Financial literacy continues to make slow strides in gaining attention, while discussions of appropriate methodologies in a school setting remain scant. The lack of sufficient attention to methodology has hindered progress; many programs lack meaningful evaluation and longitudinal studies are few.

This creates a circular problem: It is difficult to get support to expand programs when there is a lack of verifiable evidence of their effectiveness, which makes it more difficult to move forward and gain that evidence.

A saving grace is the vast need for financial literacy. Despite challenges with evidence of effectiveness, there is a growing body of evidence of need. Real people are suffering the consequences of financial illiteracy every day. The financial world continues to get more complex and people are visibly getting left behind.

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Financial Literacy Mandates

There continues to be slow progress in the number of states requiring some form of personal financial literacy education as a high school graduation requirement. It’s now about half, which is significant, but it is clearly not where we need to be.

Few states, however, require students to take a stand-alone course in personal finance. More require personal finance education integrated with other coursework. Mandates are great, but they don’t mean that it actually happens.

It is concerning to see young people graduating high school barely able to read or write; there can be little confidence that they somehow attained reasonable financial literacy education while missing out on reading in schools.

The mandates are not always being followed. Schools face many challenges, and states aren’t going to push very hard on getting those who can’t read to be good with money. They probably feel they have bigger problems.

State financial literacy education mandates in schools are important but not sufficient.

The Feedback Challenge

Financial literacy education should make a lifetime of difference. All too often results are either not measured or measured at a point in time. And the focus tends to be on knowledge alone.

Knowledge is important, but financial literacy is a skill; you need to apply it and use it to develop the skill. You learn skills through practicing with knowledge — both knowledge and experience are required.

It is a lot like welding — you can read a bunch of books but that does not make you competent with a torch. You need both knowledge and experience to be a good welder, as you need both knowledge and experience to be competent at any skill.

Doesn’t matter if it is baking or flying or financial literacy, knowledge does little without experience, and experience can be an expensive and dangerous teacher in the absence of knowledge. They are inseparable; neither has meaningful value alone.

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In a classroom, there are options to develop the skills of financial literacy, just as you would with welding or baking. Financial literacy skills can be developed with cases and games, with interactive tools and with competitions.

Hands-on training provides the learner with a feedback loop. They take an action and a consequence develops. Knowledge training without an experiential component is better than nothing, but it cannot compete with experience.

An ideal situation is directly hands on. Games are a great substitute, but not the only option. Case studies, learning from stories and critiquing the actions of others, even simple exercises can add a hands-on component to knowledge training and improve the likelihood of long-term improvement.

Knowledge has the singular advantage of being easy to test and evaluate. Assessments can measure knowledge gains whereas skill development is harder to evaluate.

Program Elements

Effective financial literacy education needs to develop several skills. Some are overlooked in knowledge-based programs.

To be financially literate, you need to be able to evaluate financial alternatives. This can be useful in day-to-day activities like comparison shopping and is essential for major purchases.

Financially literate people should be able to compare mortgage options and make a reasonable choice based on their situation and should be able to evaluate choices like leasing a car versus buying a car. Financial decision-making is an essential financial literacy skill.

Using technology in finance is important and growing in importance. There are fantastic tools available to assist individuals in a myriad of financial challenges. But using powerful tools without knowledge of the consequences can be a recipe for disaster.

Students need to not only know how to use technology — that’s the easy part — but they also need to know when to use technology and what the potential risks are. It is too easy to invest in risky investments with technology.

Unfortunately, you can experience negative consequences without even knowing the consequences were possible.

Technology can be wonderful and powerful, or it can be crippling. Natural language processing and artificial intelligence will likely change many aspects of how we teach and learn financial literacy. We just don't know what those changes will be or when they will come about.

Fraud awareness and preventing it needs to be an element of a good financial education. It has been bad out there, and it is getting worse. People need to know how to protect themselves, and where to find out what to watch for as the bad people get better at what they do.

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Behavioral Finance

Behavioral finance can no longer be ignored. In school, individuals need to learn about the behavioral aspects of financial literacy and how to deal with the biggest obstacle they will face on their journey to financial success: themselves.

Money is an emotional topic. Emotions can cause people to make suboptimal decisions. Car dealers know this. You should too.

Students need to learn about the risks behavior brings to the table — and how to combat those risks. There must be proactive to solutions to deal with our human tendencies, which do not serve us well as long-term accumulators. The more we understand and are aware of our own shortcomings the greater our ability to overcome them and achieve success.

Markets and volatility are not what holds investors back; behaviors in the face of market conditions and volatility are what holds investors back. Behavioral finance is an essential component of financial literacy.

Systems Thinking

Financial literacy can benefit from systems thinking. Nothing occurs without impacting other things. This is as true in financial matters as it is in any other system.

If you increase your 401(k) contributions, for example, it impacts not only your retirement preparedness, but also your cash flow and your taxes and may impact other areas of your financial life. Any single change has the potential for multiple consequences.

Likewise, financial literacy and financial matters occur within larger systems. An individual’s numeracy skills are a codeterminant of their financial capability. Those with low numeracy skills are more likely to struggle financially.

Numeracy education is not financial education, but supports financial education. Those challenged by numeracy need to gain knowledge of and comfort with other tools to assist with numeracy.

Talk It to Death

A major aim of basic financial literacy programs is to raise awareness while developing rudimentary skills.

We can help. We can help in our families and we can help in our workplaces. And we can help by simply talking it to death.

We can and should talk about financial matters at home. We should talk about budgets and we should talk about the process of evaluating financial alternatives.

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Children who grow up in a home where the parents smoke are more likely to smoke; children who grow up in homes where the parents demonstrate financial awareness and restraint are similarly more likely to pick up these habits.

Don’t demonstrate the habits you don’t want the kids to pick up, and repeat the habits you would like them to obtain.

Many of us can talk up financial literacy at work. We can be advocates for the 401(k) or other retirement plans. We can be advocates for debt reduction and we can be advocates for emergency funds and we can be advocates for budgets. And we can do that without being obnoxious. People don’t like to be told what to do, but they do love stories.

If you have a passion for financial literacy or financial wellness, you can share that passion.

You may be surprised not only by how many people are interested, but also that they will make changes and be excited to tell you of their own progress.

Talk it up. Stories are a very powerful teaching tool. Talk it to death.

The Bottom Line

There is no silver bullet for financial illiteracy. Amazing things are happening, but we still have a long way to go.

Financial literacy is a complex skill and we can spend a lifetime continually learning new things. But we won’t if we don’t have a solid start. Financial literacy education needs to build the foundation upon which individuals can build the financial lives they wish to have.

We need to keep the idea of skill or capability as a guiding principle. Knowledge of the difference among investment types is nice but evaluating those differences is essential. The skills can be used in changing situations.

There are many tools that can be used to enhance skill-building. Technology continues to help. There are more great videos and simulations and games available every day. There is a lot of power in stories. The more we can talk up financial literacy the bigger difference we can make.

The forum in which we present may constrain the techniques or methodologies we can use, but we can always enhance financial literacy education in schools by making it experiential. That is what people will most carry forward; that is where the difference is made.

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