why they will have to be ready and flexible to change jobs, to be retrained, or upgrade job skills as technologies and markets change over their lifetime. Teach them that it's never too early or too late to create a portfolio of achievements that they can reflect on their resume.

Mandate financial literacy like "No Child Left Behind." To have any hope to shape future financial behavior among today's high school students, the government should mandate financial literacy curricula as a graduation requirement. If schools can be responsible for teaching sex education through a mandated health course, they can certainly teach us life lessons about the connection between jobs, earnings, savings and investments, home ownership, and healthy spending habits. At every opportunity, the consequences of bad choices should be stressed. They should be visually and starkly contrasted and compared with the alternative path you are promoting.

Practice, promote and reinforce learning. Financial literacy should be completed by the second year of high school so that students are able to practice and reinforce what they have learned through extracurricular activities, electives, school club participation, student learning opportunities, and by integrating their learning into other curricula assignments.

Students should be encouraged to share what they have learned. Give them chances to profile their personal stories about prior bad acts and their reformed financial habits in the school newspaper. Film clubs should encourage searches of youTube to discover financial learning videos and to post those of their members. Let art students create posters to display around school. Get schools and communities involved in judging video and art contests and presentations at sponsored financial literacy fairs (like science fairs). Make all these activities eligible for student learning hours. Celebrate these achievements in April (Financial Literacy Month) and throughout the school year.

Encourage local, state and federal politicians to sponsor these activities and provide certificates of award and medals to participants for "responsible financial citizenship." Show students how these awards have meaning. Make them count. Persuade colleges to value these awards and encourage prospective students to reflect them on their resume and applications. Consider a government policy to reward students who both complete a personal finance course in high school with an "A" grade, and who graduate technical school or college without credit card debt. Qualify them for partial student loan forgiveness, lower interest rates, or payback extensions without penalties. Encourage banks and credit unions to lower credit card interest rates for them when they finish their post-secondary education.

The strategy behind my suggestions should be pretty clear. Use attention grabbing visuals to teach high school students the rewards of being smart about their money and the stark reality of being dumb about it. Teach them that it's better to take the time to do things right, than to make the time to do things over. After all, some of life's choices just don't give you a second chance.

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