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By Stan Hinden | August 2009

The concept that "Knowledge is Power" has been around for centuries and, fortunately, the idea is not going away anytime soon. That's very good news for millions of future retirees. It means they still have time to obtain the financial knowledge they need to survive in difficult economic times.

The mortgage crisis, housing downturn, stock market crash and recession have spurred a new national effort to expand "financial literacy" across the nation. The goal is to teach every citizen the basics of personal finance and money management so they can live within their means and build financial security for themselves and their families.

For decades, dozens of public-spirited organizations and volunteers have tried mightily to focus public attention on the need for Americans to become financially literate. Those efforts came to fruition in January 2008 when President Bush signed an executive order creating a President's Advisory Council on Financial Literacy. The order declared — for the first time — that it was "the policy of the federal government to encourage financial literacy among the American people."

For those who labored so long in the vineyard of financial education, it was moment to savor.

President Bush asked his 16-member Council, chaired by investment executive Charles R. Schwab, to encourage public and private organizations to increase financial education efforts for youth in school and for adults in the workplace.

During their first year, Council members took part in dozens of "listening sessions" with local leaders across the country to get their ideas on how to expand financial literacy in their communities.

The Council also proposed the creation of two national "Honor Roll" programs. One would recognize employers who develop innovative methods to offer financial education to their employees. The other would recognize colleges and universities that provide high-quality financial education to their students.

In the Council's first annual report, Schwab described the task facing the members. "We believe the market turmoil and credit crisis of 2008 underscore the critical need for improved financial literacy in the United States," he said.

"Far too many Americans entered into home and other loan agreements that they did not understand and ultimately could not afford. More broadly, the lack of basic skills such as how to create and maintain a budget, understand credit, or save for the future are preventing millions of Americans from taking advantage of our vibrant economic system."

A widely-held view among financial leaders, including Federal Reserve Chairman Ben S. Bernanke is that efforts to educate Americans in personal finance must start in the schools with lessons on an array of personal finance subjects. Those programs, it is said, should begin in elementary school and continue through high school and college.

Indeed, this was the stated mission of a non-profit group called the "Jump$tart Coalition for Personal Finance," which was formed in 1995 to advance financial literacy among students from kindergarten to college. The idea for the coalition is credited to William E. Odom, who was at the time the chairman of the Ford Motor Credit Corp.

From the beginning, the Jump$tart Coalition had the support of the American Financial Services Association (AFSA), the trade association for the consumer credit industry. The Jump$tart staff continues to work from AFSA's Washington headquarters.

Today, the Jump$tart Coalition has about 180 national organizations as partners. Many are familiar names from the corporate, non-profit, government and academic sectors. Jump$tart also has a network of 48 state coalitions, which helps give the organization a "grass roots" flavor.

The official respect earned by the Jump$tart Coalition over the years was evident when Laura Levine, executive director of Jump$tart, was appointed by Mr. Bush to serve on the President's Council.

And when the Jump$tart Coalition unveiled its 2008 report on the financial literacy of America's high school seniors, Fed Chairman Bernanke was on hand to praise Jump$tart's work.

"The Federal Reserve is strongly committed to Jump$tart's mission to better educate America's youth about personal finance," Bernanke said. Bernanke also noted that only eight states currently require personal finance courses before middle or high school graduation. "I believe," he added, "more states should consider making personal finance a requirement for all students who seek a high school diploma."

Over the past dozen years, one of Jump$tart's most significant endeavors has been its surveys of high school and, now, college students to see how much they know about personal finance. The surveys are directed by Lewis Mandell, Professor of Finance and Managerial Economics at SUNY Buffalo School of Management.

Mandell reported that financial literacy scores for high schoolers dropped between 2006 and 2008. In 2008, the seniors correctly answered only 48.3 percent of the questions, compared to 52.4 percent for the senior class of 2006.

Scores among college students were higher than those in high school and moved up with class level. College freshman scored 59 percent, while college seniors answered 65 percent of the questions correctly.

Some financial educators have expressed concern about whether the dramatic meltdown in the financial, housing and credit markets would permanently discourage individuals from investing in stocks and taking steps to properly manage their finances.

Barbara O'Neill, a professor of financial resource management at Rutgers University, said, "It's very important that young adults — today's grade K to 16 population — not be terrified of stocks, after seeing the current news, like many who came of age during the Great Depression of the 1930s were. Otherwise, these young people could lose decades of wealth-building returns, like many of their ancestors did. America can't afford to lose another generation of investors."

O'Neill made her remarks while accepting the William E. Odom Award from the Jump$tart Coalition last April — shortly after the stock market reached its March lows.

One of the organizations leading the way in the field of financial literacy is the National Endowment for Financial Education (NEFE). Since 1984, the group has sponsored the NEFE High School Financial Planning Program (HSFPP). This widely-used course teaches students about budgeting, investing, credit, debt, insurance and saving. NEFE says that in 2008, they sent out 665,000 student guides in response to 7,800 requests for those classroom materials.

John Parfrey, director of the high school program, in a recent essay on the NEFE website, addressed the question of whether financial education makes sense in tough economic times. He wrote:

"Being financially literate doesn't mean that you will always be financially safe and secure. In these hard times, people are beginning to see that financial security can erode quickly. And even emergency funds carefully stowed away will quickly disappear. Calamity is the wild card in financial planning. Sometimes even the best laid plans crumble in the midst of a financial firestorm that wipes out everything in its path."

"But consider this: If you somehow had a crystal ball a few years back and saw these times coming, would you feel better about facing them with heavy credit debt, an under-water mortgage, a poor credit rating, no clear sense of what you were spending and no savings?"

"Or would you rather face bad times with a clear-headed sense of your real financial needs, money set aside in savings and investments, an excellent credit rating, paid off credit cards, and an ability to create a new plan to at least provide some buffering against bad times?

"Anyone who would choose the latter scenario understands that financial education fundamentals are for all times, good and bad."

To that, we can all say, "Amen."

Copyright 2009, Stan Hinden. All rights reserved. Reprint permission required.

The author was compensated for writing this article by AARP Financial.