Lately, financial education for kids and adults seems to be
right up there with Mom and apple pie as a crowd-pleaser. Nearly
everyone acknowledges that financial literacy is a worthy goal, and
more than a dozen states require some form of personal-finance
education in high schools. There's just one problem: It doesn't
seem to be working.
That was the sobering conclusion of a panel of experts at a
conference on lifecycle saving and investing
that I recently attended at Boston University. The problem, the
participants agreed, is that broad-based efforts to improve
financial literacy don't hit people when they really need it. The
best time to provide financial education, says Annamaria Lusardi,
director of the Financial Literacy Center sponsored by the Rand
Corp., Dartmouth College and the University of Pennsylvania's
Wharton School, is "when people actually have to make financial
decisions." (At Dartmouth, for example, new employees are given a
simple, one-sheet walk-through of the retirement plan during
orientation. The handout is then supplemented by short videos that
explain such principles as compounding and diversification and
offer profiles of real people telling how they save and
invest.)
The same is true of personal-finance curricula aimed at kids,
says Lewis Mandell, a professor at the University of Washington's
Foster School of Business. After a career specializing in consumer
financial behavior, Mandell has concluded that financial education
doesn't have a lasting impact on financial literacy. He ticked off
a number of problems: Lessons aren't "sticky," to use the Web
vernacular. Classes are generally one-offs that aren't reinforced.
And the subject matter isn't relevant to kids' immediate
experiences -- not unlike trigonometry.
Paul Solman, economics correspondent for
The PBS NewsHour
, noted that a
long-term study in New Zealand
has shown that adult financial habits can be determined as young as
age 3. Children with the least amount of self-control at that age
have the most difficulty managing their money as adults.
To improve self-control among kids, the study's associate
director, Terrie Moffitt, of Duke University, recommends -- guess
what? -- giving them an allowance, along with help on how to manage
it.
Good advice.
All of this was fascinating but not that surprising. In fact, it
was encouraging to get academic backup for the real-world advice
I've been giving for a long time.
For example, it makes sense to me that lessons about life
insurance and Social Security wouldn't be "sticky" for high school
students. But sticking them with the responsibility of paying for
their own clothing or cell phone does make an impression. That's
why I've always been a big advocate of an allowance that's tied to
financial responsibilities (see
7 Tricky kids-and-Money Challenges to
Anticipate
).
Based on what I heard at the conference, I'll stick with some
other good advice:
Don't rush things.
Children, like adults, operate on a need-to-know basis, so teach
them lessons that are age-appropriate and don't overwhelm them with
information (see
6 Key Questions Before You Teach Kids About
Money
).
If you begin an allowance around age 6 or 7, which is a good
time to start, keep it simple by giving kids one financial
responsibility (perhaps purchasing their favorite collectibles)
that you can build on later. Nothing beats a first paycheck for
giving teens a crash course in taxes. And high school students may
not care much about retirement, but when your college grad gets her
first job and has to sign up for the 401 (k) plan, I guarantee
you'll get a phone call asking for help.
Make it fun.
In my experience, the best way to get students interested in
learning about money is to entertain them. Mandell's research shows
that playing a stock market game is far more efficient at promoting
financial literacy than taking a class in personal finance.
In the classroom, I'd also recommend other hands-on games that
let kids make real-world decisions about choosing a career, buying
a home and paying the bills. And any kind of competition (like a
raucous
game of financial soccer that I recently
witnessed
) gets them pumped and increases the chances that they'll remember
the lesson even after they've taken the exam.
Follow Janet's updates at
Twitter.com/JanetBodnar
.