Jump$tart Coalition Releases 12 "Must-Know" Principles for Financial Literacy

BUFFALO, N.Y. -- Twelve principles of basic money management have been released by a coalition of financial-services representatives and educators attempting to improve the financial literacy of American schoolchildren and young adults.

The principles were conceived by members of the Washington D.C.-based Jump$tart Coalition of Personal Financial Literacy in response to nationwide survey conducted last year by Lewis Mandell, dean of the University at Buffalo School of Management. The survey showed that American high school students are unequipped for the financial complexities of adulthood.

Released in conjunction with tax season, as well as Financial Literacy for Youth month in April, the principles are intended to be a tool for teaching basic financial skills. They offer practical guidelines that, if comprehended and heeded by young people, will make a real, positive difference in their financial outlook, says Mandell, who helped write the principles.

"If the next generation of financial-services users abides by these concepts, it's safe to say that 10 to 20 years from now the country will have a far greater number of people who were better prepared for retirement, able to manage debts and avoid bankruptcy," says Mandell, who recently published "Improving Financial Literacy: What Schools and Parents Can and Cannot Do," based on his work with Jump$tart.

"Our goal for these principles is to generate discussions in classrooms throughout the country and at the family dinner table," adds Dara Duguay, the Jump $tart coalition's executive director. "While the main audience for these principles is future adults, present adults should benefit from these discussions as well."

Alan Greenspan, chairman of the Federal Reserve Board (a Jump$tart partner), delivered a similar message in a speech last Friday, when he brought up the importance of beginning the learning process as early as possible. "Indeed, in many respects, improving basic financial education at the elementary and secondary school level is essential to providing a foundation for financial literacy that can help prevent younger people from making poor financial decisions that can take years to overcome," said Greenspan.

The Jump$tart Coalition's 12 principles:

1) Know your take-home pay -- Before committing to significant expenditures, estimate how much income is likely to be available for you. Net income, after all mandatory deductions, is more important to estimate than gross income before deductions.

2) Pay yourself first -- Before paying bills and other financial obligations, set aside an affordable amount each month in accounts designated for long-range goals and unexpected emergencies.

3) Start saving young -- Recognize that your total savings are determined both by the interest you earn on those savings and the time period over which you save. The sooner you start saving, the more funds you'll be able to amass over time.

4) Compare interest rates -- Obtain rate information from multiple financial-services firms to get the best value for your money.

5) Don't borrow what you can't repay -- Be a responsible borrower who repays as promised, showing you are worthy of getting credit in the future. Before you borrow, compare your total payment obligations with income that you will have available to make these payments.

6) Budget your money -- Create an annual budget to identify expected income and expenses, including savings. This will serve as a guide to help you live within your income.

7) Money doubles by the "Rule of 72" -- To determine how long it will take your money to double, divide the interest rate into 72. For example, an account earning 6% interest will double in twelve years (72 divided by 6 equals 12).

8) High returns equal high risks -- Recognize that no one will pay you high interest rates on a sure thing. In most cases, the higher the interest rate offered to you, the investor, the higher the risk of losing some, or all, of the money you invest. Diversification of assets is the best protection against risk.

9) Don't expect something for nothing -- Be leery of advertisements, sales people or other sources of financial offers promising anything free. Like non-financial opportunities, if it sounds too good to be true, it probably is.

10) Map your financial future -- Take time to list your financial goals, along with a realistic plan for achieving them. You can go places you want to go without a roadmap - but seldom on the first try.

11) Your credit past is your credit future -- Be aware that credit bureaus maintain credit reports, which record borrowers' histories of repaying loans. Negative information in credit reports can affect your ability to borrow at a later point.

12) Stay insured -- Purchase insurance to avoid being wiped out by a financial loss, such as an illness or accident. An insurance plan should be part of every personal financial plan.

The Jump$tart Web site at http://www.jumpstart.org contains 300 personal-finance education resources, many of which relate to its newly released principles

Founded in 1997, Jump$tart is a non-profit organization whose 115 partners include federal agencies, universities, associations, corporations and non-profit organizations. The coalition's goal is to ensure that students have skills to be financially competent upon graduation from high school.

Jump$tart now has established grassroots coalitions supporting its efforts in 16 states, including California, Georgia, Idaho, Iowa, Louisiana, Michigan, Minnesota, Mississippi, New Jersey, New Hampshire, Ohio, Oklahoma, Pennsylvania, Tennessee, Utah and Wisconsin. An additional 11 states are in the process of forming coalitions.