Dollar bill

In examining the complexity and role that various taxes and fees play in funding road construction and repair, I became a little disheartened. I have to ask myself, How does the average voter come to grips with public finance questions such as these? Do they even have the time to try?

The answer is a resounding “no.” Economists call it “rational ignorance.” People are too busy living their lives, attending school, starting businesses and raising children to pay attention to the intricate details of public finance and related policy. This was hammered home for me recently when I saw statistics about the financial literacy of American youth as it relates to personal finance questions.

Junior Achievement, an organization dedicated to teaching young people how to be successful economically through “work-readiness, entrepreneurship and financial literacy” has released its “2013 Teens and Personal Finance Survey.” (The poll is published in conjunction with the Allstate Foundation.) The results, along with other survey work, are worrisome for a number of reasons. 

Financial illiteracy, and all of the financial rights and responsibilities that come with it, are acute problems for many people on the cusp of adulthood. Most of these children will someday be voters and will need to be informed about financial issues such as taxes and government spending to make sound decisions in the voting booth.

Up to a point, money is liquid freedom. Sound money management by individuals is a necessary tool to sustain a free society. Money, if earned and maintained, can fund a year volunteering in Guatemala, or fund a comfortable retirement for Mom and Dad, or maybe even simply support a favorite coffee shop. Money, when used to create the life of one’s own choosing, gives government one less reason to tell someone how to live.

How can we expect people to understand the minutia of often impersonal public finance — where the bills for government are spread out across millions of taxpayers — if they cannot or will not take pains to understand the basics of personal finance?

According to the JA 2013 survey, 23 percent of teens (age 14-18) report being somewhat or extremely unsure about their ability to budget successfully and 34 percent are unsure about their ability to invest their money.

The 2011 Charles Schwab & Co. “Teens and Money” survey has some similarly disconcerting numbers. For instance, only 17 percent know what a 401k plan is. Schwab also reports that since their 2007 survey “knowledge of money management seems to have declined.”

Sixty one percent of those surveyed want more advice on how to invest “money to make it grow.” This is important because starting a retirement plan early is key to a more prosperous, safe retirement. This is a good thing — this sixty one percent wants to know more.

Teenagers in the Schwab survey (age 16-18) are remarkably confident about the starting salaries they expect to pull in at the start of a career. Boys think they will make nearly $80,000 to start while girls estimate a starting salary at just over $66,000.

A National Financial Literacy Challenge gave a 35 question test to 46,000 American students in 2008 and the average score was just 56 percent correct.

In Michigan, the state mandates about 4-5 weeks of personal finance training so students receive some exposure to concepts of personal finance. Indeed, the Michigan Department of Education has published “content expectations” for economics classes; six categories are dedicated to personal finance. Topics covered for students include such things as personal financial management, investments, the use of credit, mortgages and insurance.

Schools may very well do a great job exposing youth to matters of personal finance — and with limited time and resources — but more may need to be done (perhaps by the likes of private organizations) to ensure that youth get a grip on their finances before their finances get a grip on them.

This brings me back to public life and policy. Knowledge is power whether it is in public or private affairs. Unfortunately, financial knowledge — something people should know much about — seems to be lacking, at least in those on the road to adulthood. How much they obtain and how much they use to become successes in life is vital to sound public policy.

When people take care of themselves and their loved ones — financially and otherwise — there is less need for the state to do so.