The Ifs, Ands & Buts of Financial Literacy

by Elizabeth Rule, Summer Intern 2014

I remember leaving high school and being completely confused about how to conduct some financial aspects of my life without the help of my parents. How do I file my taxes? What does signing a lease and renting an apartment actually entail? How do I finance a car?

All these thoughts and more were running through my head at high speed when I was moving off my college campus for the first time—essentially moving out on my own. I thought it very strange that my high school, which is considered one of the top public schools in Connecticut, taught us absolutely nothing about the everyday financial issues we were soon to face upon graduation.

Though many schools across the nation do offer some form of financial education, the 2014 Survey of the States: Economic and Personal Finance Education in Our Nation’s Schools [PDF link] indicates that the spread of economic and personal finance education in classrooms is sparse among the 50 states and DC. Looking at data from 2013 [PDF link], only 17 states require high schools to offer mandatory personal finance courses, and only 6 states mandate assessments in addition to personal finance courses.

There are very clear advantages to teaching high school students personal financial skills such as managing money; using consumer credit; financing a home; buying a car; investing in bonds, stocks, and mutual funds; and saving for retirement. These skills are valuable in helping prepare teenagers for impending adulthood. The value of these skills was especially evident in the recent financial crisis and recession that followed, which showed that Americans could benefit from financial literacy.

However, there do seem to be some drawbacks of implementing laws that require schools to teach financial literacy. Since so few states actually require schools to teach financial skills, there are few qualified teachers available to instruct these finance classes. Julie Heath, economics professor and director of the Economics Center at the University of Cincinnati, notes that “82 percent [of teachers] say they are not prepared to teach these [personal finance] concepts, even as over 90 percent of them think they need to be taught in schools.” On top of this, one must also question situations where a teacher is in poor personal financial standing: If they have defaulted on a loan or have a large amount of credit card debt, are they qualified to teach students about finances?

Though financial literacy in high schools is one way to get all of America’s teenagers ready for the real world, financial literacy should also be taught at home. According to a survey done in March 2014 by H&R Block’s Dollar & Sense financial literacy program, 75 percent of teens say they see their parents as the most influential source of financial information. Of that percentage, 62 percent of teens say they see their parents as good role models for money management. Parents need to be aware of their children’s need for financial education and try to guide them in the right direction as they approach adulthood. 

Many students use school as a means of learning the things their parents may not have time to teach them or not be comfortable discussing. This argument echoes the discussion of teaching sex education in schools and feels like it might follow a similar trajectory. Though learning financial literacy at home would be beneficial, a required personal finance course will help make sure all students gain some sort of financial education, which is really the most important part of the matter.

Did You Know?

The first large-scale international study on financial literacy was done in 2012, and the results were released in July 2014. Part of the Programme for International Student Assessment (PISA) developed by the Organization for Economic Cooperation and Development (OECD), the test was given to more than 29,000 fifteen-year-old students from 18 countries. Of the 18 countries tested, the United States ranked at best 8th and at worst 12th, while Shanghai, China, was ranked number 1. See the full results here [PDF link].