Should Schools Teach Financial Literacy?

I was among the generation of students who attended skills-based classes like sewing, cooking, typing and shop. I did not master any of these areas, but I am very happy to have had some basic knowledge about each of them and typing has come in handy in my career.

In the ensuing years, some of those classes still remain, but one area where there is a gaping hole is personal financial education. According to the Council for Economic Education’s bi-annual report, 2018 Survey of the States: Economic and Personal Finance Education in Our Nation’s Schools, just 17 states require their students to graduate having taken a personal finance class and only 22 require a course in economics.

Could our lack of a firm financial foundation contribute to the sub-par results in adult financial literacy? According to the 2019 survey of financial knowledge released by the TIAA Institute and the Global Financial Literacy Excellence Center (GFLEC) at the George Washington University School of Business, U.S. adults answered, on average, only one-half (51 percent) of the 28 survey questions correctly, which is just a tiny improvement from the 2017 and 2018 results (49 and 50 percent respectively). Getting all of the responses correct may be a high bar, but you get the drift.

Maybe you are wondering if the test was too demanding? After reviewing it, I don’t think it was too hard, but to be clear, it was not easy either. The researchers attempted to measure overall personal finance knowledge across eight areas of our lives and the results may surprise you. Borrowing is where financial literacy is highest; comprehending risk is where it is lowest. Here is the percentage of P-Fin questions answered correctly by topic:

  • Borrowing (relationship between loan features and repayments): 62%

  • Saving (factors that maximize accumulations): 62%

  • Earning (determinants of wages and take-home pay): 53%

  • Consuming (budgets and managing spending): 52%

  • Go-to info sources (recognizing appropriate sources and advice): 50%

  • Investing (investment types, risk and return): 48%

  • Insuring (types of coverage and how insurance works): 46%

  • Comprehending risk (understanding uncertain financial outcomes): 38%

Over the past few years, when I get on a soapbox to argue for financial education, someone sends me a link to this 2015 study from the Journal of Human Resources, which found “there is little evidence that education intended to improve financial decision-making is successful.”

But that’s not the end of the story. In fact, the study finds that while traditional personal finance courses may not be the best solution, “additional mathematics training leads to greater financial market participation, investment income, and better credit management, including fewer foreclosures.”

In other words, if we want to improve the quality of financial decision-making, the key may be to enhance mathematics curricula, not to provide a straight up “here’s how you balance a checkbook” course. (Yet another reason for math-heads like me to cheer and also to encourage everyone to embrace the long-loathed discipline.)

The stakes are high. The P-Fin Index found that those with greater financial literacy are much less likely to be financially fragile and more likely to track their spending; save for a rainy day; and to plan for retirement.

As the researchers note, “achieving and maintaining financial well-being, or financial wellness, is a goal shared across individuals.” What does financial wellness mean? That you have control over day-to-day, month-to-month finances; that you have the capacity to absorb a financial shock; that you are on track to meet your financial goals and as a result, have the financial freedom to make choices that allow you to better enjoy your life.

Employment report recap:

The government reported that the economy added 196,000 jobs, an improvement from the disappointing 33,000 in February, but below the 312,000 in January. The three-month average of 180,000 for the first quarter of the year is a solid reading, considering that we are approaching the 10-year anniversary of the current expansion.

The unemployment rate was steady at 3.8 percent, just above the low of 3.7 percent hit late last year. The broad measure of unemployment (aka “U-6”, which includes unemployed; discouraged and marginally attached workers; and those who are working part-time, but seek full time) remained at 7.3 percent, matching its lowest point since December 2000. 

Average hourly earnings edged down to a 3.2 percent annual increase from the prior month’s 3.4 percent. That’s better than much of the expansion, but wage gains have not yet spread broadly from entry-level workers to middle and upper management.