KrantCents

Making Sense of Money

How’s Your Money Smarts?

How’s Your Money Smarts?

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How’s Your Money Smarts? Did you know you can graduate college or get an MBA online and never take a class in personal finance?  That includes the accounting, business and finance majors!  Very few high school students can even take personal finance classes.  Is money smarts important?

Background

The financial crisis of just a few years ago has sparked a new interest in personal finance in high school.  A few states are including personal finance as a graduation requirement for a high school diploma.  There are school districts across the country that makes personal finance an optional course.  Sounds good, doesn’t it?  How effective are these classes?

According to the Jump Start Coalition found that the students who took the personal finance classes were no more financially literate than the ones who never took the classes.  They pass the class, but fail to retain the information.  The National Endowment for Financial Education has been addressing youth financial literacy since 1984.  The material is available, why isn’t it working?

Their program has reached more than 5 million students and individuals in schools, youth organizations, community programs and other settings in 50 states.  What do the classes cover?  Topics include your financial plan, budgeting, investing, debt, insurance, and career.  With that many people exposed to these excellent materials, I would think the results would be better.  There are books, websites, online classes and materials too.

Does it work?

Is it putting it in the classroom that is the problem?  Various programs say they are fun, engaging, and relevant to the participants.  They use games or interactive online programs to teach financial literacy.  Some of the biggest credit card companies, banks and numerous other people are all trying to solve the financial literacy problem.  There certainly is a lot of material out there for children.  Why doesn’t it work?

Students attend school and this particular class for a maximum of five (5) hours a week.  How much influence or change can be accomplished in such a short amount of time?  At best, one class (if available) in personal finance may be given in a school!  In addition, students must take a variety of classes to meet graduation requirements.  How do you make the class more meaningful or more impact to the students?

Solution

Personal finance is no different than anything else you learn, it takes practice.  You can practice doing homework, but what happens when you are finished with the class?  You still need to practice and practice what was taught to you.  Practice increases your level of understanding.  A habit is formed when you do something for 21 consecutive days.  Practice smart money habits and accomplish your financial goals.   How can you continue learning and stay accountable?  The answer is parent involvement!

What can your parents do to help?  They can model good financial habits and help you continue to develop your own habits.  They can stress savings, living on less than you earn and frugal living.  Talking about it is not enough; parents must set an example for the children.  Children are very observant and learn more from what parents do versus what they say.  So come on parents set the example!

Final Thoughts

You can take the best classes at the best school or university and achieve Phi Beta Kappa or graduate Summa Cum Laude.  If you do not apply your knowledge or practice it, you will forget 90% in a matter of years.  Taking a financial literacy class is a great first step.  In fact I have written extensively about teens and financial skills.  Here are three of my articles,”Financial Skills for Teens”, “More Financial Skills for Teens” and “Even More Financial Skills for Teens”.   Your next step is to practice your knowledge with people who can help you become better at these skills.  If your parents are not good financial role models, they can change.  These classes can change family’s lives as well.

Students can teach the parents!  Why not?  I learn from my children all the time.  I learn from my students, friends, colleagues, strangers, blogs, written and spoken material.  You probably do too!  So let’s get on board to actually change things by practicing what we learn and change our lives.  How can you make a difference today?  Parents and students demonstrate good financial skills and practice them daily. How to practice good financial habits?  Make them habits by practicing them every day!  How’s Your Money Smarts?

Photo by:  Chi King

This is a re-post of an article I guest posted on Moolanomy Personal Finance .

Comments

  1. Studies have shown that financial lessons are best learned when they are applicable. Thus, you learn best about retirement when you are saving for retirement. The problem with personal finance classes is that the odds of the lessons being immediately applicable are low.

    • My students were generally juniors and seniors in high school who were either about to take part time jobs or go off to college. I was asking parents to help by reinforcing the skills and help them practice.

  2. Excellent advice Krantcents!  Maybe parents should be given a copy of the homework for their student’s personal finance class…it could be a good refresher.  At the end of the day, it all comes down to practice though. 

    • Whether it is a foreign language, math skills or financial skills practice is important. The other aspect is modeling the responsible financial behavior.

  3. The use-it or lose-it theory is paramount. This is another reason to target education that is relevant to your life and aspirations.  

    • Spending one semester learning some financial skills may not change anybody. Practicing the skills learned is really important. A lot of my class covered real basic information such as making savings a priority, how savings can grow, buying a home, banking, credit cards, and buying a car.

  4. There is so much that a personal finance class can cover though, and like Shaun said, retirement saving might not be the best thing to teach 15 year olds, and is best saved for a later class. (although it’s never too late to start, 15 year olds may not be receptive.)

    I imagine they would cover budgeting and saving? So the class would involve setting up a budget, coming up with a way to track it, encouraging budgeting saving in to your monthly plan, etc. Maybe it would cover getting a loan to buy a car, or a student loan, and credit scores. Talk about time value of money and how much interest you’d pay on a credit card if you carry a balance.

    If you don’t have any money/credit card/cary payment to put what you learn into practice with, I’m sure you’ll just forget everything. Picking relevant topics that the students can practice with NOW seems key.

  5. Maybe it will help of the course is taught in the final semester of senior year of high school.  And they should include a strong emphasis on student loans and why students can’t afford to bury themselves in debt to get an education!

    But apart from the schools, I think that too many families keep finances hidden from their kids, as though they don’t want to disturb them so early in life–how often do we hear something along the lines of “they’re kids, let them enjoy themselves now, they’ll have their whole lives to worry about that”?  That kind of thinking keeps kids in a bubble, but with student loan burdens being built so early in life, they need to get on board with finances quickly. 

  6. Although I covered the basics, I geared to what they were interested in. For example, they said they wanted to buy a home by thirty years old. I talked about savings, investing and priorities. Other areas such as banking, credit cards, buying a car and achieving goals.

  7. Scheduling classes is difficult at best, counselors want the flexibility of either semester and years. Every teenager wants a car as soon as they can, that should be an incentive for them to learn the skills. Many teenagers work part time in high school, another opportunity to reinforce the skills. When they go off to college that should be ready to handle their life financially.

  8. Goog post!  It’s never too late to learn!  Whenever I’m in a frustrating or boring situation I challenge myself to think of something I can learn from it.  As you say, you can learn from your kids and just  about everyone you come in contact with! 

  9. A huge part of the problem is when smart financial skills aren’t modeled at home.  It’s fine to learn about making a budget at school, but when the kid goes home and there is no talk of budgets or savings then the info is quickly forgotten or dismissed. 

  10. Look at the credit rating agencies!  S&P, Moody’s… they need to go back to school.  

    What made them think subprime lenders deserved AAA rating?

    • The whole thing was a house of cards because they allowed people to borrow without proof of income. Yes, the rating agencies appear to be complicit too.

  11. Well, our kids also take classes about nutrition and we have an obesity problem.  We tell them not to do drugs, and most of us at least experiment.  We typically don’t crack down and get serious with things until we understand their value.  Why would one eat healthy if they don’t see the value in being fit or find more enjoyment out of fat-rich foods if they “feel better” than the toll taken on their health?  Why would a kid stop doing drugs if he doesn’t have to give it up, or doesn’t have a reason to?  I was unhealthy physically and with my money for a long time until I saw the value of being a better person.

    I understand it’s hard to convey that kind of value to kids.  They may not have the support or upbringing to see the benefits of being financially smart.  They are living with a paradigm that there will always be a safety net (either credit cards, family, the government) or they don’t see the amazing freedoms and happiness that can come with financial independence.  It’s a tough question and I hope we can continue to work towards solutions, since there truly are no easy ones!

    • Change is difficult! It takes 22 days to change or create a habit. My adult children told me that they learned more from us from what we did or modeled than anything we ever said. If you want responsible chlldren, you have to show them how to act responsibly.

  12. I agree, modeling is important! My adult children told me that more than anything elsethey learned from what we did versus what we said.

  13. Another thing that needs to stop are all of the credit card offers that are directed at college students.  They already have enough debt from college loans, adding a credit card on top is not good at all…

  14. Practice makes us perfect. But the good thing about learning PF is that you can practice every day every minute. But do you really think its lack of practice? I would say its lack of self discipline. 

    • Everything is geared to corporate finance or the corporate world. I think you have to be self motivated to want to learn about personal finance. I have always been fascinated with money. My tipping point was living on a very meager draw when I entered college.

  16. The offers are just making the problem obvious or worse. College students need to be prepared for life and credit card offers. As an adult until I stopped it, I get credit cards offers weekly. They need to act responsibly.

  17. Unfortunately, it is failure in a few areas! Learning needs to be reinforced through practice and good financial responsibility should be modeled for the children. Financial discipline comes from finding better reasons to save or to put off spending for something better.

  18. Personally, I never took a personal finance class in high school but always thought that it should be a requirement.  After reading your article my eyes have opened up to a reality such as this.  I was fortunate enough to have a great PF teacher, my mom.  As you mentioned, these are skills that you acquire over a long period of time and need to be incorporated into your lifestyle.  Great article. 🙂

    • Thanks, good (financial) role modeling is worth a lot and practicing your skills is the rest! In many ways, it is like learning a new foreign language. You have to practice speaking otherwise you forget your skills..

  19. There are a lot of factors that influence financial behavior as an adult.  After numerous anecdotal observations, my conclusion is that the PRIMARY factor is parental influence.  Education helps, vocation is a factor and random chance.  But more often than not, I see kids take after their parents.  Unfortunately, many parents (now 50s, 60, s70s) behave like children themselves, so the apples don’t fall far from the tree.

    • My adult children told me that the biggest positive influence in their lives was our modeling of responsible behavior. It wasn’t what we may have said to them as much as what we did. Children are very observant and identify with what parent s do.

  20. I speak to high school kids several times a year.  Its amazing to see their eyes light up when you present the most basic personal finance information.  Especially about saving 10%.  I think to myself all the time, “why didn’t someone tell me this when I was their age”??

    • You would think this is up there with family values, sex education and maybe religion. My children are adults (37 & 34), we talk several times a week and talk about a lot of things.

  21. I think getting education in schools is vital. I have taught Junior Achievement in local schools in low income neighborhoods for the last few years. For many, that is their first or only interaction with finance and the business world. It is sad to see so many people with so little financial background.

  22. I wonder, if classes on personal finance were to become popular in middle and high schools, would the inherent lessons of debt avoidance and prudent spending have a negative knock-on effect on the student loan industry. 

  23. As I tell my students, I learn from everyone! I learn how to do things better and learn how not do things too!