Why Aren’t We Teaching Students Financial Literacy?

I can tell you what the abbreviations on the periodic table stand for. But vesting in a retirement plan? I have no idea what that means.

I opened my first bank account when I was 6 years old. Through a program offered at my elementary school in partnership with our local bank, I would bring the money I earned through chores to school every week, hand it over to the clerk, and watch as my savings gradually grew. Unbeknownst to me, I, with my Lisa Frank stationary, had just received my first lesson in personal finance.

Even so, this wasn’t enough to make me financially literate.

As I transitioned from adolescence to adulthood, I found that I was woefully unprepared for the many complex and consequential financial decisions that come with being an adult. Sure, I understood the value of saving, spending within my means, and planning for future expenses. But taking out college loans, applying for credit cards, or setting aside money for retirement? These were all decisions that I understood conceptually, but knew little about in practice.

This, of course, is worrisome. Financial decisions like these can arguably make or break an individual’s long-term financial success.

Yet we often leave individuals to make such decisions on their own, with little to no prior education on personal finance, and often without objective guidance on how to navigate a system riddled with complicated jargon and fine print.

The United States is the wealthiest nation in the world. Yet study after study after study indicates that Americans aren’t financially literate.

APR. Bond. Capital gain. Diversification. Earned interest. There’s a financial phrase for practically every letter of the alphabet. But many Americans don’t know what these terms actually mean, much less how they impact their personal finances and economic security.

Shouldn't we teach financial literacy before people start making monumental financial decisions? How about we teach students financial literacy and personal finance the same way we teach them grammar, history, and mathematics?

America’s financial literacy problem

Financial illiteracy cuts across all segments of American society. Younger Americans, older Americans, those with college degrees, those without a college education, male, female — all display low rates of financial literacy, especially compared to other developed economies. Yet some Americans are more likely to lack financial literacy than others: low-income individuals and younger Americans, for example, have lower financial literacy rates than their high-income or older peers.

Without basic financial literacy, it’s difficult for people to exercise sound financial judgement or take full advantage of the financial resources available to them. Not being financially literate also makes individuals more susceptible to making poor and often costly decisions.

Consider the following:

Savings

• The majority of Americans have less than $1,000 in their savings accounts.
• More than one in five Americans don’t have a savings account.
• More than 60 percent of Americans say they do not have enough savings to cover an unexpected expense.

Debt

• The average American household with debt holds an estimated $15,762 in credit card debt, and more than $130,000 in total debt.
• The average U.S. household spends $6,658 annually on credit card interest— nearly one-tenth of the average household income.
• U.S. consumers currently owe more than $1.3 trillion in student loan debt — and that debt grows more than $2,700 every second.

Retirement

• One-third of Americans have no retirement savings.
• More than half of Americans ages 18–29 have no retirement savings or pension.
• As of 2015, more than half of U.S. households were at risk of having insufficient savings for retirement.

Of course, a lack of financial literacy isn’t the sole cause of people’s strained finances. And the absence of financial literacy doesn’t necessarily account for an individual’s level of personal savings, debt, or retirement savings. Stagnant wages and rising costs— on everything from housing to college tuition to childcare to health care — play a significant role in determining what, if any, money Americans have left to save for their futures.

But financial literacy is an important piece of the economic security puzzle. It’s hard to avoid traps when you don’t know they exist. And it’s hard to make decisions that are in your own best interest when you can’t decipher the fine print.

Perhaps it’s time we look for innovative ways to boost financial literacy by empowering individuals through education. And this includes reaching young people — the next generation of consumers and investors — where they already are: in the classroom.

Can schools fill the financial literacy void?

American students spend more time in school than nearly every other developed country. During this time, students are required to learn many concepts: U.S. history, fractions, and photosynthesis, just to name a few.

Yet there is no set standard to ensure that students exit high school financially literate, and requirements at the state level are meager at best. Less than half of states require that high school students complete a course in economics, a decline from years prior. Meanwhile, only 17 states require that high school students take a course in personal finance.

This means that many of our nation’s students enter their adult years unprepared or unable to effectively manage their finances. Worse, many of these students enter adulthood unaware of predatory practices that could lead them to financial ruin.

There’s a strong case for requiring financial literacy in school curriculum: In states that mandate personal finance courses in high school, students have better average credit scores and lower rates of debt delinquency as young adults.

Before you say that the onus is on parents to teach their children financial literacy, stop. First, we know that a large share of U.S. adults aren't financially literate. Expecting these individuals to endow their children with vasts amounts of financial literacy is as unrealistic as it is shortsighted.

Second, there are stark inequities when it comes to financial literacy within individual households. In fact, one study found that students who had one parent employed in a skilled occupation — such as a software engineer — have higher financial literacy scores than students whose parents worked semi-skilled occupations. Not surprisingly, students with parents in finance-related fields score even higher.

When it comes to financial literacy, America isn't making the grade. But by requiring personal finance courses in all schools, we can put students on more equal footing, better equip the next generation of consumers and investors with the knowledge needed to make sound finance decisions, and hopefully move toward a more financially literate nation.