Kids Don't Have to Be Knocked Down By Debt...

For too many Americans of all ages, the holiday season means accumulating debt. An average shopper spends $900 during the holidays. And for many, that $900 is the final burden on an already-burdened portfolio.

Young people are no exception. One of my students quit college to work to pay off his $30,000 debt. He wasn't in debt because of college - rather, he was paying for his truck, stereo, and other purchases. By 22, he had hocked his future.

Children aren't learning the basics of economics and finance. In a 1997 survey by Lewis Mandell, dean of the business school at Marquette University, high school seniors from across the country received an average score of 58 percent on a 31-question, multiple-choice exam. That's an F! These students knew little about the relationship between income and taxes, the relative security and earnings potential of the stock market, or that interest on a savings account is taxed.

They hadn't heard the story of two sisters: One saved $10,000 for the first 10 years of her working life and nothing afterward. The other saved nothing for the first 10 years and $10,000 for the next 20. After 30 years, with an interest rate of 10 percent, the first sister had more than $1 million, while the second had $575,000. The students didn't understand the incredible power of compound interest.

Economic and financial illiteracy costs us all. The result is high school and college graduates ill-prepared for the demands of the labor force, and households that contribute little to the savings pool.

Fortunately, there are organizations that have taken up the torch. EconomicsAmerica of California has developed a program for high school students that teaches both economic and financial literacy. Funded by the Consumer Credit Counseling Services of Los Angeles and the tri-counties of Ventura, San Luis Obispo, and Santa Barbara, EAC teaches students some basic messages of economics:

* You can't have everything you want.

* Nothing is free - you have to give up something to get something.

* Decisionmaking involves weighing alternatives in terms of benefits and costs.

We teach these lessons in contexts that students can understand. The first lesson in the curriculum involves a young couple who graduate from high school, get married, and have no financial plan. The result is chaos.

The second lesson teaches the economic concept of opportunity cost through the experience of another couple who does it right. They go through the budget process, slowly and painfully giving things up they had thought were essential, to reach their goals.

Students are given the amount of "money" they would earn from a minimum-wage job, and taxes are taken out. The kids are responsible for paying for rent, car loans, auto insurance, clothing, food, and other costs. Most quickly run out of money. The curriculum also includes a lesson on the costs of having a baby and the difference in income earned by high school and college graduates.

The idea is to dramatize to these students the need for skills to earn a wage sufficient to meet their wants. Rather than having teachers preach to them, students teach themselves the important lessons of economics and finance. They draw up actual budgets. They use newspapers and the Internet to research the price of apartments, cars, and groceries in their area. In other words, they become active participants in their own financial futures.

To date, more than 1,500 teachers in California have been trained in this program. Reviews have been positive. Similar programs exist throughout the country.

Clearly, progress is being made. The question is whether it will be fast enough for your children.

* Jim Charkins is professor of economics at California State University, San Bernadino, and executive director of EconomicsAmerica of California.