Financial Education in Schools

by Mr. Cheap

A number of personal finance bloggers and gurus have made the statement that our school systems do an awful job of providing basic financial literacy and this needs to be fixed. When “Rich Dad, Poor Dad” Robert Kiyosaki makes this statement, he means that the school system should teach people to be entrepreneurs, not employees. When Derek Foster says this he means an understanding of stocks and how to evaluate and purchase them. When Suze Orman says this, she means students should be taught about FICO scores, living within your means and avoiding credit card debt.

I think this is the first problem with teaching “financial literacy” in schools, it means different things to different people. Like the idea we should teach “spirituality” in school. Who’s spirituality? As soon as you get into any specific investment, you’re going to get people who feel strongly about the issue. Mutual fund investors will sneer at fixed income investors, passive investors will sneer at mutual fund investors, gold bugs will sneer at equity investors, ad nauseum.

There’s a core of personal finance that almost everyone will agree with, such as “spend less than you earn” so perhaps it would make sense to teach that? Again, I’m not so sure. I think everyone already knows that they should spend less than they earn. It’s like losing weight, everyone knows how to do it (eat less food, eat healthier food and exercise more) but the devil is in the details: execution is the hard part.

In computer science there’s an unusual phenomena that there’s a double bell-curve for people learning to program. A bell curve occur with most traits if you sample a population. If you measured men’s chest sizes, you’d find that there were a small number of men with thin chests, a small number with barrel chests, and a large clustering with average size chests. With programming ability in a first year computer science course there are TWO distributions. One hump is the normal distribution of the students who “get” programming, the other hump is the normal distribution of the students who don’t. Many approaches have been attempted, but this separation persists. I’m suspicious that with personal finance there’s a similar divide. Some people get it, some people don’t.

Beyond this, there seems to be a philosophy that schools are a magic machine that we can program to produce whatever type of people we want: 13 years latter they’ll start coming out as ordered. As close to a life-long student (I’ve spent about 20 years in school full-time so far) I’d say that far more than teaching me specific facts and information, I’ve learned HOW to learn. When I get interested in a subject (recently its been DRiPs), I have the tools to attack the subject and learn more about it. School tries to teach us how to write properly, but after 12 years of English courses, have a look at the blogosphere and see how poorly we’re performing.

Much like personal hygiene, morality, manners and nutrition, I think instruction about personal finance comes from our parents. Whether they explicitly teach us about these things or not, we learn from them.

Its not something we can pawn off on the educational system.

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{ 17 comments… read them below or add one }

1 Four Pillars

What a great post – I Stumbled it!!

I’ve been a big supporter of more financial education but after reading this, I would agree that maybe it’s not the perfect answer.

I still think that even a small amount of basic financial education would be beneficial to at least some of the students.

2 Michael James

I agree with many of your points, but not the conclusion. Teaching financial matters won’t solve all problems, and there would be disagreement over what to teach. But, when you say that we can’t “pawn off” the teaching of finances to the educational system, it sounds like we’d be reducing financial education elsewhere. I certainly wouldn’t want to see this. I see the teaching of basic finance in schools as supplementing the other (mostly inadequate) ways that people learn about money.

3 Traciatim

I disagree, many parents don’t know how to manage their finances properly. Things that should be learned is how to read a bank statement, How to do a budget, how to figure out how much interest costs on a loan, how to figure out how much to save each month when saving for a goal in a specified time frame . . . Basics that every person in the country need to know.

4 guinness416

We definitely did cover the things Money Minder mentions quite intensely – reconciling, compound interest, etc – in a subject called “Business Studies”, when I was about 14. Not that it stopped us starting to blow all our part time job earnings on tequila and snakebites a year later, mind you :)

Maybe this is where some sort of classes at the library or as part of freshers week at college or somewhere can step in, as a public service. I can see that many parents don’t have the ability or time to teach this stuff properly.

5 Mr. ToughMoneyLove

Sadly, starting financial education in schools may not help much if the kids have parents who themselves are financially clueless and subject their children to bad financial habits. Over and over again I hear parents talk about teaching their kids how to use credit cards. That is all they have expertise in. My view is that any adult who receives any sort of financial help from the government must receive mandatory counseling in personal finance as a pre-condition.

6 mjw2005

I do agree that schools shouldn’t teach investment advice but I do think they should at least teach basic money management skills like how to balance the money coming in with the money coming out…simple stuff….we learned how to sew in school why not learn how to balance your cheque book….

7 Mr. Cheap

Thanks for all the great comments!

With regard to the suggestions in the comments of what we should be taught, I learned all those things at school: in math class. What’s better is I learned broader concepts, of which balancing my cheque book (addition and subtraction), calculating interest (multiplication), reading a bank statement (addition and subtraction again) were simply special cases of.

Things like the different between a savings account and a checking account can and should be explained to a person by their parents (or the bank when they first open the accounts). We don’t need a class to explain this!

As Guinness comments, my suspicion is that even if these concepts were explicitly taught, they probably aren’t going to have much impact on students (in theory I learned to sew and cook in home economics but it doesn’t help me in my day-to-day life at all – if I needed to sew something today I’d be asking for someone to show me how).

Even if we bored students with this stuff, most of them aren’t going to learn it until it becomes more relevant to them (at which point they’ll be out of school).

8 Dividend Growth Investor

I doubt that teaching financial education will do any good to most people.. Think about seks ed and the level of teen pregnancies in the US..

9 Studenomics

I am in class at the moment and reading pf blogs/working on mine instead of listening. Why? Because let’s be honest we all cram before exams, get a high grade, and never think about the course again. We all learned about alcohol and sex in grade 9 and yet most of us still drink despite how bad it is for you.

10 nancy (aka money coach)

well… I actually *have* gone into grade 11 classrooms a number of times, sponsored by a Vancity program. In the 4 hours, we cover off: goals, comparing cel phone plans (as a case study of spending smart), compound interest, meaning of money, how to handle peer pressure re: spending, budgets and a bit on debt. The students respond quite well, but you can also tell it’s not “real” yet to a lot of them. But for sure there’s a need, and it’s well received at the schools.

11 Gates VP

Hey Cheap, I’m late to the rant, but here’s my beef :)

Much like personal hygiene, morality, manners and nutrition, I think instruction about personal finance comes from our parents.

Isn’t this like the blind leading the blind?

Given the current financial crises, I don’t really trust the “average person” to instruct their kids, b/c they’re horrible role models. You can’t teach the Kiyosaki’s “be entrepreneurs, not employees” in public schools, b/c it doesn’t work if everyone does it. Just the same as Derek Foster’s ideas.

The average America carries high level of debt (both housing and consumer) and could never afford to buy a car in cash despite living a lifestyle that requires a car.

How many people are worried about retirement after the market crash? Doesn’t that sound pretty foolish?

The average American is obese. Not just overweight, if you draw the big bell curve, more than 50% of Americans fall under the “way too fat” side. Imagine how much of the curve is covered by everyone greater than “too fat”.

The people who taught us personal hygiene decided that it was OK for us to stick balls of cotton in our ears, despite doctor’s warning otherwise. They also taught us shower once / day without any real evidence of its long-term effects on our bodies. I never learned proper facial care techniques, until I got married. If not for my 12th grade fashion show, I would never have understood exfoliation and toning.

The average person graduates high school with basically zero understanding of stats 101. Cheap, you and I can look at the polls and know why they say “good to 0.4% 19 out of 20 times”. The average high school graduate has never learned about normal distributions, they don’t understand the rules for 2 standard deviations or how to differentiate means vs medians, let alone understanding skewed distributions. 10 year olds can understand these concepts, but we’re leaving it up to parents?

OK, so maybe we can teach morality and manners at home. But good manners have always and will continue to be about respecting others, which is really a morality issue. Morality is really a spiritual issue.

So I’d say that we can safely trust our parents to teach some form of morality to our kids under the theory that people in general try to be good.

But me, I want people like Nancy teaching everyone’s kids about money. Just like I want highly trained nurses to help teach everyone’s kids about personal hygiene and health. I don’t want average people teaching the next generation of Canadians, I want above-average people teaching the next generation so that they don’t up as mis-guided as their parents.

12 Mr. Cheap

Gates: Better late then never. I wasn’t sayings that parents SHOULD instruct their kids on those subjects, I’m saying they DO (kids will figure those things out by watching their parents, with or without explicit instruction) .

Even if we have Nancy teaching PF, a nurse teaching hygiene and nutrition, an array of holy men (and women) and ethicists teaching morality and Miss Manners teaching manners, kids are still going to pick up the bulk of their beliefs and facts in these areas from their folks. Its just a time thing. Compare how much time you spend with your parents vs. how much time you could spend with any one of these teachers.

And yes, I agree, this is often the blind leading the blind.

13 Four Pillars

Fashion show, exfoliation…toning??? Gates, you’ve been watching way too much Zoolander!

14 Gates VP

Yeah FP, and I just got back from doing yoga over lunch. What can I say, I’m secure in my masculinity. :)

Honestly, I definitely don’t mind some longevity supplementation. We don’t really have a lot of data about remaining functional after 90, but we might as well use what we know. No point in saving money for later if I blow my health in the process.

15 Leroy

I am in the opinion that our edu system should allow our students to pick up basis financial literacy.

You may be right about edu not doing much good quoting teen preg as an example. What we are doing here is to plant a seed in our youth so that I may grow to full blown when the conditions are right.

Sharing an example of myself, I was taught about budgeting by my dad at age 7. I had it then. But I realise the power of budgeting at age 29 as a fundamental tool i can use to achieve the financial freedom i desire. That’s 22 years later! Well, i appreciate and thank what my dad shared with me 22 years ago. :-P

Maybe we should offer the subject as an elective and allow the students to choose. No point bringing the horse to the river but the horse refuse to drink water and die of thirst subsequently. :-)

16 WealthWebGuru

I stumbled on this thread in writing my article on financial literacy and appreciate the perspectives. I don’t think putting financial education in the school system is an issue of ‘pawning’ it off somewhere. The challenge we have is financial literacy is critically important to life and yet there are no formal venues to learn about it. all the learning is informal from parents or friends or social systems. Unfortunately it’s not working and we need to create more formal education programs on money and one of the natural places for it is in the school system. The other place for it is in the workplace but we have some work there too.

17 Teacher

As a financial literacy teacher, I am very passionate about this course being offered in high schools. As I have found, most students have very little basic knowledge about personal finances. Just because they do not see finances managed well at home, should not provided them with an excuse not to educate them and equip them with the materials they need to survive and thrive. Ultimately individuals set their own limits on what they do with their life. If you are determined to succeed, it doesn’t matter who your parents are or where you come from. The materials that I covered in class were the basic fundamentals that most people will encounter sometime in their life. I do feel as though the juniors and seniors benefited from this course more than the younger ones, just because some of them have had part-time or summer jobs and could relate more to the material. If we don’t require this to be part of our school curriculum, then when is it that students are to learn it? In real life, when thier mistake cost them thier credit score and future? Let those of us that are passionate about this topic teach and be the best leaders we can for our youth!

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