The Need for Teaching Financial Literacy
The educational system has failed millions of people for years by not implementing a personal finance class that will adequately improve the financial literacy of our future. Teaching kids from a young age, even as early as elementary school, what money is, its value, how to save, invest, and spend will provide future generations with a better future. As we age, our financial decisions become increasingly frequent and complex, so it is important to stress the necessity of developing one’s financial literacy skills before they enter the real world. The problem is that many school systems do not provide this type of teaching until high school, if that at all. A survey exposed that only 31% of young Americans feel their high school education provided adequate teaching on personal finance (Plepler, 2016). That is a scary statistic combined with another from the National Center for Education Statistics from 2015 that states 69% of students enrolled in college following high school (“The Case for High School Financial Literacy”). This means the 31% who do not attend college most likely entered the workforce lacking the necessary financial knowledge to manage their money and advance in the real world. The other 69% went off to college where personal finance classes are scarce even as an elective, and almost impossible to find as a mandatory course. While a degree from college is very valuable and practically a necessity to advance in our society, it does not provide the essential financial skills to capitalize on this increased income due to one’s inability to efficiently manage their finances.
Many adults learned about finances from life experiences and have developed their financial literacy on a need-to-know basis once the daunting financial decisions of adulthood stared them in the face. While many adults have gotten by learning on their own, it has been proven very lucrative for people to learn in a risk-free environment before they enter the real world. It is crucial to start building financial literacy at a young age so there are no real-world mistakes, better money habits are developed, and so we have gained sufficient knowledge in order to teach our kids. A T. Rowe survey indicated that 69% of parents have some reluctance to discuss any financial matter with their kids; as a matter of fact, this survey discovered these parents were just as uncomfortable talking money as sex with their kids. Only 23% of the kids surveyed indicated that they talk about money with their parents (“Parents, Kids, and Money Survey”, 2017). In our society there is a stigma to teaching our younger population about money, even if it will be very useful in life. As a result, they grow up and learn about finances through life experiences, barely knowing enough to get by, and therefore lack the ability to teach any of those skills to their kids. This is a spiraling problem since the educational system is failing those kids too. They grow up not knowing the importance of these financial skills until it's too late, so the cycle repeats.
Mandating personal finance courses into the educational curriculum is a vital piece in breaking this pattern. A study from 2014 conducted by the Federal Reserve Board revealed the benefits of teaching basic personal finance in high school and its ripple effects. Schools after the implementation of a financial education requirement produced students entering college or the workforce with higher credit scores and lower rates of delinquency on debt (Brown, 2014). Twenty-two states in the U.S. have mandated some form of personal finance into their curriculum, but the extent of the education varies. Some states combine the material with other courses such as economics or mathematics, while others are outdated (like teaching how to write a check when the word “venmo” is a verb in our society). Utah requires all high schools to take just a half-year course exclusively dedicated to personal finance. According to a study in 2016 of recent college graduates, average student debt and percent of graduates in debt were both lowest in Utah (“The Case for High School Financial Literacy”). Many students attend college without understanding financial aid, loans, or credit scores. This is dangerous with many students needing to borrow in order to fund their college, and results in over 11% of students having loans in default, according to the U.S. Department of Education (“Official Cohort Default Rates for Schools”). Teaching financial literacy will help students choose the best college for them in terms of appropriate debt to take on based on interest rates and the future return of their area of study income level upon graduation. Students will be better prepared for life after college with these basic financial skills and mindset. A study found that more than four in ten young Americans who attended college stated that college had not prepared them for the real world (Plepler, 2021). When asked what they wished they had learned more about in school, financial topics dominated the top of the list as visualized by the Plepler study:
(Plepler, Young Americans & Money, 2016, pg 5).
This problem is shoved into the spotlight whenever there is a financial disaster. Due to the Great Recession and ballooning student-loan debts, the number of states requiring personal finance courses in schools has more than doubled over the past decade (Miles, 2021). Now because of the pandemic, we have seen a spike in interest relating to personal finance in kids and adults due to the economic repercussions of the pandemic on many households and people being stuck at home for an extended time. Researchers noted that this free time that people were given was commonly dedicated to building savings, investing in stocks and cryptocurrencies, and other personal finance practices (Miles, 2021).
People clearly have an interest in this subject and it has been proven how important these skills are for real world success. In order to ensure our future generations can avoid this financial trap, we need widespread, mandatory personal finance classes taught in high school (and ideally even before then), trained teachers specifically for personal finance, and government funding so these courses have access to all the necessary resources. Following these steps will ensure our future generations will be full of financially literate citizens who will make wiser financial decisions that will better their own lives and society as a whole. I believe financial literacy is a fundamental skill that everyone needs in life no matter what profession, just like reading, writing, and arithmetic. Everyone goes through the hardships of buying a home, taking out a loan, dealing with credit cards, and managing their cash flows, so obviously education relating to these areas of life are necessary. Just as we would not allow an unskilled driver to get behind the wheel without the proper training, how is it justified allowing young adults to enter the real world without any education relating to personal finance?
Works Cited
“3 Reasons Why You Should Start Investing Young.” Alaska USA - Federal Credit Union, https://go.alaskausa.org/learn/investing/invest-young.
Brown, Alexandra, et al. “State Mandated Financial Education and the Credit Behavior of Young Adults.” Finance and Economics Discussion Series Divisions of Research & Statistics and Monetary Affairs Federal Reserve Board, 2014.
“The Case for High School Financial Literacy.” Chaplain College Center for Financial Literacy, https://www.champlain.edu/centers-of-experience/center-for-financial-literacy/report-national-high-school-financial-literacy/the-case-for-high-school-financial-literacy.
“How Are FICO Scores Calculated?” MyFICO, 27 Oct. 2021, https://www.myfico.com/credit-education/whats-in-your-credit-score.
Miles, Jesiie. “High Schools Are Finally Teaching Kids What They Need to Know about Finances.” Sailing Suncharters, 8 Sept. 2021, https://sailingsuncharters.com/high-schools-are-finally-teaching-kids-what-they-need-to-know-about-finances/#Financial_literacy_isnt_a_silver_bullet.
“Official Cohort Default Rates for Schools.” Official Three-Year Cohort Default Rates for Postsecondary Schools, https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html.
Palmer, Kimberly. “6 Valuable Lessons about Credit Cards That These Financial Planners Wish They'd Known When They Were Younger.” MarketWatch, MarketWatch, 26 Nov. 2021, https://www.marketwatch.com/story/6-valuable-lessons-about-credit-cards-that-these-financial-planners-wish-theyd-known-when-they-were-younger-11637354711.
“Parents, Kids, and Money Survey.” T. Rowe Slideshare, 16 May 2017, https://www.moneyconfidentkids.com/us/en/news-and-research/research/2017-parents--kids---money-survey-results.html.
Plepler, Andrew. “Young Americans & Money.” Bank of America/USA TODAY Better Money Habits Report, Bank of America, 2016, https://about.bankofamerica.com/assets/pdf/BOA_BMH_2016-REPORT-v5.pdf.
