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OPINION | ROBERT HOPKINS: Brighter futures

Why financial capability matters by ROBERT HOPKINS SPECIAL TO THE DEMOCRAT-GAZETTE | April 8, 2021 at 3:00 a.m.

Well into the pandemic, parents and educators know the stresses of school closures and remote learning. Any prospect of returning to "normal" down the road is cause for optimism. Still, the covid-19 pandemic may cast a long shadow over Arkansas students' financial lives, especially students in challenged schools.

Experts are seeking to gauge the impact of pandemic-related learning losses on students' future income. An April 2020 Brookings Institution article on school closures used the assumption that each additional year of schooling equates to 10 percent in additional future earnings. In the U.S., the authors said, some 76 million K-16 students might each earn $1,337 less a year.

A September 2020 analysis by the Organization for Economic Cooperation and Development equated a learning loss of one-third of the school year with 3 percent lower career earnings for U.S. students. Disadvantaged students, the report said, would almost certainly suffer more. And since education matters for a skilled work force, these losses could mean 1.5 percent lower GDP on average for the rest of the century, per the report.

If the findings from these studies prove true, this may be depressing. Let's not allow reckoning with this potential reality to depress us. Knowing the financial stresses that a younger generation will face should motivate us to help them.

One powerful way is by encouraging financial capability. April is recognized as Financial Literacy Month. I would emphasize that financial literacy is not a month-long effort, but a lifelong effort. The earlier, the better. Researchers from the University of Cambridge found that children can develop financial behaviors as early as age seven.

Find opportunities to teach your kids and grandkids about money and decision-making. Give them chances to spend, save and donate. Go beyond the subject of savings and discuss credit: how it works, how to build it, how to use it responsibly. If you need help, the St. Louis Fed has free Parent Q&As that combine reading literacy with financial literacy. Today's younger students are tomorrow's teens, so give them a strong foundation to build upon.

Today's teens and undergraduates face more pressing questions. The labor market they graduate into may look nothing like that of the recent past. These young people may need your advice on educational and career paths. What degrees or certifications should they pursue? How can they finance these without taking on crippling debt? The St. Louis Fed's Personal Finance 101 Conversations series may be a useful resource.

Encourage young adults to keep building their human capital. Smartly financed, education is essential to increasing one's potential (including earnings potential and even building wealth).

While students, families or school districts are on uneven footing when it comes to opportunities for building human capital, economic inclusion necessitates educational inclusion, and that begs a larger discussion around improving opportunities to learning. In the Eighth Federal Reserve District, for example, our economic education team has worked to establish partnerships with schools in underserved communities and with Native American tribes. Our Little Rock branch provides professional development and free classroom resources for teachers.

Talk to your administrators and educators to learn how they are incorporating personal finance concepts. The state of Arkansas requires that specific personal finance standards, revised in 2017, be embedded into an approved course taught in high school. Newer research in the paper "The Effects of High School Personal Financial Education Policies on Financial Behavior" bears out that financial education requirements are associated with fewer defaults and higher credit scores among young adults, and that well-funded teacher preparation may be the key to successfully implementing these programs.

This summer, the St. Louis Fed will again offer a free personal finance camp, and we are expanding it to include high school. The pandemic's effects on education and future earnings are yet to be tallied. Let's do all we can to make brighter futures for today's children.


Robert Hopkins is senior vice president and regional executive of the Little Rock branch of the Federal Reserve Bank of St. Louis.

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