In this edition of our “Ask the Experts” series, we explore how our growing understanding of the cognitive development process will affect the way we approach financial literacy initiatives in the United States with experts in the fields of education, public policy, and human development.
Believe it or not, but the seeds for our financial performance during adulthood are actually sown in the first few years of our lives. It seems that if the right cognitive building blocks aren’t put into place before we’re old enough to even differentiate a credit card from a debit card, we’re far less likely to make sound financial decisions when there’s actually money on the line.
The most important concept in play here is what’s known as “emergent literacy.” The basic idea is that the way we understand and perceive things is based on a combination of experience and direct instruction that builds on itself over time. What our parents teach us as little kids affects how we comprehend things when we first go to kindergarten, which in turn affects how we do in first grade, and so on. Ultimately, our elementary school background impacts middle school and that impacts high school and that impacts any higher forms of education that we pursue and/or our place in the workforce.
Just look at the far-reaching impact of early-childhood math education.
“Proficiency in mathematics at the beginning of kindergarten is strongly predictive of mathematics achievement test scores years later: in elementary school, in middle school, and even in high school. This pattern is consistent with the general finding that initial knowledge is positively related to learning, but the relations in math are unusually strong and persistent,” according to Dr. Geetha Ramani, an assistant professor of human development at the University of Maryland, College Park who specializes in early-childhood education and conducts research through the school’s Early-Childhood Interaction Lab. “Instruction can have a large impact on foundational skills. This instruction does not have to be in the form of structured, formal learning lessons either. In some of my own research, we have found that playing number board games can be a way to promote children’s early counting skills, numeral identification skills, and their knowledge of numerical magnitudes.”
While failure isn’t predestined if we fall behind somewhere along the way, truly succeeding would necessitate catching up somehow. According to Dr. Reid Lyon of the National Institutes of Health, it would take 4-to-5 times as long to teach foundational concepts to a 12 year old than it would to ingrain them at an early age. Since no one in their right mind actually prefers an uphill battle, it’s far better to foster a public education system that promotes meeting developmental checkpoints from the very early stages of life.
“Just as there are core concepts behind literacy that must be taught at the earliest possible ages (understanding the shapes of letters, or learning contextual clues in order to deduce the meanings of words), children must also have a foundation of core financial literacy concepts built before they begin to tackle more sophisticated activities,” David Godsted and Martha McCormick – a pair of researchers from Indiana State University’s Networks Financial Institute – wrote in a 2006 paper. “The core concepts that undergird financial literacy … also need to be emphasized and supported from the very earliest grades, if students are to transition into financially literate consumers. Consumer education and training for children in the U.S. can be traced back to the 1930s but has been most often applied to secondary educational settings. Addressing financial literacy in the classroom and as early as kindergarten through second grade lays the groundwork for more advanced studies of financial literacy that typically appear in the later years of K12 education.”
Interestingly enough, these matters have been on the radar screens of decision makers for some time now. In early 2008 President George W. Bush established the President’s Advisory Council on Financial Literacy, and the group’s annual report from that year contains numerous references to the need for better early-childhood education.
For example, the following can be found on page 19 of the 93-page document:
“The Council should develop a plan to assist the Treasury Department in promoting public awareness, focusing particularly on parents and pre-school/early elementary teachers, about effective programs available for early-childhood financial literacy. The Council believes that financial education is a life-long endeavor, and that terminology, skills and behaviors must be learned repeatedly, starting at a very young age.”
That in turn led to the first of 15 recommendations laid out by the Council in its report:
“Recommendation 1 – The United States Congress or state legislatures should mandate financial education in all schools for students in grades Kindergarten through 12.”
Obviously, this recommendation was not heeded. Nevertheless, the pursuit of improved financial literacy has continued its push forward, and the connection to early-childhood education hasn’t been left behind. The Financial Literacy & Education Commission – created at the behest of the Fair and Accurate Credit Transactions Act of 2003 – included the following among its 2012 Research Priorities and Research Questions:
- How do cognition, “patience,” critical thinking, and decision making skills relate to financial knowledge, behaviors, and outcomes such as quality of living?
- What is the most effective mix of financial education, decision framing, and regulation to improve financial well-being?
- What are reliable and valid measures of the success for financial education, and what measures should be used to document success for various financial topic areas and target audiences?
It’s about time we answered them.
Finding a Solution
The first step in improving the way we groom financial literacy is to establish who’s actually going to teach the necessary concepts and when. Research shows that parents generally feel ill-prepared to teach financial topics to their children, so they assume the material is being learned at school. Schools, however, often see money management as a family matter.
“Consequently, students are graduating from high school with poor financial literacy skills. Meanwhile, advertisers and marketers are well aware that even young children are ripe targets for ‘high pressure sales tactics,’ with advertisers using Saturday morning cartoon time to ‘target consumers as young as three years old,’” the aforementioned NFI researchers wrote in 2006. “If educators and parents wait for later grades and then expect students to warm to financial literacy instruction, they are in essence introducing students to Shakespeare and algebra before they know how to read, add and subtract.”
The truth is instruction must take place both at home and in schools. Parental interaction is extremely important to initial cognitive development, and schools help build upon that foundation as students make their way toward college and ultimate financial independence. So, all you moms and dads out there should start singing, talking, and playing games with your kids as soon as possible.
“The kinds of things that children would learn developmentally would begin at a very early age,” says Helen Murphy, who is both a professor at John’s Hopkins University and a special educator with Montgomery County (Md.) Public Schools (which, coincidentally, boasts the state’s seven best public high schools, according to US News). According to Murphy, the instruction would begin as simple interaction between parent and child, utilizing counting games to help familiarize children with the concept of numbers. Children with such a background should have no trouble with things like counting to 100 when they reach kindergarten, she says. “If you do not come to school with those pre-requisites, you are at a tremendous disadvantage, and if you don’t speak the language that further complicates it. … It’s much easier to learn something when you’re young because it’s a clean slate; there’s nothing in there to get in the way, whereas if your mind isn’t in the practice of doing that, getting it to move forward takes some effort, and it takes a lot of repetition, and it takes a lot of practice.”
Parent-child interaction is particularly important in minority communities given the cultural differences that often come into play. Interestingly, that could mean that emphasizing early-childhood education programs could perhaps help diminish economic disparities between racial and/or cultural groups over time.
“One of the things that we have learned here in our community is that in the Hispanic families, there is little or no interaction between parent and child. The parents sit in one room and the children are in another location and are not supervised in any way. There’s no conversation that occurs, there’s no behavior management that occurs, and there’s no interaction that occurs,” Murphy says. So when children come to us, not only do they not know English, but they also haven’t been read to, talked to – any of those things, which is a tremendous disadvantage.”
Ultimately, additional funding and improved teacher training are obviously what we need most when it comes to improving in-school early-childhood education. Unfortunately, that will always be an uphill battle given how many different interests are out there competing for a share of an already overextended budget pie. Nevertheless, when you consider the ultimate importance of financial literacy in the ever-complicated modern world of money, it’s certainly a noble pursuit.
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