Hint: It’s That There is None
Currently, high schools around the country face a large problem pertaining to their students’ financial literacy. The problem is, that there are no courses about the subject present within the school curriculum. Even when there are, the class is not sufficient enough to equip high schoolers for what they face after graduation.
A recent study showed that of “11,000 high schools […] only 1 in 6 high schoolers are currently required to take a personal finance course to graduate” (Coleman, 2019). This can be scary to face, but what’s scarier is sending children out into the real world with little to no information about the situations each one will eventually face.
While most high schools have gotten rid of financial literacy as a part of the required curriculum, it is needed to teach kids about important, life-altering decisions they will have to make in the future involving debt, saving, investing, and budgeting.
Financial Literacy in Debt
Debt is a word that evokes anxiety and dread in the average person. It can drain a paycheck, cripple a family, and change someone’s life in the blink of an eye. As of 2020, the average amount of debt owed by kids aged 18-23 was $16,043 and increased to a staggering average of $87,448 before the age of 40 (Fay, 2021).
These numbers are merely averages for what these age groups face but the message is clear, debt is a wide-ranging problem. Whether it is credit card debt, a personal loan, a mortgage, or student debt, it can be tricky and scary for a freshly independent adult to navigate debt on their own. While high schoolers can’t be taught to avoid debt altogether, steps should be taken to educate kids on key areas in debt prevention and management.
The first area that should be addressed is avoiding unnecessary debt. Just because the FAFSA offers a college student a loan of $8,000 doesn’t mean they should use it all. “Student loan debt is at an all-time high of $1.5 trillion, and with the cost to attend college growing eight times faster than incomes, student debt will only continue to grow” (Eckert, 2019).
Even when the point has been reached of needing a loan students should know how to shop around for the lowest possible interest rate and not take the first offer they get.
The interest rate of a loan is important but the length of the loan and how it impacts the interest should be covered as well. Interest is the part of the debt that’s scary, it’s the amount of money lost, the amount that didn’t need to be paid. Knowing what a reasonable interest rate is and how to get a better one can drastically decrease the amount of money lost in the long run.
Financial Literacy in Saving
Another key aspect of money management is saving.
This area, while straightforward, still has a plethora of knowledge and advice associated with it that high schoolers should be privy to. “A report on the results of a financial literacy exam found that high school seniors scored on average 48 percent correctly, showing a strong need for more comprehensive financial education for youth in high school” (Youth.Gov, 2021). This shows that even the high schools that currently have a financial literacy class in place need to reform the overall course so that kids will better understand the content being presented.
One such piece of advice is that every person should have an emergency fund that holds enough money to cover 4-6 months’ worth of living expenses. This provides a sense of security by alleviating any potential emergencies that may arise unexpectedly whether it be from the loss of a job or an unavoidable car repair.
Additionally, knowing how to save a set amount of money for a large purchase such as a car or a house can be more than beneficial to know. Giving high schoolers tips on how to save and stow away money here and there for large purchases can lessen the impact of debt on them as well.
It should be made clear to kids that an emergency fund should never be used to cover the cost of a planned purchase. Using saved money for a planned purchase alongside a loan is also something that should be discussed as an option for buyers of potentially large items of monetary value so as not to completely drain a savings account. Appropriate percentages for savings money versus loan money should be explained and discussed.
For example, if a young woman is purchasing a new car and has found the one she wants for $20,000 and has $22,000 in her savings she could pay $15,000 for the car, 75% of the total cost, out of her savings and use a loan of $5,000 to cover the other 25%. This would ensure that she didn’t drain her savings while simultaneously keeping her loan small to make it more manageable to pay off in a shorter period.
Financial Literacy in Investing
All the time, people turn to finance books to educate themselves on how to best manage their money. Most of these books have in common that they encourage people to invest their money and have it work for them (Kiyosaki and Lechter, 2000).
While the concept of investing is simple, understanding and performing in this area can be a daunting task to partake in when attempting to self-teach. While not all high schoolers are going to become stockbrokers or money market managers, knowing the difference between a stock, a bond, and a mutual fund can be very useful.
It’s important to understand the difference between investment products and retirement accounts. Retirement is one of the largest, if not the largest, investments a person makes into their future.
High schoolers won’t be retiring for several decades but they need to be taught early on about how to set themselves up for success in the future. Knowing the difference between a 401k and a Roth IRA is a major step as it allows high schoolers to make an informed decision about which account is right for them when they decide to open one.
There are key factors that can also substantially impact how much money an account has at the time of withdrawal. Just like most things, the more time a person has to work on their retirement fund, the more mature it will be upon retirement. This means starting 5 years earlier can change the amount of money the account ends up with drastically.
Not only does starting an account early produce benefits for high schoolers but the earlier education is begun the more fluent the child will be in it. “Personal finance education should be a cumulative process, with age-appropriate topics taught each school year” (Champlain College, 2021).
Another factor can be how much money is deposited and how often it occurs. Perhaps the most important factor of all though is where the money is invested. To do this effectively, high schoolers should be taught about what a risky investment is versus a safe one and how to choose which is best for the situation.
As a start to performing this task on their own, they should be taught how to read investment performance statistics tables so they can understand how each is performing and compare them to narrow down to what the most useful ones to them are.
Financial Literacy in Budgeting
The fourth area of financial literacy is budgeting, which is a fairly straightforward topic. Learning how to allocate a paycheck to which areas need funding first is a valuable tool.
Whether it be the rent, food, credit card debt, or a fun night out, it can be good to review and see not only where the money should be going first but how much can realistically be spent for each area. Knowing also which loan to pay off first based on the interest rate and length of time is also a factor that plays into budgeting.
A good starting rule of thumb when deciding how to allocate a paycheck is the 50/30/20 rule where 50% of the paycheck goes towards needs, 30% goes to wants, and the remaining 20% is placed into savings (Vansomeren, 2021).
While this isn’t a feasible scenario for all, it can be a good reminder and starting point for deciding how much of each paycheck will go toward all three categories.
A team of researchers did an experimental simulation with junior high kids on budgeting:
Students who took Junior Achievement’s Finance Park, a simulation for middle school students that sees students assume family and income scenarios, were split up into two groups after going through the park the first time. One group underwent financial education training while the other group did not. After 12 weeks, all the students went through the park for a second time. Over half the students in the group that received training were able to successfully construct a budget, a statistically significant amount over the only 1 student who was able to do so before the training (National Bureau of Economic Research, 2020).
This short study showed that in just three months junior high kids were able to go from knowing nothing about budgeting to successfully constructing one in a family income situation. Providing this kind of education over a year or even several can have long-lasting beneficial impacts on the student and their dependents.
Where Does That Leave Us?
The consequences of failing to prepare the upcoming generation for the world of finances are kids who become adults still not knowing how to manage their money effectively in all areas of their lives. This could lead to several horrifying outcomes that occur every day.
The freshly ordained adult could rack up debt faster than they can pay it off resulting in them attempting to play catch-up their whole lives which ensures they never have enough money in their savings.
Having to worry about money constantly can cause a sense of apprehension and anxiety at the unknown of what would happen should a sudden unplanned emergency strike.
This cycle will continue their whole life, not having enough money and the stress that accompanies it, until they learn these four key areas of money management. The result could be an inability to retire because they don’t have enough money saved. Besides that, if they have any children they, as a parent, will be ill-equipped to properly educate their own children since they were never educated in the area of financial literacy.
People with opposing views may argue that many high schools are already stretched thin financially and don’t have it within their budget to fund another course.
The irony of this claim should not be lost.
If high schools can’t step up to run a course that will impact every high schooler regardless of race, sex, or societal class, then they’re not only refusing to acknowledge and fix the problem but they’re actively making it worse.
Even in schools where the creation of a new course within the curriculum can’t be achieved, the key concepts of the course can be broken down and distributed into other pre-existing courses. For example, budgeting could be taught in a required math course (Champlain College, 2021).
Final Thoughts
Every person needs to be financially literate to be happy and financially sound in life. The push for financial literacy classes to be included within the high school curriculum is based on three reasons.
The first has already been stated multiple times, everyone deals with money and to manage money correctly a person needs to have at least some education in financial literacy.
The second reason has also been previously stated, the earlier a person starts, with their financial literacy education or anything else, the better off they will be.
The final reason why the inclusion of this course within the curriculum is imperative is that not every high schooler pursues a secondary education.
In high school, most teens ask questions like “Will we use this?” and “Why are we learning this?”. While some trigonometry and chemistry teachers may be at a loss for how to answer, financial literacy is a useful skill that everyone can utilize (Eckert, 2019).
“Providing a financial literacy class within the high school curriculum would ensure that the maximum number of children are reached and impacted.“
Jordan Marco
Other people will claim that the mere act of discussing money is personal and the responsibility should fall to the parents or family. There comes a certain point in everyone’s life when they need to know about certain things. While the family is responsible for starting the conversation it is up to the school as the second line of defense to continue that education (Coleman, 2019).
This is the way sex education is taught and for something as important as financial literacy, the same should be done. Additionally, the parents may not be well versed on the topic of finances themselves, again it is the school’s responsibility to step in and educate all high schoolers so that they can succeed in their pursuits beyond high school.
A final concern voiced by naysayers is that the teachers educating the students on the topic may not be well-versed enough in the area to teach kids about it (Coleman, 2019).
These concerns can be mitigated with easily implementable provisions such as a statewide curriculum that outlines the most important areas that need to be covered and taught to high schoolers. Having an outlined curriculum can provide a quick and easy look at the direction of the course over the semester as well as ideas on how to cover the topics in a way that will make the content easy to absorb.
Teachers in this area should also have required yearly training and tests to keep them fresh and updated on matters in financial literacy.
Throughout America, 3.7 million high schoolers are preparing to graduate this year and most are being sent out into the “real world” without a solid education in financial literacy (National Center for Education Statistics, 2020). Not bringing back this class will do more damage, and kids will have to rely on their parents or the internet to teach them about money management.
If high schoolers are to be adequately equipped to enter adulthood, debt, saving, investing, and budgeting money needs ill-equipped to be taught within the high school curriculum to give them a solid foundation to stand on. As Robert Kiyosaki states time and time again, “Academic qualifications are important and so is financial education. They’re both important and schools are forgetting one of them” (National Financial Educators Council, 2020).
References
Champlain College. (2021). The Case for High School Financial Literacy. https://www.champlain.edu/centers-of-experience/center-for-financial-literacy/report-national-high-school-financial-literacy/the-case-for-high-school-financial-literacy.
Coleman, H. (2019). Why It’s A Mistake Teaching Financial Literacy In Schools. Money Q&A. https://moneyqanda.com/mistake-teaching-financial-literacy-in-schools/.
Eckert, G. (2019, April 15). Why Is Financial Education No Longer Part Of The Curriculum? National Debt Relief. https://www.nationaldebtrelief.com/financial-education-not-part-of-curriculum/.
Fay, B. (2021, May 6). Demographics of Debt. Retrieved May 16, 2021, from https://www.debt.org/faqs/americans-in-debt/demographics/
Kiyosaki R. and Lechter S. (2000). Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Warner Business Books. ISBN 0-446-67745-0
National Center for Education Statistics. (2020). Back to School Statistics. Retrieved May 16, 2021, from https://nces.ed.gov/fastfacts/display.asp?id=372
National Financial Educators Council. (2020). Why Isn’t Personal Finance Taught in School? https://www.financialeducatorscouncil.org/why-isnt-personal-finance-taught-in-school/.
Vansomeren, L. (2021, February 13). The 50/30/20 Rule of Thumb for Budgeting (13823364121009742489 M. Cheng, Ed.). Retrieved May 20, 2021, from https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922
Youth.Gov. (2021). Facts About Youth Financial Knowledge & Capability. https://youth.gov/youth-topics/financial-capability-literacy/facts.
