photo by JD Hancock
Shortly after I first moved to Atlanta, I found myself in front of a classroom full of elementary school kids.
The Financial Planning Association sponsors a “Financial Planning Week” each October, and I had volunteered to teach these kids some financial fundamentals. As I prepared, one thing stumped me: How would I explain who I am and what I do for a living to a group of elementary schoolers, especially when a lot of adults have only a vague grasp of what a financial planner does?
When the day came, I started by offering the kids a simple choice. “Suppose I give you $1 million,” I told them. “You have two choices: You can either spend it all, or you can spend some and save some. How many of you would spend the whole million?” A lot of hands went up, and my inner financial planner groaned. In fairness, a lot of hands went up when I asked how many of the kids would save some of their lump sum too.
I noticed one little girl who didn’t raise her hand either time. When I asked her why, she told me that she would save all of the money.
That girl earned the equivalent of a financial planning gold star. But it was telling that she was the only one in the group thinking that way.
News stories regularly crop up to remind us that Americans, as a group, often fail to grasp basic financial concepts. Last summer, the FINRA Foundation released the results of its National Capability Study, which asked over 27,000 respondents to take a brief quiz covering basic financial concepts. Only 37 percent of them passed. And in Standard & Poor’s 2014 Global Financial Literacy Survey, which compared financial literacy across countries, the United States ranked 14th.
Groups like the Financial Planning Association have attempted to address this issue through events like the one in which I participated, and many financial organizations have taken advantage of the internet’s reach to try to offer resources to consumers who want to educate themselves. But it seems clear that these efforts are not nearly enough to create society-wide changes in financial literacy levels.
Nor is the equivalent of home schooling the answer, at least on a large scale. Many people are not learning financial basics from their parents, either because their parents do not understand the concepts themselves or because the awkwardness of discussing financial topics keeps parents from starting frank conversations about money as early as they should – or at all.
An article that recently appeared in The Wall Street Journal posed the question: “Should College Students Be Required to Take a Course in Personal Finance?” The article presented arguments both for and against this proposition. The supporter argued that financial literacy is essential in giving consumers tools to defend themselves against both their own ignorance and potentially predatory industry practices; the opposition countered that college courses in money management won’t offer sufficient protection and could lead to dangerous overconfidence.
Both points of view neglected to look at the Journal’s question from another angle: Why wait until college? Requiring financial education in college offers some obvious downsides. For one, though enrollment rates are increasing, not all Americans attend college, leaving a large chunk of the population out of the potential benefits of such a requirement. And many incoming college freshman have already faced a choice that could shape their financial lives for years to come – whether to take on student loan debt, and how much.
If we want to require courses in financial basics, it makes much more sense to start earlier. This is already happening some places on the local level. A recent article in The Post and Courier highlighted a financial literacy class in a South Carolina elementary school based on an online curriculum offered by the state. Vermont’s state treasurer recently recognized student achievement in two programs designed to enhance money management skills. And a bill currently before the Florida Legislature would, if passed, require financial literacy classes for the state’s high school students.
These efforts are admirable. But history suggests that we need more than piecemeal solutions in order to truly change the nation’s level of financial understanding.
After the financial crisis of 2008, I thought that mandated financial literacy classes in some form would be a slam dunk, whether in high schools or elsewhere. It was clear that a large part of the damage resulted from people’s unfamiliarity with the basics of debt and mortgages, leaving them more vulnerable to pressure to take out larger or riskier loans than they should have. But in the years since the housing bubble burst, we have seen no widespread movement toward making sure Americans know their financial ABCs. In fact, the 2016 FINRA study I mentioned earlier demonstrated that the number of test-takers who passed had actually fallen compared to 2009.
It is true that better and more widespread financial literacy is not a cure-all. But considering the high personal and societal costs of problems such as excessive credit card debt or failure to wisely plan for retirement, it is hard to argue that making sure we are teaching our kids the basics when it comes to money wouldn’t prove to be a net positive.
When I talked to that classroom full of kids about basic concepts like living within your means or the power of compound interest, I could see them making connections. They were engaged and appreciative when I introduced them to the basics of real-life concepts that all of them will need to know by the time they reach adulthood. We should give all students that opportunity well before they hold their high school diploma.