The Wall Street Journal and The Smart [?] Way to Teach Children about Money
Last week the WSJ printed a provocative headline (The Smart Way to Teach Children About Money). Author Charlie Wells grabbed reader attention by writing: “...the one theme that comes out of [the] research loud and clear is that we’re doing it all wrong.”
Wells was reporting on a new study that looks at state “mandated personal-finance curriculums in high school, and compared the financial health of students who graduated before the mandates to those who graduated after.”
The hypothesis: If personal-finance education worked, the students who graduated after the programs were implemented would be better off financially.
I am frequently asked: why aren’t we teaching ‘this stuff’ (financial skills presumably) in the classroom? In fact, 43 states mandate some sort of financial curriculum. I often try to deflect the question because the outcome of in-school efforts are so dismal.
And this study, demonstrates once again, why school based financial education still isn’t working.The study cited in the WSJ article found that “after controlling for state, age, race, time and sex, and analyzing a huge pool of historical financial data, the group found there was no statistically significant difference between people who graduated within a 15-year span either before or after the personal-finance programs were implemented. Graduates’ asset accumulation and credit management were the same, with or without mandated financial education.”
First, this is not news. Lewis Mandell (former Professor of Finance, SUNY/Buffalo and one of the most respected financial education researchers in the country) was writing about the deficiencies of financial education back in the 1990s. The same results are ‘proven’ repeatedly: financial education is ineffective and kids who struggle with math are especially hampered.
Shawn Cole, one of the principal researchers cited, maintains it's all about the math.
“Students required by states to take additional math courses,” he found, “practiced better credit management than other students, had a greater percentage of investment income as part of their total income, reported $3,000 higher home equity and were better able to avoid both home foreclosure and credit-card delinquency.”
This makes sense, but what was not addressed in the WSJ piece—or the study—is that, though math skills are critical and will have this impact, they are not sufficient.
At IMI we work with many math savvy, financially-challenged kids. And that's been an American problem for a long time—affecting our tech sector, STEM education, and all manner of US issues (can we talk about the problems this creates in the US Congress?).
The most well-meaning school districts know that effective financial education requires the engagement of family--to give financial skills context with expectations and values. Some families are naturally adept at this--others need their own classes and that can be expensive. Effective financial education is a process, not an event. It requires ongoing experiential practice (the researchers report that "one hour of financial instruction wore off after about five months"). Families we work with can probably lip sync me saying: it’s like learning to play the piano or mastering tennis. It won’t happen with a 60 minute class or a 45 minute lecture.
Another point made in the article is the importance of not making discussions of family money scary. We work with plenty of kids who are math whizzes—and still anxious about money. Math proficiency can help make awkward conversations about pre-nups, wealth transfer, cohabitation agreements, and budget issues objectively clear, but brilliant mathematicians are not always the best financial communicators.
So as earthshaking as the WSJ article appears to be, it supports the notion that the best financial education is holistic. It requires learning about financial mechanics at developmentally appropriate stages; building a context of values and relevant vocabulary and concepts, supported by open and transparent communication about money within the family. And yes, kids with the strongest math skills may have an advantage when all these other elements of financial education are present.
This is not breakthrough information—rather it is the way IMI helps children and their families acquire financial fluency as part of the process of helping families go from “good to great.” Financial education is not a walk in the park; it’s not acquired in a ½ day or ½ semester course. It’s not cheap.
But it’s not something to walk away from because it is not easy. Financial fluency is a national necessity; a family imperative. (Now if I could JUST figure out how to build a financially fluent Congress.)