Why Financial Education Must Be Taught in Our Schools

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Worldwide Invest Better Day 9/25/2012

The SEC recently reported that Americans lack essential knowledge of the most basic financial concepts, and that this could have a very negative effect on the financial health of our families. As a parent of two young daughters, I'm particularly worried about what this means for the next generation of Americans.

I recently had the pleasure of interviewing U.S. Secretary of Education Arne Duncan, and he seemed to share my concerns. "Making sure our young people graduate from high school financially literate is one of the biggest gifts we can give them," Secretary Duncan told me. "If they don't understand finances, then I think they're going to really struggle. I look as a society, as a country, at the mortgage crisis and other things like that, and I really question if we had a more financially literate populace, would that have happened? And I think the answer is no."

Sadly, we have a lot of work to do on the financial literacy front. According to the SEC report, young people perform the worst on financial literacy quizzes. And in a 2008 survey of high-school seniors and college students, scores sank to an all-time low.

That shouldn't be surprising, unfortunately. When it comes to teaching our kids basic concepts of finance and economics -- which they are certain to encounter as adults -- we as a country deserve an "F." Consider:

  • Only 25 states require a high school course in economics to be offered.
  • Only 22 states require a high school course in economics to be taken.
  • Only 14 states require a course in personal finance to be offered.
  • Only 13 states require a course in personal finance to be taken.

Widespread (financial) panic
There are about 313 million people in the United States today; about 16% are children between the ages of 6 and 17. The vast majority of these children -- about 90% -- are in public schools.

A considerable portion of our population is starting off at a disadvantage by not learning the fundamentals of financial literacy during their most formative learning years. The maps below show the few states that are currently attempting to tackle the problem:


Let's be clear. The goal isn't necessarily to teach the inherent risks in a mortgage-backed security (although that's great stuff to know). The goal is to teach our children the basic fundamentals of financial literacy, from managing a simple checking account to buying a car or a home to even dealing with personal taxes.

There are too many kids that make it all the way to adulthood without a clue. I know some. You likely know some, too.

There are tangible benefits to teaching these skills. According to the 2011 Survey of the States, students from states where a personal finance course is required are:

  • More likely to save money.
  • Less likely to max out credit cards.
  • More likely to pay their bills on time.
  • More likely to be willing to take average financial risk thanks to their knowledge of finance.

So why haven't more state and county curricula adopted financial literacy programs? Higher One (NYSE: ONE  ) co-founder and COO Miles Lasater told me that "time and resources stand out as the most common obstacles cited. With the focus on the basics and competency testing -- i.e., No Child Left Behind and other mandates -- teachers are hard-pressed with overcrowded curriculum. In addition, teachers may not have the appropriate training and/or confidence in their own money management skills to teach effectively."

Getting the ball rolling
I had the good fortune of being taught these kinds of things by my own parents, and as a parent now, I want to teach my daughters the same way. And I am. There are no replacements for parents teaching kids principles of personal finance education.

"The most important thing that parents can do is set a good example for their children by modeling responsible financial behaviors in their everyday lives," Lasater told me. "Children learn from what they see and observe. ... Having casual conversations about money, explaining how much things cost and how they are paid for, and giving them chances to succeed and fail on their own (giving them an allowance, hav[ing] them save for a special toy) are ways to encourage children to think about money and make good decisions."

But my kids have the advantage of having me and my wife to teach them; we are both financially literate. I'm not under the misapprehension that every parent is as interested in money matters, or is as comfortable having conversations about financial literacy.

Secretary Duncan acknowledged that in some households, money can be a bit of a taboo subject. But, he told me:

Having open and honest conversations about what things cost and what we can afford and what we want and what we need and having kids have allowances and having them work hard and save some money and having the ability to spend -- I think you can never start early enough on that. ...

Every parent can have those conversations and not be shy about that, not be worried about that. And children are interested in money, they're interested in what things cost and having an open dialogue, honest conversation about what you want to do, what you have to do, what you need to do, what you would like to do and what children can contribute -- I think those are really, really important conversations to have. And again, those can start at 3, 4, 5, 6. If you wait until 14, 15, 16, I think it's late then.

And that's why we need a standard for financial literacy. Until it's actually implemented as a staple in our public education system, we'll continue to graduate teenagers unprepared for the complexities of the real world.

Take action
So where do we go from here? For one thing, we need to focus on small, achievable goals. Rome wasn't built in a day, and this issue won't be solved overnight. But take a look at those maps again. Is your state in the majority? If so, contact your representatives and tell them this is simply unacceptable. You can find them all right here: governors, senators, and congressional representatives. I encourage you to drop them a line and demand your state become one that requires completion of a personal finance course for high school graduation.

If your state is already on board, great. But you still need to check into the curriculum offered and make sure that the teachers teaching the material have what they need to do the job. Make sure that your children are learning the right things from someone qualified to teach them. The easiest way to play a part here is to make sure you are an active member of your school's parent-teacher association, or PTA.

The only way to tackle this issue is to get involved. The more noise we make about the cause of financial literacy, the more people will hear us.

Hear the full interview with U.S. Secretary of Education Arne Duncan here (transcript included). Read the full transcript of the interview with Miles Lasater and Mary Johnson of Higher One here.

Jason Moser is an analyst with Motley Fool One and he owns shares of Higher One. The Motley Fool also owns shares of Higher One. The Motley Fool has a disclosure policy.We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (19) | Recommend This Article (45)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 06, 2012, at 6:36 PM, TMFPaladin wrote:

    Awesome article, Jason!

  • Report this Comment On September 06, 2012, at 8:09 PM, TMFJMo wrote:

    Thanks Aaron! It was a lot of fun putting it together.

  • Report this Comment On September 07, 2012, at 1:07 AM, herky46q wrote:

    I remember taking Introduction to Business in high school during the 80s. For anyone paying attention, there really were good lessons to be learned. We even picked stocks and tracked them in the newspaper.

  • Report this Comment On September 07, 2012, at 11:49 AM, jpanspac wrote:

    I agree completely. I also think schools should require a class in logic and critical thinking, in order to arm the kids against advertisements and politicians.

  • Report this Comment On September 07, 2012, at 4:28 PM, TMFJMo wrote:

    Great idea there jpanspac. While I had the good fortune to take a number of philosophy courses in my college days, I don't know that this stuff is taught in high school much, if at all.

  • Report this Comment On September 07, 2012, at 7:37 PM, BxBruce007 wrote:

    "Focus is on the basics."

    Other than learning English, what's more basic and useful than teaching a kid how to handle their finances? You hit the nail on the head. Great article. I'd go further. Since all the math most investors really need are taught in grade school, that's where the education should begin.

    Teach a kid to fish, he'll be a pretty good fisherman. Teach a kid the basics of investing, he'll be too busy making money to waste his time fishing.

  • Report this Comment On September 07, 2012, at 8:37 PM, TMFJMo wrote:

    Thanks for the kind words BxBruce007. I do agree, if you're going to make it here in this life you'd better know how to handle your money and it's not rocket science; just need to know the basics.

  • Report this Comment On September 08, 2012, at 9:52 AM, TMFNewCow wrote:

    This is totally awesome.

    -- Evan

  • Report this Comment On September 08, 2012, at 4:35 PM, TMFJMo wrote:

    Thanks Evan!

  • Report this Comment On September 09, 2012, at 3:45 PM, NoxVenom wrote:

    Excellent article!

    I couldn't agree more about starting early - personal finance is as much about developing good habits as it is a subject to be mastered. And while it may not be rocket science, there is a great deal of emotion attached, and humans tend to not do so well when they are poorly educated and emotional... With this in mind, I'd like to see a program that spans a child's entire education; easing them in to the concepts of saving and financing. They already do it (albeit with toys and candy) they just don't realize it.

    But, as you pointed out, Rome wasn't built in a day - so for now a high school class is the best place to start. Especially since those seniors are about to make choices like cars, credit cards and student debt that will be with them for years. As far as the curriculum, I would definitely add critical thinking exercises - something that makes them consider the bias of every newscast, blog post or sales pitch they encounter. You won't reach everyone, but it WILL do some good.

    Keep up the good work!


  • Report this Comment On September 10, 2012, at 1:41 AM, crikescrikes wrote:

    I agree that High School is a good place to start, but sadly, my daughter came home yesterday from HS and told me that they are learning about investing - She said the students in the class have an imaginary portfolio of $100,000 and they need to select stocks that they believe will have the most growth over 10 weeks. 10 weeks?? My guess is that most of the kids will see their port drop in value over 10 weeks, and they will never again be interested in "investing".

    Why are teachers allowed to teach subjects they are not qualified for? Graduation from Fool 101 should be a prerequisite.

  • Report this Comment On September 10, 2012, at 10:30 AM, TMFJMo wrote:

    Thanks Louis!

  • Report this Comment On September 10, 2012, at 10:44 AM, TMFJMo wrote:

    I love the idea of Fool 101.

    I also remember in my HS economics class the very same project. It was fun, and you are right 10 weeks is not an appropriate timeline. It's a start in creating awareness I suppose, but if it gets them focused on the wrong things, then who does it really benefit?

    Now if they had a four year HS financial literacy curriculum where as freshmen students had to pick 10 companies where they would then follow their performance over the next four years, that would be VERY cool. Make the barriers low by limiting choices to companies in the S&P 500 index. Maybe they get to change once per could be like a fantasy football league for investing and it would be judged over the most ideal timeline: Four years!

    And they could all keep score right here on through CAPS. I think I've just figured it all out. Now to make it happen.



  • Report this Comment On September 11, 2012, at 10:04 PM, vidar712 wrote:

    Unless you are planning on making federally mandated education requirements, you will be contacting the wrong elected officials.

    If you want to change your state laws you need to contact members of your state's House and state's Senate (or legislative body for Nebraska), instead of members of the US House and US Senate.

  • Report this Comment On September 11, 2012, at 11:28 PM, juanlascurain wrote:

    Jason, I believe your article hits a huge blind spot in the education programs of the US and heck, of every other country. We must provide people with basic financial education for people to plan and make their dreams come true and have a fulfilling life. For people to live without stressing for money issues. For people to have a financially independent retirement. Investing in financial literacy programs for people who already left the school system is also essential. I have been working on providing basic financial literacy to millions of people and would love to connect to people working on this subject. Thanks so much for your article.

  • Report this Comment On September 12, 2012, at 7:02 AM, TMFJMo wrote:

    @juanlascurain Thanks so much for the kind words! I think we have a long way to go and it has too start somewhere. Thanks for reading!

  • Report this Comment On September 12, 2012, at 8:08 AM, jethro47 wrote:

    Fool 101? Where can I sign up?

  • Report this Comment On September 12, 2012, at 8:51 AM, TMFDarwood11 wrote:

    Excellent article and ditto for the comments.

    I agree, begin financial literacy education early and have it span all the way through high school. Start at home.

    Critical thinking skills are a must. Some schools do teach that as early as the 6th grade as part of "literacy" courses which in my day were "English." To find out, discuss the curriculum with the middle school teachers who deliver these classes. If it isn't being taught, talk to the administrators.

    Many schools are gravitating to a "common core" of standards. This is a consequence of the "No Child Left Behind" pressures from Washington. In fact, there are some real changes coming by 2014. However, the standards do provide latitude and many middle school and high school teachers are fully engaged in the process.

    One of the hurdles is at times the teachers or the administrations. It's a fact that we have adults in our society who have little financial acumen. Some are probably teachers.

  • Report this Comment On September 19, 2012, at 9:47 AM, Sotograndeman wrote:

    Timely and important topic! Thanks.

    To help educate children on financial and business matters, Buffett created The Secret Millionaires Club cartoon series. Each episode is only 4-5 minutes and is placed in everyday contexts which kids can identify with.

    Like anything from the Oracle, it's worth a look for anyone who hasn't yet:

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