Financial Education In High Schools: A Waste Of Time

The CU WaterCooler recently featured a DailyFinance article titled It’s Time to Teach Financial Literacy in High School which included the following:

“Seventy [percent] of incoming college freshman told us that they have never been taught basic financial literacy skills. Yet, they are signing up for student loans, opening credit cards and making decisions that will have a serious impact on the rest of their lives.

Why don’t we do more to help our children prepare for a financial world that can be extremely expensive when not understood properly? As a society, we spend a lot of time, money and effort helping prepare our young people for college.

Yet, for some reason, we do not spend a whole lot of time educating potential college students on the less exciting topic of financial literacy, which is the elephant in the corner. More than 90% [of students in a Brooklyn College financial education course] wish that they had more financial training earlier in life, preferably in high school.”

My take: Teaching financial literacy in high school is a waste of time and money.

***

Imagine that you would like to learn how to play tennis, and that I, an expert tennis player and teacher, agree to give you lessons.

I tell you to meet me at the local Starbucks, and being the really good guy that I am, I buy you a coffee (the cost of which I will more than recoup when you get my bill for the tennis lessons), and we sit down in a couple of adjoining comfy chairs.

I then spend the next hour telling you about the various shots that are used in the game of tennis, and I tell you what you have to do to hit them properly. I might even open up my Macbook, log on to that free SBUX wi-fi, and show you some videos of tennis greats like Borg and McEnroe to show you how it’s done. And let’s say we repeat this SBUX meeting once a week for the next 12 weeks.

At the end of the 12 weeks, do you really think you will have learned to play tennis? Hell no.

***

And therein lies why teaching financial literacy in high school is a waste of time. Financial literacy requires “on-the-job” training. You can’t learn it in a classroom. Fictional, theoretical situations and decisions simply can not replace–nor simulate–the decisions that need to be made in real-life.

It’s pretty easy to sit in a classroom and say you’re going to give up SBUX 2 days a week in order to save $XXX over the course of a year. Or say you’re going to pay off that credit card bill in order to avoid interest payments and build your credit score. Good luck making those decisions in real-life.

***

Another reason why high school education is a waste: Because high school students couldn’t care less about financial education.

If a school offered financial education, do you know why a guy would sign up for it? If some girl he’s into signs up for it.

Do you know why girls would sign up for it? I have no idea. I was hoping you could tell me. I have a wife and three daughters and I’ll be damned if I can figure out why they do what they do.

Sure, you can survey the small handful of college students who signed up for a financial education class, and find that they said they would have liked to have received that education in high school. But how representative are they? And would they really have signed up for the class in high school?

***

You simply can not take someone who isn’t out there earning money, paying bills, and trying to start and raise a family, and expect to teach them what they need to learn about financial management six to eight years before they they need that education.

In 2013, I surveyed US consumers about how their financial lives how changed from pre-recession to recession to post-recession. I asked about their level of financial literacy and how it changed over the years. By generation–splitting Gen Yers into younger (21-26) and older (27-34) subsegments–here are the percentages of consumers that considered themselves to be financially literate in 2013 and in 2010:

          Younger Gen Y     Older Gen Y     Gen X     Boomer     Senior
2010          24%               30%          42%        58%        68%
2013          47%               51%          57%        57%        72%

The Younger Gen Yers did a lot of financial growing up between 2010 and 2013 when they started off in the 18-23 year old range.

Clearly, it would be better if these percentages were higher–across the generations. But I doubt that financial education in the high schools would have had much impact on them. It was being out in the real that provided the real financial education.

The data suggests, however, that there is a group of consumers–in every generation–for whom real-life experience isn’t enough to teach them what they need to know about managing their financial lives. What distinguishes these consumers from others?

***

My first guess was that household income might be a good predictor of improved financial literacy between 2010 and 2013. But that didn’t pan out.

Improved financial literacy between 2010 and 2013
Young Gen Y (21-26) Less than $30,000 59%
$30,000 to $44,999 71%
$45,000 to $69,999 43%
$70,000 to $99,999 50%
$100,000+ 53%
Old Gen Y (27-35) Less than $30,000 45%
$30,000 to $44,999 48%
$45,000 to $69,999 43%
$70,000 to $99,999 47%
$100,000+ 32%

Among Young Gen Yers, a larger percentage of lower income consumers said their financial literacy improved between 2010 and 2013. Among Older Gen Yers, the percentage that said their level of literacy improved was fairly consistent across income brackets. Surprisingly (to me, at least), I didn’t find significant differences by level of education, either.

***

I thought maybe the use of online personal financial management tools (e.g., Mint) would predict the difference between those whose literacy levels improved and those who didn’t. Sadly, it didn’t. Neither did the use of financial self-help books or watching/listening to financial shows like Suze Orman.

The one factor that I did find to help explain the difference? Turning to a bank or credit union for help in managing their financial lives. Across each of the generations–all five of them–a significantly larger percentage of consumers who got help from their bank or credit union increased their level of financial literacy than consumers who didn’t.

***

Improving financial literacy (across all consumer segments, not just the younger ones) is certainly on the radar of some FIs. An early peek into the 2015 Financial Brand Marketing survey shows that about one in four FIs plans to make financial education one of the areas that they will heavily market in 2015 (I don’t have a bank/credit union split on that just yet).

But if the focus of these financial education efforts is going to be heading out to high schools to get a bunch of 16 year-olds up to speed on how to manage their financial lives when they hit their mid-2os, I’m betting those efforts are going to be nothing but a big waste of time. And money.

***

The health care system has made one notable change over the past 20-30 years that the financial services industry needs to emulate: A focus on outcomes.

The focus, in financial services, should be on financial health, not literacy or education. Being financially literate is like learning how to play tennis while sitting in Starbucks. You can pass a test, but it doesn’t mean you’re any good at it. And education may very well be what’s required to become literate, and achieve financial health–but without a measure of health, there’s no way to tell if the education was effective. 

***

The CFSI gets this. In an article titled The Future Is Financial Health, CFSI CEO Jennifer Tescher wr0te:

“We need to redefine financial services from the pursuit of wealth to the pursuit of health.”

I disagree a bit with this. “Financial services” is a broad category, and there are segments of the industry (brokerages, asset management, wealth management) where the pursuit of wealth is the correct focus.

But for retail banks–who need to regain trust, develop products that appeal to financially-educated young consumers, and find new, more profitable business models–Jennifer’s comment may very well be spot-on.

***

CFSI is spot on about something else, as well:

“Financial health is not a purely subjective matter. We have begun to identify key indicator variables, including both subjective and objective measurements. Over time, we will learn how factors like debt levels, savings, access to planning tools, and self-assessments of financial health fit together and how financial services innovation can bolster financial health.”

What’s needed is a FinScore. What CFSI is planning to do may very well become that score.

***

Bottom line: I realize that financial education is one of those “motherhood and apple pie” subjects. How dare anyone bad mouth financial education! But spending time and money on financial education for high school students is a waste of that time and money. That time and money is better spent elsewhere–specifically, on people already out of school.

p.s. Correct me if I’m wrong, but isn’t the title of the Daily Finance article grammatically incorrect? You don’t “teach” literacy, do you? Literacy is a result, or outcome of teaching, not what is being taught.

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20 thoughts on “Financial Education In High Schools: A Waste Of Time

  1. If there is one who is focusing on outcomes and not just the feel good action of “teaching” financial literacy, it is Moven. To quote Brett, “If you want to get people to save money, you’ve got to stop them spending, so we’re helping them understand where they’re spending money. What we start to see, after three to six months [of usage] is that people in certain categories – dining out, catching taxis – start to level off.”

    Once again, the difference between Moven compared to banks and credit unions is that Moven has baked financial literacy, and more importantly real-time advice and recommendations, into their business model as opposed to banks/credit unions adding it on as a feel good campaign.

  2. I usually agree with everything you write, but I’m not sure this time. In fact, I think if you were reading your own post were it to be written by someone else (allowing me the hubris of attempting to “know” what you would say), I think you might comment as follows:

    1. If we used the standard of letting high school students not take classes they couldn’t care less about, then the vast majority of students wouldn’t take the vast majority of required classes.

    2. Google defines “literacy” as “competence or knowledge” in a specified area. Literacy is a standard well short of “expertise” or even “proficiency.” Using your tennis instructor analogy, I would become literate (or at least materially more literate) in tennis even if I wouldn’t achieve proficiency.

    Much like any skill, job or life, classrooms can educate but we still need to learn OJT. The latter doesn’t render the former a waste of time.

    3. Lastly, why not run a real test instead of search for clues in correlations or guesswork. If there’s a study out there where students went through a financial literacy class and then were no different than others, that would be compelling evidence that the class was a waste of time. Until seeing such results, I don’t know whether teaching financial literacy is a waste of time. BTW, I think there are studies (I don’t have the time to research, but I recall hearing this) that sex ed classes taught in grades like 5-7 correlate with reduced instances of teenage pregnancy and sexually transmitted diseases. I’m pretty sure that’s all a theory class–at least there was no “practical work” when my daughters were required to take the class in 5th grade 🙂

    1. Donald: Some responses to your points:

      1) I’m not advocating only offering classes that students are interested in. I don’t know about, or care about, any other type of class. I’m simply arguing that it’s not EFFECTIVE to teach HS students financial mgmt skills. Can the same be argued about math, science, etc.? I don’t know.

      2) Good point.

      3) Good idea. Sounds like something the CFSI could do.

        1. I suspect the real finding of the study is likely to be: “crappy, irrelevant financial education is ineffective in generating good financial habits.” If HS FinEd taught one lesson – take a large chunk of your summer job paychecks, put them in a Roth IRA, convince your parents to match you, and invest in a broad Index fund – lives would be truly changed for the better.

    2. You said much of what I was thinking in response to the article. But I would add that my credit union has been presenting financial simulation programs for high school seniors for several years now. We get terrific feedback from students and parents about the experience being an eye-opener. No, of course they are not positioned to step up and make perfect financial decisions after a few hours in our simulation. But at least they have a clue what questions to ask. A surprising number of the students follow up with a visit to the credit union to get started. Maybe some programs are a waste of time, but ours isn’t!

      1. @Robin – would you be able to do a year over year analysis for these actives.

        For example:

        The total cost of the program (planning + implementation)?
        Total number of conversions the program drives based upon those registered?
        Cost per acquisition?
        Lifetime value, activity of conversions?
        Product adoption?
        Loan balance?

        Positive feedback from students and parents, while nice and affirming, does not necessarily move the needle.

        1. We certainly have analysis but most of the things you mention don’t apply to our goals at all. We are not pushing any products or even selling ourselves. Our goal is for the students to experience some hands-on activities that stick with them when they are faced with some of the choices that are in the simulation. Feedback is more than “nice and affirming”. When a student comes back a few years later to tell me how the experience helped him make choices that quickly built a good credit score or that she had managed to save enough money for a down payment on a piece of property, I know it made a difference. One even told me the program made him re-think his career choice and he enrolled in a different course of study based on information that was included in the simulation. Parents have said that their son or daughter even taught them a few things after participation. If hard dollar return on investment is your only measure of success, then maybe failure is inevitable.

  3. By your logic here, why would college students be interested either? Do you favor having it in college because they have cash and just because they buy pizza and beer? I think when done right, you can still teach foundational values of financial literacy. Not tooting the horn too much, but BB&T has partnered with EverFi to bring a neat way to educate students on financial literacy. How much will they actually retain? Who knows, but how much do you remember from quant? Just saying, you start building the foundation early. Repetition is always a good thing. Helped on my multiplication tables!

    1. James: I don’t think financial education classes in college would make much difference. However, your comment to “start building the foundation early” is spot on. Am I contradicting myself? Not necessarily. I think it’s basically parents’ responsibility to teach good financial management skills, not the schools’.

      But–you will say–too many parents have inadequate financial management skills themselves to be able to teach their children. EXACTLY. And hence the need to focus financial education on older people (i.e, not HS or college students).

  4. Ron, you know I think fondly of you, but I disagree here on this one. Donald makes a GREAT point with his first point. Holy crap I took a lot of classes in middle school and high school that I didn’t even care a little bit about … but some of those random skills sunk in and I still remember them. I also, later in high school LOVED seeing actual life applicable classes showing up. Enough with physics, trigonometry and other awful classes I knew I’d never even think about again. What? There is a marketing class? A business 101 class? A personal finance class? I would have been all over that and I came from a situation where I was pretty savvy already. Believe it or not, those classes were totally full in my high school…granted that was a long time ago now but I don’t think those classes would now be a barren. I remember when computers were growing in popularity and we had these optional typing and pc literacy classes. Life skills are pretty damn popular in HS.

    Another thing is that I think you can easily make these classes work with real life simulations. My business 101 class in HS was great at that. We learned how the stock market worked by getting to invest fake money and watching what happened over time (there was a contest). We had to build a small business from scratch. I still have the designs for my restaurant in a folder at my house and its made MANY moves over the past couple decades. I could see similar types of exercises in choosing careers, learning about incomes, where you spend your money, simulate what happens down the line when people make bad choices with their money, etc.

    Ideally this is stuff their parents should be doing. I am working on it with my 4 and 6 year olds a little now but for the vast majority of kids out there, their parents don’t have a clue what they are doing so how can they educate their kids. Heck even the really wealthy don’t teach their kids about money well, they just buy them everything they could ever want which ruins them. I like the idea of school at least trying to establish a baseline…and who says it has to be elective. We get sex ed, home economics (do they still do that?), art, tech ed, and a bunch of other soft skill courses like that…add fin ed to the mix.

  5. Ron, I think what you have hit on here and what these comments support is “what is effective financial literacy?”
    In all education, the most effective learning happens when you can make it contextually relevant to the learner. In your tennis analogy, of course we agree with you that the student and teacher should be on the court – it is a physical discipline. But it isn’t actually playing a tennis match. They are learning for when they will be in a match.Similarly, a stock market exercise is only effective if the students are actually going to be directly investing in the market in a recent timeframe from when they learn it.
    Moven is the same. Their time horizon is 3-6 months where they are providing learning context.
    And, if you give your kids an allowance, you don’t simply hand them the money. You give them context ie. education. Otherwise, it’s a waste of money.
    I think what you outline is with financial literacy programming for students it has to be relevant to their context in a relatively short time period because they have short attention spans. And as financial services providers we have to understand the context of our members/potential members otherwise I agree we are wasting our time and money! In short – Marketing 101: Know your market.
    Of course, the other side of the financial literacy in schools point is that it is a promotional activity geared to a long-term view that these naïve teenagers will be profitable when they need a mortgage and hopefully they will think of you first: a) because you got them signed up and they default to thinking of you first OR b) you actually said something that stuck. A potential c) is that you have conditioned their parents (which I see you advocating) to think of you as experts with good products and they use that view to hold influence on their kids. Again, if you don’t have a firm view as to why you are doing it (outcomes), you certainly are wasting your time and money.

    1. Thanks for commenting, Ben. One thing I did NOT make very clear in my post was WHO would be wasting the time/money providing financial education to high school students. The post came arose out of two influences: 1) reading the DailyFinance article after it was highlighted on CU Water Cooler, and 2) seeing the early results of the Financial Brand Marketing Survey which showed a decent % of respondents indicating a focus on financial education in 2015. My immediate thought was: Well, if they’re going to focus that fin education on HS students, they’re wasting their time.

      But I do know that some credit unions have programs and plans to go into schools to provide fin education. And I do think the money (and time) spent on these efforts is better invested somewhere else.

      1. For sure it is a wasted effort if they are doing it as a magnanimous approach to “educating the masses.” If they have a clear business objective that builds their brand and bottom line (even if it’s a couple years out) than they should do it. It’s this last approach that is lacking.

  6. Sometimes I miss being in the industry solely because I caught your blog more often. Great points.

    That said, I understand why some do it. Maybe it would be the spark a student needs to really get focused on their financial health but I honestly doubt it will make a huge impact.

  7. Comparing financial education to tennis tutorial using theories does not seem to be fair. To learn tennis, one needs to practice to develop muscle memory but to learn financial matters, one needs to learn the theories needed to become successful. However, there are some valid points you got there.

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