Money Illiteracy Could Ruin Your Child and Maybe You

Money Illiteracy Could Ruin Your Child and Maybe You
File photo: Teachers greet their students as they get off the bus at Carter Traditional Elementary School in Louisville, Kentucky, on Jan. 24, 2022. (Jon Cherry/Getty Images)
Gregory Bresiger

Many schools fail at financial education, but so do some parents and employers, financial educators say.

Most K-12 American public schools don’t provide children with money management skills, studies show. Only 21 out of 50 states require financial education courses to graduate from high school, according to the Council for Economic Education latest “Survey of the States.”

Five states plus the District of Columbia don’t even include personal finance in their standards, the report said.

“That’s not enough. This is crucially important education and we would like to see more young people being exposed to it,” Dennis Moore, president of the Financial Planning Association, told the Epoch Times.

Money management education for children and young adults is “increasingly important,” according to the Financial Educators Council. It says the problem is not only in the schools, it often begins at home. Thirty-six percent of American households can’t withstand a financial emergency of $400 or more, a Federal Reserve study found.

“While it’s likely that no one will argue that financial education is not vital to kids growing up to be economically successful adults, there is sometimes debate on who should teach them these skills,” according to the “Survey of the States.”

In previous generations, these money management values have generally been passed on at least in part by parents to children based on family values and resources, several financial advisers say. They note that regardless of who teaches children about money, it is important that they learn basic skills such as how to use credit cards or the importance of compounding.

They warn a lack of financial education, either at home or at school, could ruin a child’s life. Despite some recent progress, the majority of American high schools still don’t require graduates take at least one personal finance course, say financial education advocacy groups. The problem goes beyond the children.

A 2018 study by the Financial Industry Regulatory Authority (FINRA) reported 58 percent of American adults have not been offered financial education by a school or employer, and fewer have utilized education offered.

The study also said that about half of American consumers don’t have three months’ worth of an emergency fund. Most, 69 percent, “are not satisfied with their personal financial condition,” FINRA reported.

Educators and financial professionals say financial education should be taught in schools along with the standard core subjects of English, math, and science.

They argue that teaching financial concepts in the classroom is a way to improve economic success for young people. This, they say, ensures all can learn about finances, regardless of family background or experience.

Some states seem to be taking notice and doing a little more, but the problem persists. A few more states recently started to push for financial education, according to the Survey of the States.

“Most high schoolers had at least some access to personal finance, with almost 70% provided the option to take at least a one-semester elective. However, less than 17% of high schoolers were required to take at least one semester of personal finance,” according to the survey. The survey also said financial education failures contribute to income inequality.

“In states where there is no required one-semester personal finance course, there are large gaps between schools educating higher and lower income students,” the survey said.

The Consumer Federal Protection Bureau, in a recent report, affirms the effects of early financial education.

“Well-implemented state financial education mandates led to a clear improvement in financial behaviors,” the report states. “Many U.S. financial education programs improve financial knowledge for students, though effect sizes vary based on the population served, amount of instruction time, and topics covered.”

But the federal agency also said other countries do more than the United States. They “have used more widespread randomized controlled trials to study the effects of programs as they embed and expand them broadly. Those studies also provide useful information.”

The widespread dispersal of money management information, through workplaces and schools, could also help other Americans such as those not saving enough for retirement.

Investing in Stocks

Numerous surveys and advisers have found Americans don’t put enough in stocks—generally the highest return investment asset. But they continue to put too much into company stock despite the Enron scandals in which thousands of employees lost most of their retirement assets.
“One blind spot for employees is company stock. Many think it’s a safe investment. Reality has shown the opposite. A large holding in a single stock is far riskier than a similar investment in a mutual fund, which holds a basket of stocks,” according to a report by the 401(k) Help Center.

“Participants perceive a lower level of risk for their company stock than for domestic, diversified stock funds,” the report said. “This is true despite all the publicity about Enron. There appears to be the attitude, ’that may have happened at Enron, but it wouldn’t happen at my company.'”

Indeed, the long-term problems of financial illiteracy are all around.

Many Americans have no retirement savings, writes’s Jack Caporal.

“The fact that 26% of non-retirees don’t have any retirement savings at all is troublesome,” he writes. Caporal recommends Americans save 15 percent of income for retirement. He adds pre-retirees should ensure they obtain every cent of matching retirement money.

Maxing out retirement contributions and taking advantage of retirement saving tax breaks are basic lessons of money management that one can learn at school or in the workplace. However, these are lessons many Americans young and old aren’t learning.

In previous generations, these money management values have generally been passed on by parents to children based on family values and resources, notes adviser Charles Hughes, one of the founders of the certified financial planning profession.

“It is a big issue and there needs to be early money education of kids. I would start in parochial schools in the third or fourth grade, forget about public schools, teaching young people basic financial planning education. You can’t wait until high school. Then it is often too late,” he adds.

Hughes, a longtime adviser with his own firm in Bay Shore, New York, says he would prefer these courses in private schools. That’s because he has had “unpleasant experiences” with public high schools and money management courses.

Regardless of who teaches children about money, it is important that they learn basic skills such as how to use credit card or the importance of compounding and why the sooner the better, advisers and educators say.

This is why most financial professionals agree: the average American, especially the average student, needs much more money education.

“And,” adds Moore, the Financial Planning Association president and an adviser in Dallas, “the sooner they get it, the better.”

Gregory Bresiger writes about business and personal finance. He is a former New York Post business reporter.
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