At a Senate Finance Committee hearing last week, Sen. Click Bishop, R-Fairbanks, talked about remembering “some of the main tenets” he learned from a personal finance class he took about 48 years ago. Now, a bill he’s co-sponsoring may help prepare high school students to better manage their personal finances when they become adults. And prevent their generation from drowning in debt like so many Americans are today.
Sen. Bill Wielechowski, D-Anchorage, is the primary sponsor of Senate Bill 99 – “An Act establishing a financial literacy education program for public schools.” This great piece of legislation has earned support from senators on both sides of the aisle.
But let me suggest a follow-on course is needed to help students understand why paying state and local taxes will be part of the household budgets they learn to manage.
One goal of SB 99 is to teach students the consequences of incurring unnecessary credit card debt. The average annual interest rate on a credit card is 18% and can be twice that high. That makes it incredibly difficult to pay off large balances.
According to the most recent data compiled by the Federal Reserve, Americans are carrying a credit card debt of close to $1 trillion. Alaska, which can boast of being among the states with the highest median household income, embarrassingly owns the highest per capita credit card debt.
Those are ironic statistics considering how often we hear public criticism that the federal government doesn’t balance its books like private businesses do.
For young people graduating from high school, and college graduates with loans to pay off, staying out of debt entirely takes an enormous amount of discipline. Above all else, the costs of basic necessities need to be prioritized. Borrowing for the purchase of nonessential items isn’t wise.
In most places, owning a car will be a necessary expense. Associated with that is the cost of liability insurance. And one of the requirements of SB 99 is to teach students the “basic principles of personal insurance policies.”
Someone must cover the medical expenses of anyone injured in a serious accident, as well as the cost of repairs or replacement of any vehicle damaged in the crash. If the driver at fault is uninsured and not capable of covering those costs themselves, that places a financial burden on the rest of society.
That’s why liability insurance is required by law. In a way, it acts like a redistributed tax. The premiums collected by the insurance companies goes into a pot that they’ll disburse to parties harmed by accidents they didn’t cause.
The only reference to taxes in SB 99 is the “basic computation of federal income taxes.” That’s a ‘how to’ exercise without the ‘why’ as I’ve described above.
Now, I don’t expect any high school curriculum to dissect the federal government’s budget and growing debt. But just as students need to understand the purpose of insurance policies, there should be adequate classroom instruction that addresses why state and local governments collect taxes.
Someday, many of them will want to buy homes. They shouldn’t be surprised when monthly mortgage payments include an escrow for property tax and homeowner’s insurance. The insurance will cover catastrophic loss due to a fire. But no one wants their home to burn down to the ground. That’s why fire departments are funded with our property tax dollars.
They also fund police departments, public education, snow plowing and so much more.
Knowing all that isn’t necessary for a person to make smart financial decisions. But the fact is governments can’t exist without collecting taxes. And tax increases or cuts will have an impact on everyone’s personal budget. Some are justified, others aren’t. Either way, it’s impossible to offer intelligent support or opposition without some basic understanding of what our tax dollars do.
“Giving students a well-rounded financial literacy education will help Alaskans save, avoid debt, and improve the Alaskan economy” Wielechowski wrote in his sponsor statement. “It will also help reduce reliance on social programs funded and administered by the state.”
In other words, just like any well-designed civics course, one in financial literacy will help students become better citizens. We should connect the two with a course dedicated to teaching them the primary functions and costs of self-governance.