To combat financial illiteracy, education must start early in the classroom, proponents say

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(State of Financial Education: Many of the money problems Americans face could have been avoided if financial literacy had been taught earlier in school. This knowledge helps lay a foundation for students to build strong money habits early on and make many mistakes This story is part of a series that looks at the current financial education landscape in this country.)

The lack of personal financial education in this country has proven devastating.

It has resulted in many people running into credit card and student loan debt, living from paycheck to paycheck, and not saving enough for retirement. It has left people unable to buy a home or, in some cases, not put enough food on the table.

As a country, we have seen millions of Americans with a general lack of financial planning struggling with their money every day just to get deeply in debt.

Various industry surveys have shown that 2 out of 3 families have no emergency savings. 78% of adults live from paycheck to paycheck, and 3 in 5 adults do not have a monthly budget.

In addition, U.S. adults on average only correctly answered 50% of the questions in the TIAA Institute-GFLEC Personal Finance Index in 2021.

This is why teaching personal finance to kids in high school is so important, say financial literacy advocates.

However, many researchers have found that far too few students – especially low-income students – receive personal finance education during high school. However, once they graduate, they are expected to make big financial decisions about student loans and budgeting for living expenses.

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“If we want to make sure everyone in this country has something to eat and a roof over their heads, we have to teach them how to manage their money,” said Nan Morrison, President and CEO of the Council for Economic Education (CEE) and a member of the CNBC Invest in You Financial Wellness Council.

However, according to CEE, only five states require students to take a separate finance class. A sixth, Missouri, also requires a standalone class, according to analysis by Next Gen Personal Finance, a nonprofit group that creates free courses and funds training for college educators.

Fifteen states that require some coursework are integrating it into a different class, and another five require a personal finance course to be offered but not required for graduation.

However, there could be some more positive changes coming as 25 states and the District of Columbia introduced bills in their 2021 legislative sessions to improve access to financial literacy. According to Tim Ranzetta, CEO and Co-Founder of Next Gen Personal Finance, these bills range from setting up task forces and commissions to developing standards for what should be taught in a course to ensuring that every student is taught before the Graduated from a course.

Admittedly, proponents of financial literacy stress that early education is essential.

“How can we expect people to get complex? [money] Decisions without training? “said Annamaria Lusardi, professor at the George Washington University School of Business and founder and academic director of the GWSB’s Global Financial Literacy Excellence Center.

“My students come in and don’t even know how credit cards work,” she added. “Many of them didn’t know how student loans work.”

Even integrating the coursework into another class runs the risk of not being taught at all, said Ranzetta. Only about 36% of schools in states that embed thematic mandates actually need the coursework, according to an April 2020 research report.

Better results

It doesn’t have to be like this, however, say proponents. Many of the financial problems Americans face could have been alleviated if financial literacy had been taught earlier in school, they say.

Up to this point, proponents of financial literacy point to a mountain of research that they say financial literacy leads to better outcomes for student lives.

For example, it has been shown to decrease the likelihood of using payday loans among young adults and to correlate positively with asset accumulation by the age of 25.

A study comparing three mandate states with three that did not require course work found that credit scores in the mandate states had improved. Three years after education was introduced in Georgia, Idaho, and Texas, all three states saw falls in serious crime rates and increases in their credit scores.

Another study found that education increased the likelihood of college-tied students seeking financial assistance and reduced personal loan balances for borrowers by approximately $ 1,300.

In Utah, the first state to require a separate financial literacy course for its senior year 2008, student achievement has increased slightly but steadily. However, Breckon Heywood, who oversees the state’s general education program in financial literacy, agrees that its value extends well beyond the student’s school years.

“Educational experiences require sufficient time to gain a foothold in each of us and change our behavior,” said Heywood, who once worked for a bankruptcy firm and saw firsthand the value of financial literacy.

In states that do not have such a mandate, schools, nonprofits, and community centers are growing.

In Philadelphia, the Niche Clinic offers a program for high school students that not only teaches them how to save, budget, and invest, but also gives them the opportunity to earn up to $ 5,000 for making meaningful changes in their school or community.

High school graduate Jeiber Colon-Marquez is taking a personal finance course as part of a nonprofit program.

Source: Jeiber Colon

Students come into class with little knowledge of money, like the debt creation process, how insurance works and the whole world of investing, said Dan LaSalle, who started the program in 2015 as an English teacher at Olney Charter School.

“Some had credit cards thousands of dollars in debt,” said LaSalle, who now runs his nonprofit full-time.

For 17-year-old Jeiber Colon-Marquez, training was a cornerstone. His parents told him the importance of saving and not spending too much, but that was about it.

“This program completely changed my life,” said Colon-Marquez, senior, Olney Charter School.

“I know about investing,” said Colon-Marquez. “How to buy a house. How to negotiate a car sale. How to pay for college.”

More financial education to come?

While personal finance courses may not be a top priority for educators struggling to teach students virtually and safely amid the pandemic, now is the time when students need it most, proponents believe.

While the financial devastation and hardship people suffered during the crisis could not all have been avoided, they could have been alleviated a little with more financial literacy, CEE’s Morrison said.

“It’s not the only tool in the toolkit for financial stability and economic mobility, but it’s an essential tool if we are to help people move forward in their lives.”

Next Gen’s Ranzetta hopes the pandemic can be a turning point.

“It is clear that the pandemic-induced recession has focused minds on the need to bring this important course to more students,” said Ranzetta, who is also a member of CNBC’s Invest in You Financial Wellness Council.

Legislation doesn’t necessarily mean it’s a business deal. For example, the New Mexico bill requiring students to take a financial literacy course to graduate high school was passed by the state House of Representatives but never put to a final vote in the Senate.

One of the law’s main sponsors, MP Antonio “Moe” Maestas, hopes it will be passed in the next year or two as part of a state curriculum revision.

“Many of our educational institutions are stuck in the 1950s,” he said. “We need to update what students are learning to be successful in a complex 21st century society.”

Colon-Marquez of the Olney Charter School certainly believes his education will help him succeed.

“It opened my eyes to so many things that I never knew,” he said. “It brings me one step closer to financial freedom.”

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