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Financial Literacy: What Do Your Kids Know About Money?

How students are prepared abroad vs. in the US.

Key points

  • Schools teach some important information, but they can't cover it all.
  • Teens in other top economies have outranked US 15-year-olds in financial knowledge for a decade.

Just when things were beginning to feel somewhat normal, the economy took a turn for the worse. We are all cutting back on nonessentials like snacks and streaming services to ensure we have enough room in our budget for things like utility payments, rent, and gasoline. But there is a silver lining. This is an opportunity for families to teach kids critical financial knowledge they likely won’t learn at school - and if they do it will likely be at the high school level.

While state standards and school curricula are open source and available to families, not everyone is aware of how to access and/or interpret them. It is critical for children to have a sound foundation in financial literacy, particularly when terms like recession, bear market, housing bubble, supply chain, and interest rates dominate headlines. Vocabulary is only jargon without understanding - and many young people do not understand these terms or how they impact their lives.

Ultimately, children worry when adults worry. They hear caregivers talking about needing to cut back on purchases, but they may not understand why. The latest figures available shows only 25 states require some form of financial literacy course be taught prior to graduation and in most of those cases, the requirement is only a half-year survey course in macroeconomics (Barrington, 2020).

Worse still, a lack of financial knowledge can have painful consequences including chronic low credit score, severe debt-to-income ratio, poor health due to diet and stress, and bankruptcy. The National Financial Educators Council surmised based on their recent data that a lack of financial literacy cost Americans $352 BILLION in 2021 alone (National Financial Educators Council, 2021).

Financial Literacy: What Do Kids Know Around the World?

The Organisation for Economic Cooperation and Development (OECD) defines financial literacy as the “combination of awareness, knowledge, skill, attitude, and behavior necessary to make sound financial decisions and ultimately achieve individual financial well-being” (OECD, 2018).

The nonprofit Milken Institute recently published a report reviewing the status of financial education in the US and comparing that evidence to quality and access to similar educational opportunities abroad. The empirical evidence they share highlights that many individuals in the US lack the basic knowledge and skills required to engage in financial decision-making. Sadly, the data also highlights the clear and persistent gaps in financial education along racial, socioeconomic, and gender lines.

Findings from the most recent PISA assessment in 2018 also suggests that high school students in the US lack basic financial knowledge. The US ranked sixth behind Estonia, Finland, Canada, Poland, and Australia with our students only scoring an average of 56%. What’s more alarming is that this number has been stagnant since the 2012 PISA administration showing there is a lot of work to be done, but precious little movement towards it (Contreras and Bendix, 2021).

Two other findings worth noting:

  1. Between 2015 and 2018, improvements in financial literacy in the US were lower than the average improvement scores across other participating OECD economies.
  2. A student’s knowledge of finance is largely based on their parents’ own education, household income, and wealth - indicators that are greater in the US than other nations (Contreras and Bendix, 2021).

Some schools go above and beyond by offering more rigorous coursework and diverse opportunities for young students to engage with financial topics, but we are living through a time of unprecedented teacher shortage. Our current teachers are teaching more classes with less time and new teachers typically need a few years experience working directly with the standards and their mentors before truly having the ability to go above and beyond them.

Denmark, Norway, and Sweden are three countries boasting a 71% student proficiency rate in financial literacy. In those nations, the public and private sectors have joined forces to ensure students have proper financial knowledge because it serves the interests of all citizens that young people make wise financial decisions. The national bank and/or large private banks invest in training programs (mandatory in grades 7-9) that bring financial experts into classrooms to work directly with students. Their focus is typically on how to manage pensions, the process and responsibilities of purchasing a home, and navigating debt (Rosenfeld, 2022).

What’s Taught in the US (and What’s Not)

In the US, only 25 states require some form of economics course be provided as a graduation requirement. In most cases, that requirement is a half year (20 week) survey course giving students a sampling of micro and macro economic principles with a bit of personal finance thrown in for good measure (Council for Econ Ed, 2022).

Like other courses and subjects, the quality of instruction depends largely on the curriculum used and the teacher’s depth of knowledge. There are few high-quality curriculum products available for educators currently, the most popular being Econ Ed Link from the Council for Economic Education. The Council does a biennial survey of all 50 states to determine the state of economics education. The 2022 survey confirms what OECD determined through the PISA administration: “The last decade saw almost no change in the state-level economics education landscape and backtracking at the federal level” (Council for Econ Ed, 2022). Their findings also corroborate OECD’s data on inequitable access to financial literacy.

In the states that require economics and/or personal finance courses, the standards are posted on their respective Department of Education websites for public consumption. Typically, students are taught the below topics in a 20-week course as seniors in high school. Consider the following gleaned from the New York State Social Studies Framework:

  • Scarcity and opportunity cost
  • Types of economies
  • Supply and demand
  • Fiscal policy
  • Investment basics

Looking at this list, there are some important components missing: global interdependence, money exchange, and close-to-home personal finance like decoding a paycheck stub, obtaining (and maintaining) high credit scores, loan amortization, credit card use (and misuse), inflation, unemployment, filing taxes, and many others.

Conclusion

Today's youth will be inheriting this complex (and currently unstable) global economy. The more they know, the more likely they are to navigate it successfully.

My next post will share where children are finding answers if they don't get them from home and school provide 7 fun (and smart!) activities families can do together at home. Stay tuned!

References

Barrington, Richard. (2021). States Where Financial Literacy Education is Working. Money Rates. https://www.moneyrates.com/research-center/financial-literacy.htm.

Contreras, Oscar and Joseph Bendix. (2021). Financial Literacy in the United States. Milken Institute. https://milkeninstitute.org/sites/default/files/2021-08/Financial%20Lit….

Council for Economic Education. (2022). Survey of the States: 2022.https://www.councilforeconed.org/survey-of-the-states-2022/.

National Financial Educators Council. (2021). Financial Illiteracy Costs: Causes and consequences. NFEC. https://www.financialeducatorscouncil.org/financial-illiteracy-costs/.

New York State Department of Education. (2017). New York State Grades 9-12 Social Studies Framework. NYSED. http://www.nysed.gov/common/nysed/files/programs/curriculum-instruction….

OECD. (2018, May). OECD INFE Core Competencies Framework on Financial Literacy for MSMEs. OECD. https://www.oecd.org/financial/education/2018-INFE-FinLit-Measurement-T….

Rosenfeld, Jordan. (2022). Financial Literacy Around the World: Top 10 Countries and the US. Go Banking Rates. https://www.gobankingrates.com/money/financial-literacy-around-the-worl….

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