Earlier this month, I wrote about teaching a financial literacy course at Brooklyn College. In a survey, over 90 percent of the students said that they wish they had received financial literacy training in high school. By the time they are college freshman, they have signed up for student loans, opened checking accounts and have been targeted by credit card marketing. Given the importance of the financial decisions that they will be making, a bit of training would have been useful.
Since writing that article, I have met a group of people making financial literacy in high school a reality. And the experience they designed is not a boring textbook exercise filled with compounding interest calculations and tax code. Instead, it has real-world simulations and competitions where the winner can win college scholarships.
Dave and Palmira Buten spent years working in various finance roles. But their true passion was educating high school students in financial literacy. So much is written about investing and investment strategy, but people lose so much money every year on bank fees and credit card interest. Last year, $32 billion was spend on overdraft fees alone, with a large portion coming from college students. The Butens wanted to create a fun, competitive way to help young people understand how to open basic banking accounts, keep costs low and avoid late fees and interest. That led to creating the Budget Challenge, a “learning by doing” simulation and competition.
How the Budget Challenge Works
Students can earn points by saving in their 401(k), earning interest in checking accounts and taking quizzes. During the simulation, they have to pay their bills on time and deal with emergencies. They decide how much to save. Students lose points for fees that are deducted during the simulation. Those fees include late fees, below minimum balance fees and all those other fees that take such a large portion of working Americans’ salaries every year. The goal of the simulation is that students learn from rookie mistakes in the simulation, rather than in their freshman year. That way they lose theoretical money, rather than real money.
Budget Challenge was growing nicely over the years, with high schools across the country signing up. And then HR Block (HRB) stepped in by sponsoring the HR Block Budget Challenge, which made it free for high schools to participate and rewards the winning students. It put up $3 million in prize money, including 132 opportunities for student scholarships of $20,000. Budget Challenge was fun and educational before HR Block. Now the competition became real. Students will really pay attention when real money is at stake.
Madeira High School in Cincinnati has long had a focus on financial literacy. Ohio requires all high school students to have some financial literacy education. Madeira was fortunate to have Jennifer Jordan already teaching a semester personal finance course and for the last two years has required this course as a high school graduation requirement. She has developed a rigorous course that allows students to earn college credit through the University of Cincinnati. She met the Butens four years ago, and decided to try the simulation in her classroom. “It is one thing to teach what a grace period is,” Jordan said. “It is another to see how useful it is.”
The Competitive Spirit
Before HR Block stepped in, the winning teams would get a pizza party. That is a big deal for students, but real money does influence behavior and bring out students competitive spirit. Jordan told me that “the $20,000 challenge took the game to a whole new level. I was at school on a Sunday for a service project, and I could hear students talking about their 401(k) contributions.”
Like the real world, every student had a different approach to budgeting. Some students used spreadsheets. Others used notebook paper or a calendar. But they were constantly thinking about budgeting and fees.
And her class won two grants totaling $7,500. With the grants have come a lot of attention and pride. A few weeks ago one of her finance classes was presented an oversized check from HR Block.
During the course, students felt the pain of overdraft fees, the joy of a fully funded 401(k) and the competition that will define life in the real world. Hats off to the Burtens, for designing the simulation. Many companies publicly talk about a commitment to financial literacy, but HR Block has funded something that drives real responsible behavior. In the short term, I hope that more high schools sign up for this program, and that HR Block continues to support it. In the long term, we should see the amount of overdraft fees and credit card interest reduce, because the next generation starts learning these valuable lessons early. One can hope.
Nick Clements is the co-founder of MagnifyMoney.com, a price comparison website that helps you find the best deals in banking. He spent nearly 15 years in consumer banking, and most recently he ran the largest credit card business in the U.K.