Kudos to CEE for devoting their blog space this month to many different voices making the case for financial education. I share the dilemma of every end-of-program speaker struggling to find something new to say. So, in these waning days of Financial Literacy Month, let me offer a few additional thoughts in support of school-based financial education for grades K-12.
Research has shown that the largest single determinant of money attitudes in teenagers and young adults is their parents, and the home environment in which they grow up. But, that influence can be positive or negative. If we treat financial education as solely the responsibility of parents, then we admit that young people will not start their adult lives on a level playing field.
For example, failure to expose young people to basic concepts of investing may condemn kids from low-income households to being forever unfamiliar and uncomfortable with concepts like assets, return on investment, entrepreneurship and the fundamental underpinnings of how businesses start and grow. Without this fundamental understanding of the world into which they step out of high school, how can we really expect them to navigate their way through the myriad earning, spending, saving, borrowing and insuring decisions they’ll face as they move through life?
Moreover, the concept of “return on investing” isn’t just some abstract notion for rich folks. The most important investment decision that most of us make is the decision to invest in ourselves, in our own human capital, often in the form of higher education. And, many of us make these critical decisions before we are 20 years old. Every young person, regardless of their parent’s economic status, deserves the chance to make an informed decision. That means they must understand that an apparent “high” price tag for higher education represents a serious investment of time and money in exchange for a much larger expected payoff over time in terms of a higher income trajectory. Too many young people don’t understand the “investment” aspect of higher education, and either don’t enroll because of the high initial cost, or do enroll but squander the opportunity by failing to apply themselves and build their skills.
I’ve heard it argued that the school day is too crowded to fit yet another topic like financial education. Some say that financial literacy is acquired mostly through life experience, and that learning-by-doing is an acceptable alternative to diverting precious classroom time to personal finance, at the expense of more important subjects like math and science.
Yes, it is true that learning by doing works for many consumer purchases. Each purchase makes us a little wiser and we adjust our behavior next time. But, for many important financial decisions, the feedback loop is way delayed, to the point of being broken. For example, the true cost of not participating in a retirement savings program is realized much too far down the line for a consumer to adjust behavior. Buying too much car or too much house – or underinsuring against health risks – is not instantly noticeable either, but can have devastating effects over time. It is very expensive to let young people learn this on their own; expensive for them and for all of society.
A final thought: The goal of school-based financial education ought to be to prepare young people to make financial decisions that will help them navigate more successfully through life. Two decades ago personal finance instruction in schools pushed information at kids and was often prescriptive about what one should and shouldn’t do. But, the explosion in the array of financial products available to consumers – and platforms like smartphones and tablets from which to launch spending, saving and borrowing decisions 24/7 – has pretty much rendered that traditional approach obsolete. Financially savvy consumers continually face new choices for which the old rules don’t apply. Young people don’t need personal finance rules, but they do need practice in thinking through financial choices, identifying options, weighing costs and benefits, and making decisions that work best for them. If we can integrate personal finance examples into the K-12 school experience, early and often, we give students critical life skills at far lower cost than if we leave financial savvy to chance.
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