While schools really focus on teaching kids the basics of reading, writing, math and science, the signs that we desperately need to teach personal finance earlier in life are everywhere. After all, the average savings rate is very good, and some studies (incl This one) shows most Americans aren’t investing enough (or regularly enough) to retire on their own terms.
Credit card debt is also a major problem, as it were student loan, and surging costs of monthly car payments. By offering personal finance education in schools, states and municipalities can prepare future adults to make smart financial decisions when it matters most.
Some countries have even passed legislation require financial education in schools, and some celebrities offer their own programs. For example, Philadelphia 76ers superstar James Harden announced that he will use a non-profit – called the Impact 13 Foundation – to increase the level of financial literacy among young adults.
With all this in mind, we have to wonder if this program is actually effective when it comes to helping kids learn about money. We should also be concerned that some of these programs are actually designed as lead generation for wealth management firms.
There are many strong opinions about children learning about money in school, and who should be teaching these courses if they are offered in the first place. I contacted several experts on getting financial literacy programs in schools, and here’s what they had to say.
Financial Literacy Programs Teach Important Life Lessons
Debbie Pierce, who serves as President and CEO Literacy economy of Coloradosays that the life skills taught in the personal finance course will ultimately be used by all students throughout their lives, whether they know it or not. For example, everyone will eventually have bills to pay and budgets to manage, and everyone will eventually hope to retire one day.
“If school is to prepare students for life, why shouldn’t personal finance be an important class?” she asked.
Pierce added that students who don’t learn about personal finance in school have a slim chance of learning about financial needs at home. Ultimately, this leaves too many students falling through the cracks and having to study at the “School of Hard Knocks,” he says.
Unfortunately, there are often challenges when it comes to finding an instructor for a course. Pierce said the biggest challenge in Colorado is not having enough teachers to teach essential classes in many school districts, “much less elective classes.”
He added that this is especially true in rural districts, which make up 75% of Colorado school districts.
Financial Education is Essential to Our Changing World
Dr. Jaime Peters of University of Maryville shows that many financial lessons from the last 100 years no longer apply. For example, Dr. Peters said that individuals are now charged from their own 401 (k) plan, while workers a few years ago have a pension to count on. In addition, dollar bills have been replaced by debit and credit cards, and direct deposit and automatic payments make it easier to spend and more difficult to track our total spending.
“It’s no longer what’s in your wallet — it’s what’s in your app,” he says.
With this in mind, the way technology is changing our financial system has made financial literacy a “critical life skill,” he says.
We use money differently, but kids still need to learn financial basics like “pay yourself first” and live below your means. Without financial education in school, children will never learn this lesson.
Financial Literacy Programs Are Not Perfect
That being said, Dr. Peters said that financial literacy programs suffer from the same fate as many other well-intentioned programs.
“It’s good content at the wrong time,” he says.
For example, high school students are not in the market for credit cards or mortgages. And while college students may have jobs and car payments, “they’re far from needing to know the ins and outs of how to choose the right health insurance.”
However, it is possible that the lessons learned about finance in school can stick with students for years until they need them. So, students who go through a finance program may not know how to navigate finances as adults, but they can gain a basic understanding and be more confident in asking questions, Dr. Peters said.
Financial advisor Josh St. Laurent of Wealth Within adding that sometimes program length is also a problem, and half-day financial literacy workshops are often not enough.
“A few hours of charts and graphs is not enough to affect student behavior change,” he says, adding that there needs to be a real-world component where they can test concepts with their own money and through their own real-world lens.
Financial therapist Lindsay Bryan-Podvin, the author Financial Anxiety SolutionsAdding that some school-based programs put too much emphasis on tactics, definitions, and rules, and not enough on managing money in real life, including emotions and money stories that come into play.
He added that this is similar to health education in the United States. There is more emphasis on what health is, but our health outcomes are not good.
“You can teach someone that fruits and vegetables and daily walks are good for them, but if they live in a food desert where it’s not safe to walk, that’s not good,” she said.
Several Conflicts of Interest Exist
Some may also be weary of financial companies creating programs for schools, and for good reason. After all, a financial advisory firm can easily tailor financial education in school in a way that creates leads for them in the future, or at least introduce young people to their brand first.
For example, MassMutual offers FutureSmart – a national initiative that teaches financial lessons to middle and high school students, as well as families and educators. They pointed out the findings in the study from Journal of Financial Counseling and Planning as some of the core reasons for financial education in school is necessary, including the fact that 90% of students who took the FutureSmart course one-time “knowledge gain experience.”
Potential conflict or not, it seems appropriate for financial firms to create financial literacy programs — at least, as long as they’re not built to push specific financial products. For example, the FutureSmart curriculum includes information on “how to achieve important goals around saving money, budgeting, education, and career planning.”
These lessons can be useful to any student who is eligible to participate, regardless of which company helps pay for the program.
While the financial literacy courses offered in schools may not be perfect, most experts seem to agree that they are better than nothing. And for some students, the lessons on budgeting or savings they learn in school may be the only financial education they ever receive.
Ultimately, that’s why some states are pushing for mandatory financial literacy, and why more states are likely to follow their lead. Regardless of how these programs are, or who pays to create them, the entire community benefits when young people have the opportunity to learn the basics of finance they can’t study at home.