Alarming statistics are revealed on almost a daily basis about the sad financial situations of adults, both young and old, here and abroad. We even have the whole month of April devoted to financial literacy.
The pressure is on to include financial education in public school curriculums. We need this, even in light of research that suggests it is largely ineffective.
The race is on to develop effective curriculums and delivery mechanisms for teaching financial literacy.
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How did we get into this mess? It certainly didn’t happen overnight. What proportion of my parents’ generation (born in the ’20s) had debt they couldn’t manage?
They were of the generation that got jobs after graduation, worked at one place most of their lives, and retired with pensions.
They were “house poor” when they bought their first homes. This is because the value of that house was going to grow over time, as was their income.
And maybe they used “charge cards” (not credit cards), which were paid off in full every month. They lived through the Depression, which had to have made them conservative when it came to money and savings.
Today’s teens and young adults have a more complicated road ahead of them as they navigate school, debt, and employment.
The general population seems convinced that debt is the way out of financial troubles, rather than the start of them.
Eighteen-year-olds who are handed money for college have no clue what they are committing themselves to.
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How Should We Go About Teaching Financial Literacy?
We have to build on what we know.
We need to learn from the research on the state of financial literacy and start to build upon what we know to be true. Lewis Mandell, an early financial education proponent and co-author of a study concluding that it is ineffective, now argues for “just-in-time” financial education.
In theory, this makes lots of sense. How many 17-year-olds will care about, much less retain, a lesson on mortgages in a high school class?
Anecdotally, I see the justification for the “just-in-time” concept in the college class I teach on personal finance. The seniors get a lot more out of the class because they’re much closer to using the information.
The Role of Family in Teaching Financial Literacy
My personal view is that parents must play a large role in teaching financial literacy to their children. Kids need to learn how to delay gratification. This takes persistent effort. You can’t really tell them that savings are important when they are in high school. Nor can you expect them to magically start saving.
You have to help them develop the savings behavior, and it has to start before kids reach school age.
I don’t like the word “habit” because I think savings should be an intentional act, not a mindless one. And you can teach kids by setting a good example for them.
Learning From the Past
When I was a kid, schools were involved in this. We had savings accounts, and the teacher collected our deposits weekly. Maybe the local bank was just hooking us in as customers early, but saving was a natural part of our lives.
We all participated, and we all learned about interest in the process (yes, this was the ’60s, when banks paid interest on our measly savings).
Given that millennials would rather go to the dentist than walk into a bank, maybe banks should reinstate these programs.
Math and Financial Literacy
The other thing we know is that if our kids are numerate, they are much more likely to be financially literate.
A worldwide study of financial literacy finds a high correlation between mathematical proficiency and financial literacy. This is kind of like saying that if they know the alphabet, they are more likely to be able to read. Our finances are all about the math behind them.
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In my day, you couldn’t get out of third grade without knowing your multiplication tables. This is no longer the case. By the time I taught high school, I was appalled at how many of my students had to pull out a calculator when asked, “What is four times five?” Little wonder they grow up and get into financial trouble!