Financial Education in the U.S. Gets an “F”

Would you prefer to listen to a podcast on this topic?  Financial Beeswax’s Episode 12 discusses why financial education is failing to teach personal finance.  

We have all seen the personal finance materials available on the market.  The options to learn are vast with group studies, books, podcasts, etc.  If that’s not enough, there are consumer credit counseling facilities and personal finance gurus who teach classes and meet with people one-on-one.  All of that and more still isn’t working.  My husband always says, “If you identify a problem, make sure you create a solution.” 

Before we can create solutions, however, we need to understand the why to the problem.  I believe the why in this problem is that financial education does not start at the basics, go deep enough, is not taught over a sufficient period of time, is taught as one-size fits all solution, and is taught without teaching behavioral finance. 

Most financial education starts teaching at a level that is over an individual's head.  In other words, the materials start at step ten instead of step one.  For instance, most financial education teaches how to invest money when most people would not be able to list different types of investments or how they work.  It is kind of like giving a person the ingredients to make and bake bread when they have never been in a kitchen.  They may understand that yeast causes bread to rise, but they would be stumped to figure out how to get the yeast to activate. 

Second, most financial education doesn’t go deep enough.  It’s good to know how to create a budget, but a person needs to learn that expenses are a liability and pay deposited into a checking and savings account is an asset.  Furthermore, they need to understand the different types of liabilities and assets, along with all of the other finance terminology and concepts.  I learned how to create and manage a budget in my early 20s, yet I still failed over and over because I did not understand the big picture due to not knowing the basics of finance. 

Third, financial education is failing because many people believe that one course in high school, one group study, or reading one book is enough to manage money effectively.  Article after article talking about the failure of financial education cited that the one course taught in high school taught them a lot, but they didn’t follow or remember what they learned.  It was just another subject on the list of subjects they had to pass to graduate.  Just like learning math, science, English, and many other subjects, finance needs to be taught every year in school starting in kindergarten to create a firm foundation in the subject. 

Fourth, most education, especially budgeting, is taught from one-size fits all perspective.  If you do a quick internet search on budgeting, most information gives set expense categories with percentages with many of them being slightly different.  The reality is that a person living is a large metropolitan area is going to have some different expenses and options than a person living in rural America.  For instance, large metropolitan areas offer public transportation, negating the need for cars if a person chooses; whereas, a car to get to and from work and run errands is essential as public transportation isn’t available.  Uber isn’t available where I live in the Black Hills of South Dakota.  Budgeting needs to be taught from an individual perspective.  And, learners need to understand that it takes practice.

Fifth, most financial literacy education does not teach behavioral finance.  Our attitude toward life and money dictates how well we will manage our finances.  Many of us grow up trying to impress others, have the latest trendy products, or think we are entitled to what we want.  Or, we may develop these attitudes over time.  Your worldview affects the way you manage your finances.  It can affect how you view learning about finances.  Financial education should include learning about behavioral finance.  When a person understands how their attitudes affect their actions in managing money, they are more likely to be successful in managing their finances.

If we begin to incorporate these five things into financial education, we should begin seeing increases in financial literacy.  We will only know if we are willing to change the status quo and try new ideas.  What we are doing now isn’t working, so let’s fix it.