Ask the Experts: How Can We Improve Financial Literacy in the U.S.?

Financial Literacy EducationDespite signs of economic recovery, it seems like the list of problems standing in the way of a secure financial future for the U.S. is getting longer by the day. From out-of-control student loan debt and habitual consumer overleveraging to Medicare insolvency and an overcomplicated tax code, we clearly have a lot to figure out in a political landscape that’s far from conducive to progress.

Underpinning, and perhaps exacerbating, all of these problems is the disturbing lack of financial literacy in this country. Far too many people know far too little about personal finance, and our poor overall performance in that area simply puts undue pressure on already flawed programs.

Just consider the following statistics:

  • Fresh off one of the worst recessions in history, U.S. consumers have racked up roughly $82 billion in credit card debt over the past two years and are on pace to bring amounts owed well beyond the $120 billion by the end of 2013.
  • There is currently over $1 trillion in outstanding student loan debt – far more than we owe either credit card companies or auto lenders. The average household balance as of 2010 (when the most recent figures were released) was $26,682, and roughly 40% of households headed by someone aged 35 or younger owe money on student loans.
  • The United States ranks behind Brazil, Mexico, and Australia in terms of overall financial literacy, according to Visa’s Global Financial Literacy Barometer. Out of the 28 countries surveyed, only Bosnia ranks worse than the U.S. in terms of parents’ perception of how prepared their children are for responsible money management.
  • More than a quarter of U.S. adults say they do not pay all of their bills on time, according to the National Foundation for Credit Counseling’s 2013 Financial Literacy Survey. What’s more, 60% of people do not have a budget and 40% give their knowledge of personal finance a grade of “C” or worse.

The question is what are we going to do about our obvious financial illiteracy? CardHub has written about this issue at length in recent months, and there are a number of great initiates sponsored by universities, corporations, and non-profits already in effect. Congress and individual state governments have explored legislative solutions as well. And many celebrities are even preaching fiscal responsibility. But there is still widespread disagreement about the best ways to foster a financially savvier populous.

What we need is a coordinated plan of attack. So, in the interest of brainstorming such a plan, we turned to leading experts in the fields of education, public policy, and financial planning for ideas. You can check out what they had to say below and even share your own opinions in the comments section at the bottom of the page.

Expert Opinions – What Changes Are Necessary to Foster Increased Financial Literacy?

 

How I’d Improve Financial Literacy

Lewis Mandell – University at Buffalo School of Management

The creation of simple, plain vanilla products, vetted and approved by the government to be transparent and to do no evil. There should be one product for each category of financial product and these may be offered by those financial institutions who wish to get the seal of approval. Other products may also be offered, but without the seal.

There is no way we can make more than a small proportion of the adult population financially literate and capable of continually adjusting to new financial products and product changes.


Emily Philippe – American Public University

I think the most important thing that we can do to improve financial literacy for the average person is to incorporate personal finance courses in our primary and secondary education curricula. Just as everyone needs to learn the three Rs, everyone in our society also needs to learn how to handle personal finances in order to be able to function and succeed on their own as adults. So it reasons that we should also begin teaching children about finances in elementary school, just as we do reading, writing, and arithmetic.


Ken Rebeck – St. Cloud State University

Education – K-12 and adult, making use of any opportunity that arises. Forty-three states now include personal finance in their K-12 standards, and many of these requirements are pretty new. With the innovative work designing curriculum for all grade levels from groups like the Council for Economic Education and JumpStart, the potential for expanded financially literacy is huge in my opinion.

Many school districts are finding it difficult to implement these standards since staff are often just not trained in personal finance. But I know that the Council has developed a program that school districts can call upon to help with these transitions – help implementing these standards across classes and grade levels that includes training and choices of curriculum. As more districts join this or other collaborative efforts, the body of knowledge on how to efficiently carry out these standards will improve.

At the adult level, my regional library has teamed up with my university’s Center for Economic Education and area financial institutions to conduct weekly financial workshops this spring for adults. I believe expansion of efforts like these would be wonderful. We’ve also teamed with ING Direct and the Boy Scouts on providing personal finance activities for after-school programs. Regardless of the age group, it is important that these financial programs be far more than how to fill out a check or purchase a stock or bond.

Financial literacy involves setting goals and choosing among alternatives – making decisions – and financial education should focus on this. Yes, learning about alternatives like stocks, bonds and index funds is an important component, but wise decision making involves also understanding such things as factors that influence interest rates. A decision-based curriculum like this, which includes how and where to seek advice in a complicated financial world, is what I like about the curriculum that I see being developed.


Kim Ruane – Tufts University

I think people have to understand how credit cards and borrowing money (more generally) work. For example, understanding what interests rates mean for a credit card or for a mortgage. These same (mathematical) principles apply to investing money as well.


Marsia Hill Kreaime – Boston College

First to identify what financial literacy means to them, then help people master the basics (budgeting, credit card management) will give them the foundation they need. Then we can introduce other topics ( investing, retirement, etc.) to help them become more financially savvy.


Bonnie Meszaros – University of Delaware

This is tough to answer. We know that a significant number of adults do not understand basic financial concepts. Many materials and programs have emerged over the past few years in attempt to correct this problem. The issue is how to get individuals to participate in these efforts. In addition a significant number of the individuals who are not financially literate tend to have limited education with lower incomes. I guess I would say that one we should be working with young adults and students at the precollege level to encourage them to get an education, training and skills beyond a high school diploma. And two evaluate existing adult programs and using the best, tailor programs to meet specific populations in need of financial education. This would include programs in community centers, churches, the workplace, etc.


Doug Allen –  Bucknell University

Regarding the single most important thing, at first blush it is tempting to provide common understandings such as the time value of money, importance of starting to save early, avoidance of credit card debt, and constructing a budget.  However, the more I thought about your question, the more I think it is important to expand the analysis a bit to include an understanding of how personal finance not only includes the saving/investing side of the equation, but also the consumption part of the equation.

While there is value in folks understanding theoretical financial literacy concepts, it does not address the day-to-day taken-for-granted choices we make that inhibit our ability to have money to save in the first place.  How do certain consumption choices such as frequently buying new big-ticket items that depreciate rapidly or even smaller daily purchases of relatively expensive convenience items dramatically impact our long-term financial well being?  The effects are manifold in that not only do such habits reduce a person’s pile of money to invest, but they also eliminate the return that savings may realize over time, and often such habits spiral into cycles of chronic credit card debt.

In addition to fundamental financial concepts, young folks need to have a contextualized understanding of the long-term implication of adopting certain consumption habits and the tradeoffs involved. For example, what impact does the habit of buying brand new cars frequently versus buying 2-3 year old cars less frequently have on one’s savings over 30 or 40 years.  The same applies to buying a latte every morning.  Giving young people concrete scenarios of the tradeoffs involved is an important part of the financial literacy equation.

In some ways, this point simply expands Benjamin Franklin’s expression about watching your pennies and the dollars taking care of themselves.  However, it is not easy to appreciate this basic insight in the current culture.  I counsel my students that it is not about leading a totally frugal lifestyle, but rather giving serious consideration to the specific consumption experiences that truly enhance their well-being, recognizing that many of us cannot afford the very best when it comes to everything (autos, electronics, fashion, sports equipment, cuisine, travel etc.).  There is a strong cultural component related to this part of the equation.  (It is interesting to note the recent popularity of lyrics by Mackelmore and Ryan Lewis (Thrift Shop and Wings) that take a reflective stance toward certain consumption habits.)


Thomas Lucey, Illinois State University

We need provide the average person with an understanding of how society works and how financial decisions fit into that system.  We need to inform the average consumer about predatory practices of financial institutions and other corporations with regard to associating spending money with ‘the good life.’

I worry about today’s society and its fixation on technology and other forms of instantaneous gratification which serve as vehicles in an unsatisfying quest to find personal fulfillment.  It’s sad that executives of multinational corporations stockpile their bank accounts with excessive compensation that could easily feed much of the impoverished portion of our population by preying upon the population in general by selling products that are unnecessary and may even be dangerous to their health. While the tobacco and alcohol industries are obvious examples unhealthy goods sold for profit, the New York Times ran an article some time back about major food producers and the excess sugars and salts that they add to our foods to make money at the expense of our health.  It is sad the profits that are made by taking advantage of the public  in that manner.

Public health care is expensive; however, preventive health measures, such as consuming healthy products, are essential to lowing that cost.   It’s even sadder that they justify their positions in terms of merit when the reality is that it relates to playing to a small network of social elite.  The average person needs to realize that the root of financial literacy lies in having a positive sense of self-worth and the esteem to resist temptation to pursue shallow claims of those who would use financial bullying to turn a profit.   Certainly, there are some basic needs such as health care, that we depend on others to provide, nevertheless, if, in general, if a person can avoid getting trapped into a financial system based on the needs of corporations and be comfortable and true to his or her own values, he or she can lead a more fulfilling experience than one who is trapped in a consumerist cycle of greed.


Mary Suiter, Federal Reserve Bank of St. Louis

I think the single most important thing we can tell the average person is to get an education beyond high school—learn a skilled trade, go to college, get a master’s degree. Education and training matter. With those things, you are able to earn more money and do a better job of navigating the financial decisions that you face. Beyond that, I have a couple of other important points, and I am sure you have heard them before: Live beneath your means, and, if it sounds too good to be true, it is.


Yasser Alhenawi, University of Evansville

Incorporate financial literacy in University’s curriculum. In particular, non-business students should have at least some exposure to financial planning.


Arthur B. Markman, University of Texas

A fundamental difficulty with personal finance is that human beings are wired to want what seems best in the short term rather than what will be best in the long-run. Some people are better able to resist short-term temptations than others. If you are someone who is drawn strongly to short-term temptations, then you need to make it harder for yourself to spend money on impulse.

Minimize your use of credit cards. Put a limit on the amount you can pull from your account on a debit card. Try to pay cash or write checks as often as possible. Bring people with you when you shop to talk you out of purchases that are too large. Take money out of your paycheck right away and put it in a savings account that you will not access unless there is an emergency. All of these strategies will help you to manage your budget more effectively.


Richard G. Netemeyer , University of Virginia

Based on our studies, teaching people to plan / budget their money over the long-haul and take calculated investment risks (e.g., a long term view of investing in stock funds for retirement savings) seem to be a more malleable and useful skills, rather than training them to learn and correctly answer objective Qs about interest rates, bond prices, etc.   This latter type of knowledge can decay in memory over time rendering such knowledge as a limited predictor of engaging in wise financial behaviors.

Thus, a potential approach is ‘just in time’ financial learning.  That is, in easy-to-understand language and  training, have those who are just about to buy a house learn the ins-and-outs of mortgage rates, closing costs etc. close to the actual purchase  By conveying the relevant financial knowledge close to the specific financial decision, the probability of a better decision is made.


Neil G. Cohen – George Washington University

Much of the financial literacy talk is a boondoggle.  Teaching the time value of money and portfolio management to the masses is not the Holy Grail.  As usefully as it would be if it ‘took,’ the half-life of this knowledge is short and it’s forgotten before it’s needed.

We should instead use just-in-time techniques and place more emphasis on passive setups like automatic savings and automatic entry into lifecycle funds.

I asked students yesterday how much food prices would increase if all workers in the supply chain from farm to table were paid a living wage.  Some said double.  Some said triple.  Financial literacy says nothing to this large and growing segment of our population who can’t earn enogh to live, let alone save and invest.


John P. McFarland, Virginia Commonwealth University

I would love to see a reinstatement of the ‘public service announcements’ that used to be aired on radio and TV. Little 15 second blurbs on controlling credit card debt or building a cash reserve in the middle of the large amount of TV the average person watches could do more than any formal education program to improve the publics’ financial literacy. I believe the easiest way to make personal finance understandable for the average American would be to present information in tiny, bite-sized chunks.


Jill Vihtelic, St. Mary’s College

I recently attended the 2013 Annual Meeting of the Academy of Behavioral Finance & Economics at DePaul University in Chicago.  During one of the plenary sessions I posed a similar question to Dr. John Nofsinger of Washington State University, who is a noted author and one of the world’s leading experts in behavioral finance. When asked what’s the number one concept that he wants his finance students to understand after taking his course he responded, “The Risk/Reward Relationship.”

I often joke with my students that Finance as a discipline only has a few Big Ideas, and none of them are rocket science.  So what are they?  In addition to the (1) Risk/Reward Relationship, other Big Ideas include (2) Time value of money concepts, and (3) Determining (estimating) future cash flows.

In terms of helping the average person, developing budgeting skills and persistent savings patterns could help some. My first job years and years ago was at the Harris Bank in Chicago.  Back then Fred Young, a senior sales officer within the trust department, went around the country making speeches on his book entitled How to Get Rich and Stay Rich.  His thesis was profoundly simple: spend less money than you make, and invest the difference.  Fred could tell audiences how much it took to support his family by the year, month, week, day — even down to the minute. By knowing what it takes and having a firm budget for spending, Fred maintained that he could focus his energies on saving and investing over the long term.  As a salesman Fred’s punch line was that once people get rich, they should turn over the management of their funds to the Trust Department since there’s nothing worse than somebody who had a lot of money then lost it.


Steven J. Pilloff, George Mason University

I believe that one of the most important things that we can do to help the average person become more financially literate is to teach people the importance of personal budgeting.  This practice enables people to observe the implications of decisions, which has the potential to result in more prudent choices.


Deborah M. Figart, The Richard Stockton College of New Jersey

The most important thing to increase both financial literacy (knowledge) as well as responsible financial practices (behavior) is to mandate a one semester or one year personal finance course for 16-year-old young adults in high school and make further education available online.


Brenda J. Cude, University of Georgia

An obvious answer is more income. However, that isn’t really the answer as some very famous people with access to what most would consider more than enough money have very publicly demonstrated the inability to live within their means. I think perhaps the most important thing that we can do will require an important change in our cultural norms about money — to think of money differently, to commit to living within our means, to commit to saving for our future selves. More knowledge can only make that easier.


David M. Cordell, UT Dallas

Learn the six steps in financial planning, starting with goal setting. As the old phrase goes, if you don’t know where you’re going, you probably won’t get there!


John C. Lopez, University of Houston

The single most important thing is to know where your money is going. I make my students track their spending through the semester and it is an eye-opening experience. They were not aware of how much they spend on food, entertainment, and impulse purchases. By tracking your spending you become more aware of where you money is going and you can take control and make better decisions. Personal Finance is not hard; at its most basic level, you can’t spend more than you make.


Lawrence Bailis, Brandeis University

There are many avenues to financial literacy for people of all ages across the spectrum. One excellent example are ‘one-off’ programs sponsored by banks, such as Capital One’s MoneyWi$e program that helps train bankers and community groups to provide financial literacy training on a wide variety of topics to large numbers of adults.

But in the long run, I believe that the answer lies in integrating financial literature into the school system through programs like those run by Junior Achievement, that offer age appropriate lessons starting at kindergarten and are perhaps best known for the Company program, in which high school or college students actually get the experience of starting and running a company with guidance from business leaders. If we want it to happen–and we should–I do not think we should leave it to chance, and thus integrating into school systems curriculum seems like the best way to insure it happens for as many Americans as is possible.


Ron Rhoades, Alfred State SUNY College of Technology

It all begins and ends with having consumers understand the basic concept of ‘self-control.’ The ability to exercise self-control is the #1 determinant of success, in all aspects of life. Fortunately, those lacking self-control (aka self-discipline) can enhance their self-control over time. Self-control is like a muscle – the more you exercise it, the better it gets.

Financial literacy programs are best when they best address the basic issue of ‘self-control,’ and then offer basic techniques (such as personal budgeting, tips on major purchases) to assist in implementing self-control with regard to personal expenditures.

I don’t believe we can expect the typical individual consumer to become a great investor; the modern world of finance is too complicated. Efforts to make individual investors more knowledgeable in selecting investment products have largely failed over the past two decades. This is why we need all financial advisors who provide personalized investment advice to be fiduciaries, legally bound to act in the best interests of the individual client.


Jacob Sybrowsky, Utah Valley University

A mixture of policy, education and oversight are necessary to help families make the best possible financial decisions. Among those, I believe education is the foundational principle. Previous research has shown that youth develop money attitudes which greatly impact their financial behaviors early on in life. Hence starting to teach and model basic principles at an early age is key to developing the long-term habits necessary to maximize financial success. Even at the elementary school level basic principles of budgeting, planning, giving and delaying gratification can be reinforced. Ideally these basic and sound principles would be modeled in a home environment. As part of their education, parents should talk to their children about finances, budgeting, planning and saving.


David Aron, Dominican University

Education is the key. Let people know how expensive debt really is and how the cycle must be broken. Delayed gratification must be understood, and that sometimes the best investment one can make is paying down a credit card bill instead of buying something new. … The education could come from so many sources…even local community centers and church groups could incorporate seminars and classes to educate their members and help make their lives better.


Robert Scott, Monmouth University

More financial literacy might help, but the research is mixed on the value of financial literacy. More knowledge about finance/economics is better, but how effective is this education on financial behavior? We don’t know yet. Helaine Olen’s new book Pound Foolish: Exposing the Dark Side of the Personal Finance Industry is a fascinating analysis explaining how financial literacy alone is not enough. The Jump$tart Coalition has done some great work administering financial tests to students. Strangely, students who had a semester of financial literacy did ‘worse’ on their financial exam than students who did not. It’s a weird result, but again it begs the question—does teaching financial literacy change financial behavior? We don’t know yet.

Second, I did a research survey several years ago among students from first grade through high school in schools around New Jersey (not a large sample, but enough to get an idea). My results suggested that when students reached fifth grade they were excited to learn about money and finance. Before this student interest was weak. But once they hit fifth grade, wham, they were all into it. So, I think starting around late grade school (maybe middle school) to start teaching students about money/finance/banking etc. would be great. Heck, it’s more interesting than plain ol’ Algebra, right?


Vickie Bajtelsmit, Colorado State University

The problem isn’t so much that the information isn’t available to the average person. There are many opportunities to learn about personal finance. If you want the answer to a question, there are trustworthy government-sponsored websites that provide many of the answers. In surveys, people say they know they need to become better informed and they need to develop a financial plan, but somehow they always find something reason to avoid doing it. Doing the right thing for your personal finances usually means you are giving up something today to have something in the future (whether time or money). So it’s no wonder that people avoid.

But I also find it very interesting that you ended the first question with ‘make personal finance easier.’ Perhaps the perception that it’s very hard or that it requires delving into a lot of numbers (and to a certain degree that is true) is a major deterrent. But the basic principles are not rocket science. In fact, just focusing on a few simple ideas would probably be a good approach (e.g. don’t spend more than you earn).


Lukas Dean, William Paterson University

Personal finance would be easier if everyone that claimed to be a professional ‘advisor’ were actually held to a fiduciary standard of care, and made their fees & costs more transparent.

For example, despite huge advances in technology, certain industries like insurance have shrouded the costs associated with their products and the commissions & surrender charges associated with products, making it difficult for consumers to shop around and compare costs.

Other examples are broker/dealers that might recommend a mutual fund with a 5% front load, a .25% 12b-1 fee, which they bought just enough to come in at the highest breakpoint, and they got a bonus from their firm or the provider of the product… All of those costs are shrouded to the common consumer, but tend to really erode their returns.
If you’re a professional — your advice should be in the consumers best interest. Not your own.

If you want to be a salesmen, then call yourself a salesmen. But don’t call yourself a professional or an advisor, if your advice is really just a means to generate more sales commissions for yourself.

[Editor's Note: You can now compare, rate, and review financial advisors and insurance agents on CardHub's sister site, WalletHub]


Martin Seay, Kansas State University

After spending a lot of time focusing on how to increase financial knowledge and literacy, it seems that academia has been very limited in its success (both in increasing financial knowledge and in translating that to better financial behavior). I am beginning to think that KNOWLEDGE is not the issue, but culture is. For instance, we can compare our savings rates with many other countries and find that we are severely lacking. However, in many cases their knowledge levels are no different, they just live in a culture where saving is the norm. So I would suggest that if we care about financial outcomes, that we seek to create a culture that better promotes and accepts better financial practices. So at some level we have to decide (and this is a very behavioral economics concept) are we more interested in people knowing what they are doing or the positive financial outcome?

With that in mind, I think that it all starts with instilling social norms and attitudes that promote best financial practices. I think this can be most easily accomplished in systematic educational programs for children. In that context they can both receive the knowledge and receive the benefits from norm setting.


Nicholas Hillman, University of Wisconsin

When it comes to paying for college, the people who are most constrained by finances are too poor to save. Policymakers don’t get this reality, and they do not support policies that would truly help the poor prepare for college. State policymakers advocate for expanding college savings plans (529 Plans) that disproportionately benefit wealthy taxpayers. Federal policymakers advocate for Coverdell savings accounts that also tend to benefit the wealthy. College savings policies are disproportionately benefitting individuals who would likely go to college even without the subsidies.

So, the biggest challenge facing ‘financial literacy’ are structural ones that are reinforced by poorly-targeted policies. We can’t expect individuals to fix these underlying problems by simply becoming better informed about their options…they need to have real options and opportunities to be on equal footing.

One way to improve these conditions is to rethink the way we operate and finance our nation’s student financial aid system. Currently, federal aid is distributed to students only after they enroll in college. This makes no sense in terms of helping students prepare for college. Instead, early aid commitments to students would be better – the feds or states could do this when students are in 8th grade (or earlier would be even better) and would help students and their families be better informed about how much college will cost and how they’ll pay for it. Oklahoma and Indiana are two examples of states making early commitments to students.


Clifford Robb, Kansas State University

This is an extremely challenging question, as it is likely that no single approach will really provide the systematic change that is necessary. Were I pressed to select the option among these that I consider to be most important, it would be along the lines of education. The need for any real policy change is debatable, and without any clear sense of exactly how change should be implemented I would be hesitant to say that is the solution. The same goes for industry oversight. We have fairly strong regulatory bodies in place, and there is obviously growing emphasis with legislation and agency developments that focus on consumer financial protection.

I also see one of the critical arguments as being whether or not we should promote greater literacy or if the market should be adjusted such that financial decisions are easier. I certainly see the case for some simplification of certain financial processes (the number of complicated forms and documents in many complex financial transactions can complicate consumers’ ability to compare and assess options), but overall, I believe that the heart of the matter lies in an informed populace that is capable of making decisions for themselves, or at the very least knowing whom to seek out for advice and what questions to ask.

So to make a very lengthy answer, I think that broad-based education programs (starting in middle school or earlier and continuing through college) would go a long way to improving things, though again, I do not believe that educational programs alone will be sufficient in and of themselves.


Debby Lindsey-Taliefero, Howard University

Financial literacy education needs to start in elementary school and be repeated yearly increasing topics that are covered and difficulty. These same concepts of budgeting, planning income, investing needs to be continued through college, vocational school, and on the job training. Financial literacy is a dynamic life-long learning process. I have been involved with several financial literacy programs dating back to assisting Freddie Mac’s with developing CreditSmart in 1999. Many banks and community base organizations are also involved with the financial literacy out reach. I think they need to continue. The problem with many programs is that the funding runs out or the institution more on to another hot topic. In other words, many financial literacy programs do not have the dynamic life-long dedication to educating the young, middle age, and senior citizens. Student loan debt needs to have caps which should depend on the type of learning institution, i.e., 4-year vs. 2-year colleges.


Jodi Letkiewicz, York University

I don’t know that one single thing that we can do – there are many forces at work here. Certainly, people need to be more financially literate, but that has some limits. Efforts at increasing financial literacy, through things such as financial education, have not been terribly successful. The problem is that we are dealing with a terribly complex and ever-changing financial system. Disclosures for checking accounts can be upwards of 100 pages and mortgage loans are even worse. I am of the mindset that we need to work towards simplification. Consumers are facing a losing battle against behemoth financial institutions. They create financial products that so complex they are impossible to understand and then we blame the consumer for being unable to manage or understand what they signed up for. I think a combination of financial education at various points in the educational system, coupled with simplified financial products and disclosures, and a reasonable amount of government regulation are the keys to having a more financially literate society. I do not believe that financial education, as a standalone solution, is an effective solution.


Lascelles Anderson, University of Illinois at Chicago

The single most underappreciated concept in financial economics for the average person, to my mind, is the concept of compounding, especially in this context, interest compounding. Properly understood, it would lead the average person to aware of the importance of this concept in all parts of economics, at both the micro as well as at the macro levels.


Lorna Saboe-Wounded Head – South Dakota State University

I don’t know that there is one most important thing that we can do. There are many policies, programs and initiatives in place that show knowledge and behavior change in regard to personal financial management. I think an approach that is effective is to focus on the basic skills need to manage finances. Individuals and families need to recognizing their needs vs wants, set financial goals, and understanding personal values. Then education should focus on how to achieve the financial goals through budgeting, tracking expenses and regularly saving. The education should occur in school settings, communities and in the workplace and be designed in a way that the audience needs will be addressed.


Alicia Dowd, USC

The single most important thing we can do to help the average person become more financially literate is to realize there is no such thing as an average person, but to pay attention to all the variation around what we think of as typical. People of any race or gender in affluent and middle class homes are more likely to be part of formal, mainstream financial institutions and to have pension plans through their place of employment. Income, race, and ethnicity are all correlated, with Latinos and African Americans disproportionately living in poverty. As we’ve seen in the housing mortgage crisis, low-income communities of color are particularly vulnerable to aggressive, sometimes unscrupulous financial schemes. Naturally this engenders distrust. We need to invest in community organizations that can help people navigate the variety of financial providers and get information about spending and saving that fits with their personal investment goal. People of all income groups need to be able to turn to trusted advisors to be able to identify good personal investment options from all the marketing hype by banks, lenders, and retailers.


Frederic Chartier, Babson College

I would answer that the person must express interest in basic financial matters, and that usually comes from parents and educators very early on. Very basic concepts such as earning (including allowances given to small children) and saving money (e.g., for future purchase of a large item). These habits tend to stimulate interest and curiosity in financial matters early on. After that, individuals will exercise interest and ask around for advice to trusted friends and adults.


The Importance of Financial Literacy in High School & College

Ken Rebeck – St. Cloud State University

Very important, especially in high school, since not all high school graduates go on to college. Research results are mixed here on the effectiveness of the high school course, but this isn’t surprising. Some studies show that students who have taken personal finance in high school don’t know more than students who have not taken personal finance. Other studies show significant knowledge gains. Since most efforts to develop standards that represent what a high school course in personal finance should be are relatively recent, just because someone reports having taken personal finance doesn’t necessarily mean it was a quality course using state-of-the-art materials taught by a teacher trained to use them. In fact, those studies that show positive results are usually studies of the effects of a particular curriculum taught by trained teachers. Most studies that look at the effects from the high school course or at least curriculum within another course like economics usually focus on immediate knowledge gains, with an understanding that the ultimate goal is a change in future responsible financial behavior.

As one can imagine, a rich data set measuring future behavior that can be linked to prior course taking is kind of the Holy Grail for some of us. (Skeptic that I am, even the best econometric techniques with a great data set might not convince me of the isolated effect of a personal finance course taken 10 or 20 years earlier.)

But the first step in changing behavior is affecting knowledge, in my opinion, and that can be measured with reliable instruments. Understanding how to set goals and make wise decisions, as well as understanding the factors that influence things like interest rates and the benefits of diversification and compound interest (saving early and often) is the foundation for responsible decisions about financial matters.

In short, the current body of research isn’t going to clearly point toward high school personal finance as the game changer, but it’s hard to believe that current efforts, many born from the recent financial mess, haven’t led to advances in creating quality financial learning environments that will promote financial literacy, even if the long-term benefits will be difficult to measure for researchers.


Emily Philippe – American Public University

It is extremely important for teen-agers and young adults to gain a solid knowledge base in personal finances when in high school and college. Ideally, learning about finances should begin before the high school years, but definitely individuals need to learn sound personal finance concepts before they begin making decisions that will affect their financial future.


John Farrell – Rider University

The college and the high school years are great times to develop one’s financial literacy.  Although many of the initial behaviors and knowledge about financial topics are acquired at home, the high school and college years are where many of the good habits and practices can be developed in areas such as saving, budgeting, value purchasing, and the use of credit.  I am strongly in favor in education at the high school level, and some states have decided to make this required part of the curriculum.  Many colleges have courses on financial topics, covering ‘managing your money’ but most of the time they are optional.

Still, the bottom line is that the biggest influences on a young person’s financial behavior are the ways in which their parents handle money matters and the financial education that parents provide.  Parents’ behaviors, examples and attitudes about money shape the financial literacy foundation of their children.   I am a big advocate of parents actively teaching the children about money matters, as it forces the parents to increase their financial literacy as well.


Kim Ruane – Tufts University

EXTREMELY! Decisions you make early in your life about things like debt and investments (like retirement plans and such) can have a massive impact on your life for years to come. I don’t think it’s ever too early to learn about it. For investments in particular, you generally have more disposable income when you get your first job out of college (as opposed to after you have kids and a house, etc.) – you can make small investments early that will pay off significantly later in life.


Marsia Hill Kreaime – Boston College

I think that it is very important for student whether in High School or College to learn how to manage their money and credit. Students want to learn and become more savvy and feel that they are not being taught this anywhere. The skills they learn are life time skills. (give a man a fish and he eats for a day. Teach him to fish and he eats for a lifetime.)


Bonnie Meszaros – University of Delaware

Waiting until college is too late. As part of a freshman seminar here at the University of Delaware, we teach one session on credit and one on money management. It is clear that most of the students are unaware of fundamental financial concepts such as the difference between a debit and credit card, the impact of not paying off your credit card bills, and the impact of a low credit score. I actually think that personal finance needs to be introduced in the elementary grades. Young children are interested in money and have their own money to spend received from doing chores, allowance, or as gifts. They make decisions on the use of money, theirs and that of their parents, on a regular basis. Research shows that saving and spending habits are formed early. Whitebreak and Bingham looked at studies on how children learn in general and how they learn about money in particular, They found that the ability to plan ahead and to delay gratification are formed in early childhood. We would never wait to teach math and reading until high school nor should we wait until then to begin teaching about saving, spending, and goal setting.


Thomas Lucey, Illinois State University

It is important to understand the technical knowledge with regard to personal finance in high school/college; however, we need to recognize that there’s a difference between what one knows and how he or she applies that knowledge.  Consider Kohlberg’s moral dilemma of the man who needs to acquire expensive medicine for his ailing wife, which illustrates the challenges that one may face, even with a solid knowledge of personal finance.   Any person could have a solid financial knowledge base and end up in a financial predicament, simply because of their fates in this life.  I believe that what’s more important is developing a financial environment that is based on compassion and understanding, rather than a meritocracy that punishes people because they come from a different background from those who have the resources to control things as benefits themselves.


Mary Suiter, Federal Reserve Bank of St. Louis

It is critical. Recent research by Gutter, Copur, and Garrison (2010) reports that college students from states with a requirement for a personal finance course had the highest level of financial knowledge and were more likely to display positive financial behaviors. However, I actually think that we should start integrating personal finance instruction into math and reading classes even earlier—begin in elementary school. Kids are interested in money, and we should use their interest to teach them something about earning, saving, spending, setting goals and so forth. We would never wait until their senior year of high school to teach students everything they should know about mathematics, science, or any other discipline. But if we teach them how to make informed decisions about money, we wait to do so until they’re nearly ready to graduate from high school.


Yasser Alhenawi, University of Evansville

My own research, as well as others’, indicates that the most effective way to elevate financial literacy is by offering relevant courses in high school or college.


Arthur B. Markman, University of Texas

People develop habits with money from the time that they start having money to spend. That means that as soon as you have a job where you are making some of your own money (even if there are parents helping with expenses), it is time to learn more about managing your own money. High school and college students need to understand how credit cards work and the expense of having credit cards with yearly fees. They need to learn about the percentage of their money they should expect to spend on housing and food. The earlier that people learn to budget, the more that living within a budget becomes a routine.

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