Teaching children about money used to be a lot simpler. You gave them an allowance, made them save for special items, such as a baseball glove or a bicycle, and regularly reminded them that money didn’t grow on trees and the world didn’t owe them a living.
Money still doesn’t grow on trees, and experts tells us that 21st century parents need more than just cliches to help their children to succeed financially. Unrealistic visions of lavish spending always had a place in media, but now such depictions aren’t only on TV but also at children’s fingertips on a smartphone or a tablet computer through social-media outlets, such as “Rich Kids of Instagram.” Also, online shopping opportunities abound.
Financial pressures are increasing on young adults. Roughly 71 percent of the Class of 2012 took out student loans in college, according to Institute for College Access & Success, and the average debt per borrower was $29,400. Jean Chatzky, who is the author of eight personal-finance books, says it’s easy for children to think of that as “Monopoly money,” because it’s so big that it doesn’t seem real.
A 2013 Cambridge University report indicates that a person’s money habits, including the ability to defer gratification and plan ahead, are formed by age 7. So when it comes to financial education, the sooner the better. It’s possible to modify behavior later on, but experts tell us that it’s easier to develop a money-smart child than it is to rescue a financially broken adult.
LESSONS LEARNED? Trying to teach children about personal finances in the classroom isn’t a new idea. Jump$tart Coalition, which is a nonprofit financial-education advocacy group that formed to advance “financial literacy among students in prekindergarten through college,” has been at it for 20 years. The group’s National Standards in K-12 Personal Financial Education, which evolved from 11 years’ worth of surveys, are intended for educational policymakers, school administrators and teachers, according to Jump$tart. The standards cover everything from basic budgeting to financial-market regulatory agencies.
However, no standard personal-finance curriculum exists in the United States, and your child might not be exposed to personal-finance lessons at all. As of press time, only 17 states require some personal-finance education in high school. Even then, in some cases, it’s taught as a component of another subject, such as economics or civics.
Given the lax approach to teaching financial literacy, perhaps it isn’t surprising that recent research suggests that personal-finance lessons don’t seem to work. The journal Management Science in January 2014 published online an analysis of 201 financial-literacy studies that were conducted by universities around the world. Researchers concluded that even “many hours” of high-school personal-finance classwork have “negligible effects” on financial behavior later in life. They found that, in general, a multihour course has no more effect on adult financial behavior than a single hour of education. The authors suggest that this might be because “financial literacy” as it’s taught today more often tends to be a series of facts instead of practical experience and lessons.
Lewis Mandell, who is a professor of finance at University at Buffalo, The State University of New York, and who developed Jump$tart’s surveys, says financial education as it’s taught now is ineffective. Children merely memorize the information for the tests and quickly forget what they learned.
“It’s the same as schools offering sex education and expecting there won’t be any teen pregnancies,” he says. Mandell cites likely reasons: Material often is taught in a one-off course instead of over several semesters or years, and financial management typically isn’t “relevant to their lives” when they’re young. He likens learning personal finance to, say, a language. If “you take French 1 when you’re a freshman, French 2 when you’re a sophomore, you may actually remember some French 20 years later,” he says.
Change might be on the way. During the first meeting of the new President’s Advisory Council on Financial Capability for Young Americans in March 2014, Richard Cordray, who is the director of Consumer Financial Protection Bureau (CFPB), said he will “insist on financial education at all schools,” from elementary school through high school. Cordray didn’t return our requests for further comment, but he said at the meeting that classes should teach children about managing budgets and saving for the future, and they should include playing a computer game that hones financial decision-making skills or following the progress of the stock market. As of press time, however, no timeline exists for when this initiative would be implemented, much less when specific curricula would be available for adoption.