It pays to learn

Mindy Ochs, 17, of Perryville, Mo., shopped for flip-flops at Gadzooks in the Westfield Shoppingtown West Park Monday. By Heather Kronmueller ~ Southeast Missourian

Teen-agers might not know how to save their money, but they sure know how to spend it, according to a survey by the Federal Reserve released in May.

The national survey suggests teen-agers are lacking in basic financial knowledge and says the 4,024 teens who took it not only flunked their latest test on the subject, but their scores were even worse than in the past.

In a 45-minute multiple choice examination given in December, January and February, high school seniors on average correctly answered only half of the 31 questions about personal finance and economics -- a grade that would be considered flunking on a typical high school grading scale.

Two years ago, 723 students took a similar test, and the average score was 52 percent. In 1997, the average score was 57 percent.

Federal Reserve Chairman Alan Greenspan says schools need to do a better job of teaching basic financial concepts, and a good foundation in math would help students become more financially literate.

Learning from parents

But local teen-agers say it doesn't matter what they learn in school, their parents are their greatest teachers when it comes to handling, or mishandling, money.

Mindy Ochs, 16, of Perryville, Mo., doesn't have a credit card yet, but she is learning lessons in credit from her mother, Sharon Ochs.

"Credit cards are easier to use than cash when you're traveling or when you don't want to carry around a lot of money," Sharon Ochs said. "But you have to pay it back."

Ochs said she is trying to teach her daughter that it's better to pay off credit card balances each month rather than carry a balance because the interest rates are high on credit cards.

"I think it would be fun to have one," said Mindy Ochs. "It would be easier to buy stuff, but right now it would be hard to keep up with it."

Mindy Ochs said until she turns 18 and can get a credit card, she'll keep doing things the way she is now -- by saving her money and paying with cash.

A lot of teen-agers already have credit cards.

Amie Richardet, 19, of Perryville has one major credit card and several department store charge cards. She said she's learned a lot from a friend about the trouble people can get into with credit card debt.

"One of my friends has seven credit cards, and they're all maxed out," she said. "It's scary. She has to work three or four jobs this summer to try and catch up, but she can't pay them off because she's still spending."

Richardet said she will never get into the kind of trouble her friend is in.

"I always pay the whole amount when the bill comes," she said. "I have the money, so why not?"

Not every teen-ager is lucky enough to have a friend or a parent to learn lessons about credit from, and that's why several high schools offer classes that teach financial responsibility, said Central High School teacher Karen Altenthal.

Altenthal teaches 11th- and 12th-grade consumer economics and 12th-grade independent living.

"We talk about money management," she said. "I make them do an activity with a credit card to see how much interest they are going to have to pay if they only pay the minimum balance for 35 years on a $1,500 bill. Most are surprised to learn they would pay about $10,000 in interest."

Altenthal also teaches about checking and savings accounts, but doesn't get too much into retirement funds or stocks and bonds.

"That's all too deep for high school students," she said. " I have a transparency that outlines all of that, but that's as much as we talk about it."

Jackson High School also offers classes in consumer science.

Alternate view

Ryan Sterling, who will be a senior at Central in the fall, said he doesn't need to learn about stocks and bonds and retirement at age 16 because it doesn't affect him right now.

"I ain't thought about Social Security 'cause I want to be a rapper," he said. "I'm gonna make so much money I won't need retirement."

Amanda Crocker, one of Sterling's classmates, said she's interested in learning about stocks and bonds. She said a lot of her friends will learn about those subjects in college, but since she's going to culinary school after high school she won't.

"My dad will teach me," she said. "He knows a lot about stocks and stuff."

In the Fed survey, 69 percent of the teen-agers said they would have no liability if their credit card was stolen and a thief ran up a $1,000 bill. (Liability is limited to $50 after the issuer is notified.) Only 8 percent knew they would be responsible for the $50. Two years ago, nearly 15 percent answered the question right.

Just under 19 percent said stocks likely would offer the highest growth over 18 years of saving for a child's education, down from 23 percent who answered correctly two years ago. Most of the students -- 78 percent --said a U.S. savings bond or a savings account would offer the highest growth.

Slightly more than a third knew that retirement income paid by a company is called a pension, but another third thought it was called Social Security. Two years ago, 46 percent answered correctly.

Lynn Reaser, chief economist at Banc of America Capital Management, said the drop in financial literacy scores since 1997 might be related to the slide in the once high-flying stock market.

She said all of the euphoria in the market may have induced young people to take some interest in understanding, but much of that interest probably subsided when the market went into a major downturn.

The Associated Press contributed to this report.

hkronmueller@semissourian.com

335-6611, extension 128