The American economy is the eighth wonder of the world. The ninth is the economic ignorance of the American people.
—Burton Crane, Getting and Spending: An Informal Guide to National Economics (Harcourt, Brace, 1956)
Financial literacy has always been valuable in the capitalist U.S. economic system, and arguably individual personal financial literacy is now more important than ever. Unfortunately, there is also evidence that financial literacy is not prevalent among the people who need it most. The good news is that there are many organizations focused on this issue.
The AICPA, state CPA societies, the American Accounting Association, and the accounting fraternity Beta Alpha Psi have recognized the significance of this situation. Their activities, coupled with well-planned and executed university-connected collaborations, can be significant in improving Americans’ financial literacy.
Financial Literacy—An Issue of Increasing Urgency
In 2006, an Urban Institute report documented research and analysis clearly indicating the need for personal financial literacy (Lerman and Bell, “Financial Literacy Strategies: Where Do We Go from Here?” available at www.urban.org/publications/311352.html). The report noted the variety of financial decisions individuals face today and their generally low level of knowledge and skill in interpreting even basic financial information.
Several changes to the U.S. economy have increased the importance of personal financial knowledge. One of the most critical changes is the virtual disappearance of defined-benefit pension plans sponsored by private employers. Saving for retirement is now more discretionary and is commonly done using accounts in which financial decisions are made by plan participants rather the professional pension-plan managers. Along with this shift of responsibility to individuals, financial markets now offer increasingly complex investment alternatives that investors must carefully evaluate. The significance of this shift is exacerbated by increasing life expectancies, suggesting a need for larger savings or delayed retirement.
There is also clear evidence that Americans are struggling with how to prudently manage debt. The subprime mortgage crisis and related foreclosures (see Jones, “The Mortgage Forgiveness Debt Relief Act of 2007,” p. 297), increasing bankruptcy rates, and a negative national savings rate have led to concern about Americans’ level of financial literacy and how well they understand the risks associated with using debt. The comparative ease with which money can be borrowed requires individuals to understand the true costs of borrowing.
Recognizing this problem, the Treasury Department has created an Office of Financial Education, and on January 22, 2008, President Bush created the President’s Advisory Council on Financial Literacy. This group is chaired by Charles Schwab, who notes the importance of financial literacy: “Every American should have the skills necessary to take control of his or her financial future, and basic financial education is the first step to achieving that goal” (“Treasury Holds Inaugural Meeting of President’s Advisory Council on Financial Literacy,” Treasury press release, February 13, 2008, available at www.treas.gov/press/releases/hp827.htm). The council will provide a national-level focus led by representatives of the private sector, government, and nonprofit organizations.
University-Level Focus
A university offers a unique environment in which to focus financial literacy efforts. University students need to improve their financial literacy, and motivated, financially literate college students can be valuable in helping others become financially literate.
For example, college freshmen need information during college orientation about the dangers of credit card abuse. However, some students may regard such presentations from a CPA or professor as a boring adult telling them what to do. It may be more effective to include as co-presenters college seniors who made mistakes with credit cards in their freshman year. To be successful with supposedly uninteresting subjects such as personal finance, the discussion must become real to the young people involved. College students can bring credibility to discussions of financial matters with other young people.
Interested and motivated college students can also create opportunities in high schools through contacts with their favorite high school teachers. The California Society of CPAs (CalCPA), based on its efforts in high schools, identifies classroom access as a significant challenge. Motivated college students can help open the classroom doors of their former high schools for presentations by a college student CPA team.
In families in which the student will be the first college graduate, the student also can help improve the family’s financial literacy. A college-level financial literacy effort by professional accounting organizations can have the dual benefit of educating college students and creating valuable new participants in a broader financial literacy effort.
Beta Alpha Psi (BAP) and other campus-based accounting organizations can be beneficial in organizing and participating in on-campus events involving accounting, business, and other student groups. It is not safe to assume that business and accounting majors are financially literate. A two-fold strategy is recommended for involving accounting students in financial literacy efforts. First, having practicing CPAs make personal finance presentations is helpful and offers an opportunity for interaction between students and professionals away from pure recruiting activities. Second, training students to teach others can have the positive effect of adding to the students’ understanding.
For example, at San Francisco State, staff of the California CPA Society are working to train BAP members to make presentations in local high schools in collaboration with CalCPA members. The university is also working with its community outreach office to facilitate events at neighborhood community-based organizations. While there are many challenges with these efforts, the energy of focused accounting students is likely to lead to success. The key is to convince the students that the effort is worth it. Collaboration of interested faculty, CPA volunteers, and energetic students can accomplish a great deal. Each university offers a different environment, so strategies may vary, but one common approach should be on-campus collaboration with interested off-campus accounting professionals.
Resources for On-Campus Activities
An issue related to on-campus financial literacy efforts is determining what materials and presentation aids are available. Fortunately, there is no shortage of quality materials to support on-campus financial literacy efforts. State societies, the AICPA’s 360 Degrees of Financial Literacy website, and other private not-for-profits are all possible sources.
In May 2004, the AICPA announced its 360 Degrees of Financial Literacy program, which provides financial information for a wide variety of life situations. The program’s website (www.360financialliteracy.org) offers modules on budgeting basics, credit and debt, insurance issues for college students, the ABCs of financial aid, and many other topics. To facilitate collaboration with state CPA societies, there is a link to state financial literacy activities. As part of this campaign, the AICPA has created and identified tools that are well suited for use on a college campus.
Another excellent resource for campus financial literacy activities is an AICPA Foundation/Ad Council national public service advertising campaign. The Feed the Pig campaign introduces Benjamin Bankes, a piggy-bank character, who spreads the word about the value of saving and financial knowledge. The Feed the Pig website (www.feedthepig.org) contains videos, financial calculators, a link to Benjamin’s MySpace webpage, and other resources. This campaign is focused on young people. The Feed the Pig campaign has great potential as a simple teaching tool for saving and smart financial behavior. The creators hope that Benjamin Bankes will be to financial literacy what Smokey Bear is to preventing forest fires.
BAP has consistently supported the AICPA and state CPA societies’ financial literacy efforts. Individual chapters have launched creative local activities. Off-campus financial literacy efforts are consistent with the well-established BAP practice of community service. BAP’s 2009 Suggested Best Practices include a category on developing life skills by helping others. Helping to improve financial literacy is one of several suggested activities. As the accounting students’ professional organization, BAP is helping create an early focus on the diverse responsibilities related to becoming a member of a profession.
In July 2003, CalCPA announced a financial literacy initiative, which adopted the goal of improving the financial literacy of Californians. The group has devoted staff time to train its financial literacy volunteers, including students. These efforts have led to training materials that can be shared; for example, its Dollars and Sense program materials (www.calcpa.org/dollars) can be used or adapted to specific presentation goals. Other state CPA societies, such as those in Illinois, New Jersey, and Pennsylvania, have similar tools available. These assets, along with those of other state societies and the AICPA, provide outstanding resource materials.
There is no shortage of quality materials to support campus-based financial literacy activities. A university will likely find that there is no need to create its own materials. Collaboration with a state CPA society will help in identifying existing resources.
Best Practices
The author’s recent review of state CPA society activities reported to the AICPA identified the following as “best practices” for college student financial literacy efforts:
- Collaborate with those responsible for freshman orientation programs or courses;
- Provide support for participation in sessions (allow time off from class or extra credit for attendance);
- Identify campus student organizations in need of community service activities;
- Use public space tables and offer prizes for correct answers to financial questions (Feed the Pig “loot”); and Collaborate with the campus financial aid office for financial-aid-focused presentations.
This effort to collect best practices is also part of the charge of the American Accounting Association’s (AAA) Financial Literacy Task Force. This group will present the results of its efforts at a future AAA meeting. Readers with best practices to share should send them to the author, an AAA task force member, at jgmcwilliams@yahoo.com.
Benefits of University Financial Literacy Activities
University-related financial literacy activities are valuable to the public and to the accounting profession. A well-planned university-based financial literacy effort can benefit students and communities beyond the campus. The key is collaboration among faculty, student leaders, and CPAs.
In addition to increasing financial literacy, university-based financial literacy activities may produce other long-term indirect benefits. Students who appreciate the importance of public service by members of a profession may develop an ethical perspective that will serve them well later in their careers. Public service action by CPAs helps to sustain the public’s high regard for the profession, and a well-respected profession attracts increasing numbers of talented people.
Prof. Nellen is a former member of the AICPA Tax Division’s Tax Executive Committee and a current member of the AICPA Tax Division’s Individual Income Tax Technical Resource Panel. For more information about this column, contact Prof. Nellen at anellen@sjsu.edu or Prof. McWilliams at jgmcwilliams@yahoo.com.
