A report by the Center for Financial Literacy at Vermont’s Champlain College graded all states on how well they were teaching financial education to their students. The result was that more than half of the states scored a C or below, and only five states got an A. In fact, in the United States, only 17 states currently require high school students take a course in personal finance, a number that hasn’t changed since 2016, and less than half require any kind of economics classes at all. In a country whose average household debt is $137,063, how do children 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 is at an all-time high of $1.5 trillion, and with the cost to attend college growing eight times faster than incomes, 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’re only setting them up for financial failure.
When the school fails to teach financial literacy, the responsibility falls to the parents. However, parents are often reluctant to talk to their children about their finances, especially if they have debt or haven’t always made the best financial decisions.
Why Students Need Financial Education
We teach our children how to drive a car because it’s an essential life skill. It’s not only useful, but it’s also important that they learn how to do it safely. The same can be said about financial education. It’s a useful life skill, and if not learned, it can cause lasting damage that could be detrimental to their lives for years. Let’s face it, kids always ask, “Am I ever going to use this?,” usually as they’re studying trigonometry or learning the Pythagorean Theorem. That question will never be asked about the need to learn how to manage finances properly (or at least you won’t be at a loss for an answer!). Even from a young age, being taught to save money is an important lesson.
Financial education will help them do so much more than balance a checkbook. It’ll help 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’s little doubt that teaching kids how to make good financial decisions works. Interestingly, when it works best might be the real question. A 2015 study by the Journal of Human Resources found that when financial education such as balancing a checkbook, calculating interest rates, and budgeting were taught in math classes, it was much more effective than having students take a dedicated financial literacy class. In fact, the study found no impact at all of dedicated financial literacy classes on a person’s financial success. However, financial responsibility taught in math classes resulted in greater investment income, better management of credit, and even fewer home foreclosures. Financial education can be integrated into economics and social sciences.
Why We’re Not Teaching Them
Why is financial education falling by the wayside? Whether it’s considered good or bad, standardized testing has driven schools to put a huge emphasis on what they’ll be tested on, namely Math and English. Add to that more social programs and there’s little time left over for anything “extra.” When financial education is seen as “extra,” or as an elective rather than integrated into other areas of education, it’s simply pushed aside. Despite the emphasis on math, the fact that there are no personal finance concepts on most standardized tests, such as the SAT or ACT, means there’s little push to make it part of the curriculum.
Another reason for the lack of financial education in schools is that education decisions are made on a state level, so there’s no federal mandate or guideline to help schools learn the most effective approach to teaching personal finance. Additionally, only 1 in 5 teachers feel qualified enough to teach a finance class, so there’s a huge reluctance in teaching it.
The Good News
The good news is that despite the stagnancy in the number of states requiring financial education, things are changing. Most states are on board with Common Core, and they’ve begun including personal finance as part of their core education.
There has also been a bill introduced in the Senate by Sen. Doug Jones, D-Alabama, Sen. Kirsten Gillibrand, D-New York, and Maggie Hassan, D-New Hampshire called The Youth Financial Learning Act of 2019 which, if passed, would help states provide and maintain financial literacy programs in schools.
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.