Our Youth Lacking Financial Literacy
Our financial decisions shape our lives, and sound financial knowledge is key in empowering today's youth to become confident adults in the future, able to make intelligent financial decisions and build a stable future for themselves.
Financial literacy classes teach students the basics of managing their finances, understanding debt, and investing fundamentals. These foundations of knowledge in finance are of utmost importance; they can heavily impact one's future, from influencing how much of someone's paycheck they are willing to save to dictating how a person may choose to invest.
Yet, like many other countries worldwide, America lacks basic financial literacy. A 2010 study by the Alabama State Department of Education showed that only 27% of a representative sample of young adults could accurately complete simple interest rate calculations and understood the concept of inflation and risk diversification. A follow-up survey conducted in 2018 alarmingly showed a likewise knowledge gap among college students across the United States.
The lack of financial literacy has clear consequences, correlated with negative credit behaviors such as mortgage delinquency and higher borrowing rates. In addition, consumers today are faced with many more options of investment and savings products than in the past, requiring consumers to acquire sound financial knowledge to pick the best option. These choices can be significant, shaping a consumer's ability to save for retirement or purchase their first house. Especially in a time of unstable economies worldwide, with year-on-year inflation in OECD countries rising 9.2% and 8.6% in the United States in April 2022, becoming financially literate is more important than ever. So why is this crucial life skill not being taught in schools? What can be done about this, and what do schools need to teach our students?
Individual states certainly are interested in ensuring that their residents are financially healthy, making the lack of financial literacy a beckoning issue for policymakers. Currently, most financial education efforts focus on an older age demographic: mostly college students and adults. Yet many believe this is too little too late and that by introducing such concepts in high school, consumers will be more aware of their decisions from a younger age. Introducing younger children and teenagers to general concepts such as positive saving and spending habits has been shown to be the training wheels for financial well-being as adults. Hence, although implementing compulsory financial education programs will likely be costly, this subject should be considered a worthwhile investment in human capital.
States must look past the initial costs of implementing such educational programs, as they have proven results. For example, research on states that implemented state-mandated finance education showed increases in credit scores between 1.8%-5.2% three years after such classes were required. Financial education in schools has also been described as the "great equalizer" by the director of educational outreach at Next Gen Personal Finance, Yanely Espinal. He believes that such coursework is "the opportunity for us to create access for all students regardless of their zip code, regardless of their parents' knowledge level or income level, regardless of whether their families know this information or not."
Hence, the benefits of financial literacy are clear and will quickly outweigh the initial cost of implementing such programs in schools. The United States has recently seen improvement in the education system's awareness of financial literacy's importance; Florida is the latest state to mandate financial education within high schools, requiring all high school students to take at least a half credit class in personal finances.
However, over half of the states still do not mandate personal finance education, leaving many youths across the country potentially uneducated on these essential life skills. All states should look into improving their financial education requirements not only in high school but also in earlier education to ensure that kids learn from a young age the importance of financial literacy and grow up with the ability to manage their finances competently.