It is not the place, not the time, and not the way
25 states and the District of Columbia have introduced bills in their 2021 legislative sessions to increase access to financial education.
Wow, funny how that all came together, didn’t it?
In a country where
- 2 on 3 families lack any type of emergency savings;
- 78% of adults live paycheck to paycheck;
- 3 in 5 adults do not maintain a monthly budget
it is easy to blame the schools for not teaching us about financial literacy. After all, making us literate in all aspects is exactly what their job is, right?
But just maybe, this one might be a case of seeking the easier solution, but one that doesn’t stand up to scrutiny that goes any deeper than surface-level. Here’s why.
Not the Place
Think of schools even before the virtual learning pandemic. More specifically, think of teachers. Overworked and underpaid. Not trained specifically in financial education. Earning so little compared to the value they bring to society.
Are they the best people to be teaching lifelong personal finance skills to your kids? After all, not only will they have to learn the material, but will also have to adapt it to your average high-schoolers understanding, and then make it fun enough to keep them interested, all within the few hours a month devoted to that subject in the school. That is a tall order to expect. No wonder eighty-two percent of teachers say they are not prepared to teach these concepts.
Parents, on the other hand, hold a lot of the cards that are required for a winning hand.
- Parents can practically demonstrate the requisite skills, rather than relying on teaching or lecturing. For example, if the kids are involved in grocery comparison, or are part of budgeting discussions for the family, they will learn (and implement) a lot more than they would based on what they heard in that one finance class.
- Teens also take their parents a lot more seriously than they do any other source of information, at least when it comes to personal finance. 75% of teenagers say their parents are their most important source of financial information.
- Teens also think that we are excellent role models for money management. How much that is based in reality is questionable, but the fact is that, in their perspective, how the parents are managing their money is the correct technique.
- Parents hold the actual currency — the kids’ allowance. Allowances are actually a great way to teach a myriad of personal finance skills like budgeting, delaying purchases, savings, compounding, and even hustling (if allowances are linked to chores). Parents can even take it a step further and give a matching contribution (akin to a 401(k)) for money that is saved, really driving home the point of the magic that is compounding.
Not the Time
No, it’s not too early. In fact, it is way too late.
Behavioral researchers from Cambridge University encourage parents to start teaching their kids about money as young as 3. No, I didn’t miss a digit. The appropriate age to teach kids personal finance is, indeed, 3.
By the time kids are in high school, they have already internalized most lessons in personal finance. They have formed patterns, especially related to consumption. Those will be hard to break through just a mandatory course in personal finance, jostling for attention in between history and geography.
Broadly the following concepts need to be taught according to the age and the grasp of the child:
- Ages 3–5: Concepts of counting and exchanging money for goods and services
- Ages 6–12: Concepts of earning money, saving, compound interest and investing
- Ages 13 onwards: Usage of credit cards, digital accounts, saving for college
If you want to know in detail the ages at which your kid should know certain skills, here is a handy booklet on national standards created by the Jump$tart Coalition, which give age-wise development benchmarks for financial skills.
The whole ‘High-schools need to teach personal finance’ spiel is too little, too late.
Not the Way
Personal finance is more than concepts and numbers that can be taught in a lecture hall. It is a crucial life skill that can be developed only through repeated practice.
After all, all of us know saving is good, the more the better. How many of us succeed in doing so?
1.It is only through consistently applying concepts like budgeting, saving, investing, etc. and seeing the rewards, will children internalize important financial lessons.
For example, imagine a child being taught about 401(k)s in the school. I’m already bored.
Contrast that with a child who is taught to save a portion of their allowance, with a pre-decided target of $100, at which point the parent will also chip in $100.
Which child do you think will be more likely to prioritize when their employer gives them a matching contribution?
2. Secondly, there are certain skills which, try as they might, teachers cannot teach in schools. Take the example of teaching kids to be entrepreneurial, to scout for opportunities and be rewarded monetarily. Or skills like meal-planning, cooking, and cleaning, which though not directly related to finance, certainly have a major impact on it.
Who knew? Lectures are not the way to teach a life skill!
Is All Lost?
No. All is not bleak. Teaching personal finance in high school does have positive benefits. Specifically, it has been shown in studies to:
- reduce the likelihood of using payday loans among young adults
- positively correlate with asset accumulation by age 25
- reduce severe delinquency rates
- increase credit scores
The changes are small and gradual, but they are there.
However, a more comprehensive approach to teaching personal finance, by simply involving every member of the family, from toddlers up to the teens, in financial decisions, enabling them to take independent decisions albeit on a smaller scale where they are protected from the worst consequences (like getting a Hello Kitty credit card, maxing it out, and destroying their credit score), and cultivating values of entrepreneurial behavior, contentment, and minimalism, can save our future generations from ending up like us — careening from paycheck to paycheck and from one financial emergency to another.
Want to learn basic personal finance before teaching your kids? Join my 10-day Personal Finance Crash Course absolutely free here.
Learn how to
· Budget without tracking every penny
· Use credit cards responsibly
· Plan for retirement while having fun
· and much more!