Why Schools Should Teach Personal Finance: A Rebuttal
We recently updated an article here on Consumerism Commentary, arguing that high schools should not require students to take personal finance classes. The article, written by the site’s original founder several years ago, makes some compelling arguments.
But I don’t buy it.
As a parent, I sure plan to teach my kids personal finance. In fact, we’re already talking about how to start teaching our five-year-old about money management. But just because I’m planning to teach my kids these concepts doesn’t mean other parents are. And that’s not only bad for students graduating high school, it’s bad for our society as a whole.
Teaching Personal Finance: Required versus Offered
To be fair, the author of the original piece didn’t argue that personal finance shouldn’t be offered in schools. He argued that it shouldn’t be a graduation requirement. I don’t necessarily disagree with that premise, but apparently some states do. According to a recent Business Insider article, 17 states in the US require public high school graduates to take a personal finance class — or an economics or civics course covering personal finance — before they can graduate.
The article cites the Great Recession as the reason behind this requirement. That time was when many people suddenly had to go into major debt, were underwater on their homes, and had serious financial troubles. When it all imploded, we saw just how lacking in basic financial knowledge the US really was.
So, no, I don’t necessarily believe that personal finance should be required for high school graduation, though the states seem to be moving in that direction. But I do believe that high schools — actually, even elementary schools — should work more personal finance into their educational efforts.
Why Should Schools Teach Personal Finance?
So, why do I think that personal finance should be taught? Here are the main reasons:
1. Many parents aren’t comfortable teaching this subject.
One 2012 survey showed that 81% of parents believe that it is their responsibility to teach their kids about money. But the problem is that two in five US adults rate their own knowledge of personal finance as very poor. Add in the fact that many parents are simply uncomfortable talking to their kids about money, and you get a very sticky situation.
Sure, some teachers may be uncomfortable with teaching personal finance, too. But, honestly, they only need to stick to the basics and it would have an impact on the next generation. If these kids were taught how compound interest works, spending less than you make, how debt works, and the basics of filling out tax forms, they would have a substantial leg up.
Basic personal finance really isn’t that difficult. With a decent curriculum — there are many in action and more being developed right now — most math and civics teachers could handle introductory personal finance classes easily.
2. Personal finance doesn’t have to be a standalone class.
Many commenters on the original article pointed out, fairly, that their kids don’t even have room in their schedules to take all the classes they want to take. The idea of adding an additional course for finance seems impossible. But here’s the thing: personal finance doesn’t have to be a separate course that takes a full year, or even a semester.
The best option, I think, would be to work personal finance concepts into other math courses, starting in elementary school. Even small children can understand what happens when you make $10 but spend $15!
Working personal finance applications into everyday mathematics — and even higher-level math courses, like algebra — helps with two things. First, it familiarizes students with money management concepts they’ll need their entire lives. Second, it helps them see how their math knowledge actually applies to their lives moving forward.
What about other concepts, like balancing a checkbook or filling out tax forms? Many middle and high schools still require economics, health, and similar courses. It doesn’t take a visionary to develop a course that combines these concepts. The end result could be a class focused on functioning as an adult and a citizen in the world. Students could learn to take care of their homes, their bodies, their finances, and their societies in a single course over a school year.
3. We can probably agree on the basics.
Another issue the original article points out is that personal finance is complicated, and there are many different opinions out there. Which type of life insurance? How much life insurance? Stocks or bonds? Traditional or Roth?
As someone who is even reading this blog, you’re probably aware of the many opinions on personal finance matters, most with good research and data to back them up.
But here’s the thing: we don’t necessarily have to give kids all the answers in a personal finance-related class. Instead, we need to help them define terms and understand very basic financial concepts. Here are some of the questions a personal finance class might seek to answer:
- How does insurance work (whether it’s life, health, or homeowner’s… whatever)? And why do people even pay for it if they’re not likely to use it?
- How does compound interest work? What happens if I put $100 in a savings account and leave it there for 50 years? Or, what happens if I rack up $500 in credit card debt and make the minimum payments?
- What is a credit score? Why is it important, and how do you keep it in good shape?
- Why do we pay taxes, and how do we fill out the most basic tax forms?
- What are some tools you can use to budget? And what happens if you consistently spend more money than you make?
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These concepts aren’t that hard. They don’t require us to recommend term life insurance over whole life insurance. And they don’t require a lot of detail. But they give students a jumping off point. Plus, they’ll at least have an understanding of the basic terminology. They’ll know what they’re getting into ten years from now, when they go to buy and insure a home.
Good teaching, after all, isn’t always about providing kids with the right answers, but about helping them ask the right questions. A hands-on personal finance curriculum could do just this, while setting kids up to make better choices in their lives.
4. Students are jumping straight from high school into major debt.
Personal finance instruction may be even more important now than it has ever been. The average college graduate in 2016 had $37,172 in student loan debt. Many high school students are signing the promissory notes on these huge loans before they even graduate!
Sure, there are times when taking on debt to further one’s education isn’t a terrible choice. But all too many students don’t understand the future implications of this choice, including how much of their future income will be tied up in student loans. Even understanding basic loan terminology could help students make better student loan choices, where possible.
One Fox Business article makes the case that teaching financial literacy early is pointless because kids will forget most of it before they have a chance, or need, to use it. And that may be true. But many high school seniors are already examining school acceptance letters and financial aid offers, and they’re getting ready to take on that debt.
5. At-risk kids need these classes the most.
Finally, the original article argued that kids in high-risk areas don’t have time to deal with personal finance in school because they’re just trying to survive. I would argue that these are the students who most need to graduate high school with a basic understanding of money and how it works.
Sure, kids from advantaged backgrounds are more likely to score well on financial literacy tests, whether a course is being offered or not. But these kids are also more likely to score well on the ACT and SAT, and that doesn’t mean we give up on helping at-risk kids get to college.
If a high school student lives within a few blocks of fifteen payday lenders, they have the right to know what a 25% interest rate looks like played out over time. And these concepts are not difficult to teach in high school.
So, What’s My Verdict?
We may disagree on what should be taught in elementary or secondary school personal finance courses. We may disagree on how those courses should be taught. But I think that we could mostly agree that finding ways to incorporate basic personal finance concepts into our children’s education would be a good thing.
I won’t try to dictate how states should set up their graduation requirements. But I will say that, as a parent, a school offering both advanced calculus and personal finance courses would look pretty good to me!