The shortcomings of financial literacy education in the United States.

The question arises: why is financial literacy not a fundamental part of our education system? Consider the implications if educational institutions prioritized teaching compound interest instead of merely focusing on biological concepts such as mitochondria as the cell's powerhouse. There are several critical areas that remain unaddressed in high school curricula, notably the absence of instruction on credit card debt. Research indicates that this gap in education is significant.

A 2019 study conducted by the National Bureau of Economic Research revealed that more than half of adults in the United States are classified as financially illiterate. This deficiency in financial knowledge contributes to the financial instability experienced by many Americans today. The nation is grappling with over $1 trillion in credit card debt, with more than a quarter of the population lacking any retirement savings, and over a third unable to manage a $400 emergency expense. It is therefore not surprising that 88% of adults believe that financial literacy courses should be mandatory in high schools. However, it is important to note that many individuals do possess some level of financial education. Thus, the pertinent question may not be why we did not learn these concepts, but rather why we fail to retain them, and how we can improve this situation.

A straightforward method exists to assess one's financial literacy, encapsulated in a set of questions referred to as “The Big Three,” which address interest rates, inflation, and risk diversification. Let us take a moment to evaluate your understanding. If you answered these questions correctly, congratulations; you are financially literate. Conversely, if you did not, it indicates a lack of awareness regarding money management, including knowledge of where one’s money is allocated and the available options. Achieving proficiency in these areas necessitates familiarity with financial terminology and the capacity for mental calculations.

Gaining a comprehensive understanding of financial concepts is a gradual process; it cannot be accomplished in just a day or two. In essence, financial literacy parallels traditional literacy; one cannot expect to read complex literature after attending a single class on the alphabet, nor can one master money management after a single lesson.

To gain further insights, you may visit one of the more than 6,000 metro stores located across the country. Now, returning to the video. Historical records regarding educational standards prior to the 1980s are limited, particularly before the establishment of the Department of Education. However, an examination of older teaching materials indicates that, until the 1950s or 1960s, financial management was a prominent component of the public school curriculum, often integrated within home economics classes. In conjunction with skills such as sewing and baking, students were instructed on budgeting for improved living, utilizing consumer credit, and saving for significant life events such as weddings. Additionally, there were independent consumer education courses that appeared to be less gender-specific. This trend began to change due to the space race, as concerns grew that American students were falling behind their Soviet counterparts. In 1958, President Eisenhower enacted the National Defense Education Act, which emphasized the importance of mathematics, science, and foreign languages. Subsequently, the U.S. Department of Education released a pivotal report that partially attributed the decline in educational performance to schools focusing on preparing students for adulthood. This report reinforced Eisenhower's emphasis on math and science, suggesting new foundational elements for national curricula. Since that time, a continuous stream of legislation has increasingly prioritized standardized testing within curricula, thereby reducing the emphasis on essential life skills such as financial education. Fortunately, over the past decade, there has been a noticeable shift in this trend, with a growing number of students receiving substantial financial education, often spanning entire semesters.

Acquiring knowledge in areas such as household budgeting, taxation, credit management, and student loans is becoming increasingly important. In 2022, nine states mandated a standalone course for graduation, while an additional 14 states required personal finance instruction within other subjects. Furthermore, five states provided it as an elective option. This indicates a significant increase in access to financial education. As of February 2024, at least seven more states are considering legislation to implement mandatory financial classes. There is reason to be hopeful that additional states will adopt similar measures, as many of these proposals enjoy bipartisan support. This is likely due to the proven effectiveness of financial education, which has been associated with improved credit scores, decreased delinquency rates, reduced reliance on high-interest payday loans, and better access to low-interest college financing. Moreover, the benefits of financial education extend beyond students to their families and teachers. Researchers are currently exploring which teaching methods are most effective and which lessons tend to resonate less with students, such as retirement planning, which may seem distant to high schoolers. It is plausible that, in the near future, Americans will possess as much knowledge about compound interest as they do about cellular energy production, and as much understanding of inflation as they do about the properties of triangles.