Part A | Issue Analysis
Each year, young Americans spend roughly $150 billion, yet they do not have a strong understanding of basic financial concepts such as annual percentage rates, inflation, and interest. In fact, sixty-six percent of high school seniors failed a 2004 survey on personal financial literacy. This issue affects everyone- not just a particular race, gender, or age demographic.
Everyone needs to have a better handle on financial education. Without preparation, people will be less likely to know a good interest rate for a loan, know the available options to pay for college, or know how to save their money. The majority of Americans use a line of credit to purchase their goods or services, rather than paying with cash. Many consumers are tricked into falling for the creditors’ schemes, which they will continue to pay for the rest of their life. If this problem continues to occur, the debt some people experience will impact their abilities to take care of their own expenses.
Financial education has a significant impact on many different groups in every community. In almost any community, there are those who do not have the knowledge and experience to make wise financial choices. For example, many students might not know where to look for scholarships and how to apply for them. In addition, people might be unaware how credit cards work, how interest impacts the amount one eventually has to pay for an item, and how inflation impacts financial decisions.
Through service-learning, participating youth gain a true educational understanding of a topic and impact change through service. Financial literacy projects funded under the State Farm Youth Advisory Board grant initiative will not only educate the community about fiscal responsibility, but will also help the students develop financial skills. As with all curricular-based service-learning projects, involved youth gain more than just an understanding of the issue. They also develop better writing skills as they write press releases, improve their communication skills through public speaking opportunities, and improve budgeting skills as they responsibly manage grant money.
State Farm strongly supports financial education and provides resources for several pertinent programs. The company encourages educating youth at an early age in order to instill a long-lasting habit of fiscal responsibility. Without a proper understanding of money management, many young people will be unable to sustain a stable financial future.
Financial education programs are proven to help:
- Ensure individuals are prepared to manage money, credit and debt
- Reduce the delinquency rates for mortgage borrowers
- Increase participation and contribution rates in retirement plans
- Improve spending and savings habits
- Provide individuals with safe options for managing finances and building wealth
For these reasons, the State Farm Youth Advisory Board has identified financial education as one of the four main focal areas for this year’s service-learning grants.
Part B | Examples of Financial Education Service-Learning Projects
Students acquired money management and general accounting skills from a business class at their school, and engaged in trainings from local banks and financial institutions. The students then implemented their skills by joining youth-based clubs throughout the city to help organizations improve their business practices and better manage their finances.
These students also collaborated with their local banks so that they could offer courses to other students and parents about saving and investing for college. As an incentive, the banks agreed to match up to $50 per student who completed the money management course and opened an education account.
The students also noticed an increased number of new homes were seemingly always for sale. After approaching their business education teacher, they learned that young college graduates were victims of predatory lending and, as a result, often defaulted on their mortgage payments. The students wanted to find a way to help.
First, they gathered loan documents about mortgages from local institutions and researched the rate of loan defaults in their community and state. Then, the students interviewed local banks and county court officials to learn more about predatory lending. They soon realized the original problem resulted because many young people were uninformed about the effects of inflation and annual or hidden finance charges on loans. To solve the problem, the students partnered with a local consumer advocate and created videos, online programs, and pamphlets to educate people about predatory lending and about institutions that have a negative record in the area. The students’ following effort was a community campaign encouraging the local municipality to pass stronger laws protecting young students from predatory lenders.
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