As some of you know, this topic is dear to my heart as I currently volunteer my time as President of the Connecticut Jumpstart Coalition for Personal Finance (www.ctjumpstart.org). This Coalition encourages the development and implementation of programs to educate young people about personal financial management and responsibility. This includes convening conferences for students and training sessions for teachers; supporting financial education programs in-school, after-school and in conjunction with community partners.
In this article, I will discuss why teaching personal finance is so important, what new data is telling us, and some things you can do for your kids, grandkids, nieces, nephews, or other children to help them learn personal finance.
But first, why is this so important to me? When we do not teach children about personal finance – about managing household budgets or making informed decisions about larger investments in education or at home – we are condemning them to learning it largely and perhaps entirely on their own, if at all. If we teach them subjects like science, history, and math but do not teach them anything about personal finance, then we need to understand that we are making a conscious choice to release them into a financial world where they have to fend for themselves.
Above all, people need to know that there are a few big moments in their lives where they are going to confront specific decisions with potentially massive consequences, such as taking out a mortgage or student loan. Do you go to school here or there? Do you buy this house or that one? How much debt do you take on, and on what terms? Do you understand the consequences? These crucial decisions have huge ripple effects in your life, lasting for years.
So while I do believe that personal finance should be discussed at home, I believe that it should be mandated in the school systems. In a survey conducted in 2012 (through the FINRA Foundation’s National Financial Capability study1) 89% of American parents surveyed thought that a course in personal finance should be a requirement for high school graduation. Even with that high number of parents in agreement, only 17 states currently require a class for high school graduation (Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Michigan, Missouri, New Hampshire, New York, New Jersey, North Carolina, North Dakota, Tennessee, Texas, Utah, Virginia).
The good news is that we are starting to see the results from these personal finance courses in a study conducted by FINRA 2 below:
The study found that (by focusing the analysis on individual states with intensive mandates where the implementation is well documented) teaching personal finance can improve the credit scores and lower the probability of delinquency for young adults.
Besides making personal finance a graduation requirement, what else can we be doing at home? Below are several ideas:
CFPB’s Money as your Grow Bookshelf – You can read these books together (ages 4-10) which can help facilitate conversations (and download a parent reading guide) with such books as Curious George Saves His Pennies by Margaret and H.A. Rey. https://www.consumerfinance.gov/consumer-tools/money-as-you-grow/bookshelf/
Financial Football (NFL) - Visa and the National Football League have teamed up to help teach financial concepts with Financial Football, a fast-paced, interactive game that engages students while teaching them money management skills. https://www.financialfootball.com/. There is also one for soccer as well at https://www.financialsoccer.com
Introducing 3 little piggy banks - Experts say a piggy bank—or three of them—can help teach children as young as 5 or 6 the cornerstone of financial literacy: to save and manage money. One bank collects money for spending, another collects money for saving, and the last collects money for giving. Every time your child gets cash, whether it's an allowance or birthday money, he or she can allocate a percentage to each piggy bank.
iAllowance – This app (that can be downloaded for $2.99) shows kids how to save and spend. Whether you want to set up a weekly allowance or pay out a special reward, this app will help you do that. It also lets you add as many kids as you’d like. http://www.jumpgapsoftware.com/allowance/index.html
Additional free resources can also be found at https://dfi.wa.gov/financial-education/educators/online-games-and-apps
One thing we can count on is that when our children pass that arbitrary threshold to becoming an adult, we expect them magically to be able to operate “on their own,” and to be able to handle all the decisions (including financial decisions) that go with adulthood. These are significant occasions where you can make a terrible decision by focusing on the wrong things or failing to gather enough information. At a minimum, our young people need to understand which of these decisions are important, and not to treat them casually. As Aristotle once said, “The neglect of education does harm to the political order.”
1Council for Economic Education http://www.councilforeconed.org/resources/local-affiliates/