Are US students doomed to fail? The less-than-desirable state of personal finance education
When I was a kid, my mom set up a very simple allowance system for my sister and me. For every year of our age, we would earn $1 per week. She then gave us 3 jars to allocate our allowance each week: a saving jar, a spending jar, and a gift jar.
She also gave us a checkbook and had us record and balance all of the changes in our 3 jars. At the time it felt like such a huge task! But man, what I'd give to only have 2 or 3 entries per week now....
This was the start of my personal finance education. I was really lucky! I don't know very many people who had this type of system growing up.
My high school did not offer a personal finance class, to my knowledge. And if they did, they certainly didn't advertise it. If my mom hadn't come up with her ingenious allowance system, I don't think I would have the same mindset about money as I do now. Who knows, I might not have even majored in Finance in college!
Unfortunately, most people are not so lucky. Most parents don't have the forethought or acumen themselves to set up a system like my mom's.
So why isn't personal finance a fundamental part of a well-rounded high school education?
Until recently, most high schools in the US didn't even offer a single class related to personal finance. It's shocking, really, considering it's a life-long skill. So where do most people learn the crucial skills of saving and budgeting?
An awesome study by Next Gen Personal Finance (NGPF), a non-profit dedicated to financial literacy education, sheds some light on the topic.
- Only 16.4% OF STUDENTS NATIONWIDE are required to take a personal finance course to graduate from high school.
- Outside of the five states that have mandated personal finance graduation requirement, the percentage of students slips to 8.6%
- About 1 in 20 STUDENTS FROM LOW-INCOME BACKGROUNDS (outside of the five states with mandates) attend high schools with a personal finance requirement.
Ouch. Those stats are cringe-worthy.
The report also shows that 64.7% of students attend a high school that offers a personal finance course. But, of course, this does not indicate actual participation in the courses.
And on the theme of mixing good news with bad news, 33 states are currently considering financial capability education legislation...but only 8 states are considering a mandatory course.
The study goes on to grade each state on its inclusion of this important curriculum.
Take a look at the distribution of grades:
Only 6 states get an "A" for financial literacy education: Missouri, New Jersey, South Dakota, Tennessee, Utah, and Virginia.
Grades are based on percentage of students offered personal finance courses and students taking mandatory courses. Note that 5 states are not included as they did not provide sufficient course information.
You can also see a list of all high schools in the US that meet the "gold standard" of personal finance education (which essentially means they require taking a PF course for graduation). I was surprised to see that my high school was on the list! I guess they got their act together after I left. Check the list at the end of the report to see if your high school is there.
There's a lot to be excited about, but there's still a lot to be done. Surveys over the years have consistently shown that people in the US are not adequately prepared to handle their finances on their own. This Gallup report showed that 48% of Americans cannot afford a financial emergency, like a car or a major home repair.
It's clear that something needs to be done. But if schools are dragging their feet on including mandatory curriculum, how can we ensure young adults are learning these skills?
There are several other resources that can help to bridge the knowledge gap.
- Parents: Take some time to teach your kids the value of a dollar from a young age. Even simple things like allowance can turn into life-changing lessons!
- Blogs and online education: There are tons of great blogs and websites out there that can help people learn the skills they need. This is an awesome (and often, entertaining) way to get started if you're feeling lost.
- Fintech? The jury is still out on this one, but I'm hopeful that some of these new apps can do some good.
I want to hear from you!
- How did you start to learn about personal finance? Did your parents play a role?
- How have you/do you plan to educate your children on personal finance?
- How can we encourage more states to institute a personal finance education requirement?
- Will fintech startups and apps be able to help fill the gap? Or are fintech companies inherently focused on collecting consumer spending trends to monetize?
From the Community
"I learned general frugality and “spend less than you make” from just growing up lower-middle class in a tough urban environment. I saw my parents and others striving to do it and that left an impression."
"I learned all my PF knowledge from bloggers on the internet. I loved peeping at other people’s Net Worth. I would google Personal Net Worth Blog to ogle at other people’s wealth. This was purely out of green eyed envy, but I also learned a lot from rummaging around in this little corner of the web."
"I learned all my PF knowledge from bloggers and Dave Ramsey. My parents gave me the basics of how to manage a checkbook, but not much more than that. We started teaching our three children, by involving them in our money discussion…The key I found is to involve money talk about topics they are interested in.
"Three years ago I approached my superintendent to discuss financial literacy. I’ve worked on several committees, and after BOE approval we have a K-12 personal finance program now in place."
"I learned about personal finance from other personal finance sites, mainly those written by physicians targeting people with high net-worth.
"With having 3 kids, 2 elementary school age ones, I am seeing some personal finance education - entrepreneur week at school, book sales by students, etc. More needs to be done to help kids understand compounding interest, simple investment concepts, Roth for kids."
"I self-taught myself. I remember at 3-4 years old offering to do extra chores at home and in the neighborhood and I would use the money to buy a little bit of candy and save the rest.
"I plan to teach my kid(s) about finances from the age of 4, by giving them an allowance to do certain chores, and giving them those piggy banks divided into 4 quadrants: Save, Spend, Give, and Invest."
"I learned frugality from my parents - nothing close to a personal finance class was offered when I was in high school. I found out about financial independence in my twenties from reading blogs. My investment knowledge has sort of been pieced together over the years from articles, blogs and conversations."
"I was never explicitly shown how to manage my finances. I’d say I’m innately frugal. I’ve been setting and meeting various savings goals ever since I can remember. However I did not think of myself as a frugalist until a couple of years ago when a friend told me I was. I discovered the online finance world shortly thereafter, and my frugality became more intentional."
"I think Fintech companies are currently greatly focused on collecting information and trends but there are some benefits to this too. If an app can analyse your spending and automatically find ways to make you save without too much compromise, why not?"
"My mom was quite frugal and my Dad talked about PF a lot. He would have the Suze Orman show on in the background, was always talking to me about stocks and options, and had a large library of personal finance books in our house.
"The second great influence was a job I had in college. It was a program that helped low-income families purchase their first home. Part of the program was the families had to take a 10-week personal finance class taught by two CFPs. Looking back, I think the class was more valuable than the stipend I received from the job."
"Kids model their parents, so when parents are responsible with money, that is the best lesson possible."
"My parents never instilled financial independence because it wasn’t something they were taught - so it was only natural nothing got imparted. Although, my mom was a saver by nature and I observed her closely. I started taking my financial situation seriously only after I got married - huge thanks to my husband. I now make sure my kids are taught the basics of money, where it comes from (doesn’t grow on a tree) and how to earn it. I am starting them young, but I know it’s for their own benefit. "