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.

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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.

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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.

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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?

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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?

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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.

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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.

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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.

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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. 

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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.

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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.

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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.

The Problem With Financial Education (And Content Marketing)

A Wall Street Journal article titled Start Early to Raise Money-Savvy Kids states:

“Three of four American teens lack the skills to decipher a pay stub. Researchers at the University of Cambridge concluded that basic financial habits are pretty much set by age 7. A University of Wisconsin report showed that children as young as 3 are able to grasp basic financial concepts like value, exchange, and choice. Teaching kids about money is terrifying for parents who feel shaky about their own financial knowledge. Studies have shown that simply opening a college savings account for a child will exponentially increase the chances the he will go to college. The first step is to talk about money with your children. When kids are young, you can stress the virtues of waiting and delayed gratification, and as children get older you can drive home the idea that spending less than you have is the linchpin of a healthy financial life.”

My take: See how easy financial education is? You just need to start early, and tell your kids about the virtues of delayed gratification! Then, when they get older, just tell them to spend less than they have! Why haven’t we been doing this already?! What’s wrong with us?@#!

What a load of crap. First of all, three of four American teens have the skills to decipher a pay stub. They might not know how to decipher it–because they’ve never had a job, or ever had to read a pay stub–but they have the skills.

Second, researchers at the University of Snarketing have concluded that researchers at the University of Cambridge do too many drugs.

Third, it would have been nice if the author of article–who has written a book titled Make Your Kid a Money Genius (Even If You’re Not) <surprise, surprise>–offered some evidence proving that “stressing the virtues” of delayed gratification and “driving home” the idea of spending less than you have actually produced any positive results when kids became adults.

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Imagine that you wanted to learn how to play tennis. You go online and read articles on Tennis Magazine’s website on how to hit a topspin backhand, and the “secrets” to how the pros hit 120 mph serves. Maybe you even watch a few YouTube videos demonstrating how to hit certain strokes, and what to do in certain game situations.

When you walk out onto the court, how good a player do you think you’ll be? I’ll tell you: You’ll suck. Because no matter how much tennis-related education you read, putting it into practice is a totally different story.

It’s the same with financial education. Reading about it does not (necessarily) make you better at it.

Yet, many financial institutions–credit unions, in particular–continue to deceive themselves into believing that their efforts to post more financial education-related content on their web sites is somehow contributing to the improvement of financial literacy among their customers and members.

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Speaking of content and self-deception…

As I reported in a post titled Why Content Marketing Falls Short, the author of an HBR blog post believes that:

“We are in the midst of a historic transformation for brands and companies everywhere—and it centers on content. The phenomenon of content marketing and brand publishing has unfolded rapidly because it responds to consumer preference. According to the Content Marketing Institute, 70% of people would rather learn about a company via an article than an ad.”

Arguments relying on consumers’ stated preferences rarely sway. Prove to me through testing that content marketing approaches work better than other marketing approaches, and then I’ll jump on your bandwagon.

As it applies to credit unions, Bryce Roth wrote, in an article on CU Insight:

“Content marketing is storytelling and your credit union has a story. At its very essence, content marketing is telling a story that consumers will connect with and find valuable. Instead of saying, ‘We’re for people,’ why not tell a story about something your credit union has done in the community to make it a better place to live, work or worship? Instead of saying, ‘We’re not–for-profit,’ publish a blog on your website that talks about the value and impact your credit union has made as it relates to partnerships you have established with local schools.”

Isn’t that what financial services advertising has been doing for the past 10 years? Bank of America commercials tell “stories” about how they lend to the community, making people’s “dreams come true.” TD Bank tells “stories” about how small business owners who do business with other banks get closed out of the bank at 5:01 because those mean mean banks aren’t as “convenient” as TD.

And what good does this “content” really do?

To oversimplify consumers’ decision-making process, there are a number of questions that consumers have to answer:

Who are you? -> Why should I do business with you? -> Why are your products/services better? -> Which of your products/services is right for me?

It’s never that clean and sequential, but you get the picture. The problem with Bryce’s examples is that addresses–at best–the first two questions, and not the latter two.

Here’s my assertion: The opportunity for “content marketing” to have a meaningful impact on marketing performance is by addressing the latter two questions, and not the first two. Traditional marketing approaches have taken care of the first two, but not the latter two.

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What does this rant about content marketing have to do with the shortcomings of financial education?

It’s all about context.

Financial education, provided out of context–for example, when a consumer is making a financial decision–is useless.

Content marketing, done out of context–like when a consumer is trying to decide which providers’ products are better, or which of a selected provider’s products to select, and the content provided relates to “stories” how about the credit union partnered with local schools–is useless.

These two streams of thought come together when you realize that the key to improving financial literacy is providing relevant information in the right context (when consumers have a decision to make), and that the key to successful content marketing is providing relevant content in the right context (when consumers have a decision to make). 

Financial education IS content marketing. Or, at least, it should be.

If you believe financial education is posting static content on your website, and that content marketing is telling stories about your credit union, I think you will end up failing on both sides of the equation.

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I could go another rant about why it’s so important to create tools that create and manage context (or what I would call activity-based marketing), but that’s probably better left for another blog post.

Debunking Financial Literacy Myths

The CFPB says that FIs spend US$17 billion on marketing and that just US$671 million, or about US$2 per person, is spent on financial education.

And like uncritical, brain-dead slugs, many of you don’t just believe this, but tweet it, implying that the spending is out-of-whack.

My take: Comparisons of financial education spending to FI marketing spend are spurious, and belie the facts about financial literacy and what really needs to be done about it.

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First of all, who’s to say that FI marketing isn’t educational?

If a bank’s or credit union’s marketing efforts inform consumers about the choices they have, and how to choose one FI over another, couldn’t it be argued that that’s “financial education”?

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Second, there’s no relationship between what FIs spend on marketing and what the country spends on financial education.

Instead of comparing financial education spending to FI marketing, why didn’t the CFPB compare it to Obama administration’s programs that spends US$500 million — roughly US$24 per child between the ages of 0 and 5 — to help kids sit still in kindergarten?

What’s more important? Getting 5 year-old kids to sit still for the three hours they’re in school, or preparing kids and adults of all ages to make smart financial decisions?

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We have a literacy problem in this country.

We’re illiterate about financial literacy.

Research from Aite Group, and commissioned by Chase Blueprint, found that just 17% of Americans consider themselves to be financially illiterate. Among consumers surveyed, 24% considered themselves to be financially illiterate in 2010, so the US$671 million that’s being invested is having an impact.

20131210 finlit1a

For those of you mathematically challenged, 17% is a minority. Less than one in five Americans consider themselves to be financially illiterate.

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The other research finding you need to know is that financial illiteracy is not any more of a problem among lower-income consumers than it is among higher-income consumers.

Among consumers earning less than US$30k per year, 16% consider themselves to be financially illiterate. Among those earning between US$30k and US$70k, that percentage is 15%. And of consumers earning more than US$70k, 19% consider themselves to be financially illiterate.

20131210 finlit3

So much for that misconception.

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This isn’t to say that it’s all a bed of roses. Just 20% of consumers consider themselves to be “very” financial literate (also, without much difference between income levels).

Clearly, there’s plenty of room for improvement.

But to compare financial education spending to FI marketing — or to any other number — is spurious. What FIs spend on marketing, or what Obama wastes on getting kids to sit still, has no bearing on what we should be spending on financial education.

The decline in illiteracy, and the increase in the percentage of consumers that consider themselves to be very financially literate (up from 14% in 2010 to 20% in 2013), suggests that the investment in financial literacy is working.

Could it work better? Sure.

Would spending more money on financial education be a wise investment? I wouldn’t argue that it wouldn’t be.

How much more should be spent? And where should that money come from? Ahh, now there’s the rub. These are the questions that don’t have any easy answer.

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By contrasting financial education spending to FI marketing, the CFPB implies that it’s the FIs themselves who should spend less on marketing and more on financial education.

By that logic, General Motors should invest in sending us to driver’s education, right?

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This challenges our government’s thick-headed notion that we have to spend money on something for it to improve.

We wouldn’t have to spend another penny on financial education to improve literacy levels, if more parents spent more time (or even some time) on teaching their kids some financial basics.

And for adults, it’s more a matter of priority.

Neither my wife or I ever received any formal (or even informal) financial education. But I’m probably at the “literate” level and my wife is at the “very literate” level.

How did she get there? She took the initiative to learn. All self-taught.Neither the government nor some FI had to spend money teaching her. 

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Bottom line: The key to improving financial literacy is not spending more government money, or making FIs foot the bill. It starts in the home. And it requires us to hold our government a little more accountable for how it spends its money.