A 2021 study conducted by the American Public Education Foundation graded all states on how well they taught their students about finances. The result was that 66% of states scored a C or below, and only 17 states received an A or B. It is mind-boggling to think that in the United States, only 15 states currently require high school students to take a course in personal finance. In a country where the average American carries an average debt balance of $96,371, children don’t seem to stand a chance of having a secure financial future.
Without the tools needed to make responsible financial decisions, the outlook is bleak. Student loan debt in the U.S. currently reaches approximately $1.75 trillion. With the cost to attend college having an annual growth rate of 7.1%, student debt will only continue to grow. Upon graduation from high school, students begin receiving solicitations for credit cards to help them build credit. However, with little or no knowledge of how to use them responsibly, we are setting them up for failure.
When the school fails to teach financial literacy, the responsibility falls on the parents. However, parents are often reluctant to talk about finances to their children, especially if they have debt or haven’t always made the best financial decisions.
Why Students Need Financial Education
When we teach our children how to drive a car, a vital part of the lesson is showing them how to drive safely. The same can be said about financial education. It is a significant life skill, and if not learned, it can cause lasting damage that could be detrimental to their mental and physical well-being. Let’s face it, kids usually ask, “Am I ever going to use this?” as they are studying trigonometry or learning the Pythagorean Theorem. That question will never be asked about needing to learn how to manage finances properly. Even from a young age, teaching kids how to save money is an important lesson that could shape every part of their future.
Financial education will help them do so much more than balance a checkbook. It will guide them choose the right cell phone contract, determine the right time to buy a house, make wise investments, and prepare for their retirement.
Teaching Financial Literacy Works
There is little doubt that teaching kids how to make good financial decisions works, and the sooner they learn the better. A recent study conducted by the Financial Industry Regulatory Authority (FINRA) showed that 53% of people with higher financial literacy skills spent less than their income and 65% saved enough money for a three-month emergency fund. On the other hand, only 35% of people with lower financial literacy skills spent less than their income and 42% had saved enough for a three-month emergency fund.
Financial literacy courses can help students make better-informed financial decisions in the present and the future. According to the study, students with higher financial literacy skills were less likely to owe late fees, make minimum credit card payments and take out payday loans.
Why We’re Not Teaching Them
Why is financial education in our country falling by the wayside? Whether you consider it good or bad, standardized testing has driven schools to put a huge emphasis on Math and English. Add to that an array of social programs and there is little room left to fit anything else into kids’ busy schedules. When financial education is viewed as an elective rather than a mandatory part of the curriculum, children are the ones who suffer.
Another reason for the lack of financial education in schools is that educational decisions are made on a state level. That means there are no federal mandates or guidelines to help schools master the most effective approach to teaching personal finance.
The Good News
Fortunately, there is a silver lining. Despite the stagnancy in the number of states requiring financial education, things are looking up. When the COVID-19 pandemic hit, more people realized the importance of being prepared for financial emergencies.
Thirty-seven states, Puerto Rico, Guam and the District of Columbia have addressed financial literacy legislation this year. Georgia, for example, will give students more access to financial literacy. Starting in the 2024-2025 school year, they will require a half-credit financial literacy course for 11th and 12th grade students.
Additionally, 7 out of 10 teachers today feel confident enough to teach a personal finance class. That is a significant increase from 1 out of 10 in 2009.
Nonprofits, banks, credit card companies, financial companies, and the U.S. Treasury are also pitching in by creating universal free financial literacy programs that are available to schools or individuals.