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The Knowledge Gap

Call me a skeptic.

I came across a statement the other day in an article about financial literacy. It’s a statement I have stumbled upon before. The author of the article laid blame for this country’s sad state of financial knowledge on one institution – just one. Schools. In particular, high schools.

I understand the argument. Students should spend time learning life skills. And financial literacy is a life skill that is applicable to just about everyone. Therefore, the thinking goes, before high schoolers are unleashed into the real world, they should be taught the basics of money matters: budgeting, debt, saving, and investing.

If personal finance was a required course in high school, it is believed, the money problems that many Americans face today could be avoided.

It’s true that financial education is not widely taught to high schoolers. Only 22 states require high school students to take a class on economics or personal finance, according to the Council for Economic Education, and only 16 states use standardized testing to evaluate students’ knowledge of finances and economics.

It’s also true that many Americans have poor financial habits. The Federal Reserve conducts a fascinating study each year designed to assess how well adults can deal with an unexpected expense. The survey asks a simple question: If you had an unexpected expense of $400, how would you pay for it? Most respondents say with cash or savings. But 27% of adults admit they would have to borrow money or sell something to cover the expense. Even worse, 12% of the population claim they would have no way of covering such an expense.

It seems logical to think teaching money matters in high school could solve the thorny issue of instilling good financial habits in Americans. But I’m skeptical.

Please do not misunderstand. I love the idea of requiring high school students to take a personal finance course. I’d gladly help teach! Teaching these concepts at a young age is a step in the right direction. But it’s not the answer to what ails us.

Hear me out.

I took Calculus in high school. In college, I spent a semester studying Calculus II. I passed both classes with straight As. Here’s the problem. Today, I could not tell you a single thing I learned in either class.

I suppose I could recognize some of the terminology – limits, derivatives – but I could not begin to explain what they mean or how to apply them. Why? Not because my instructors weren’t good – they were great. It’s because I have not used the concepts since I passed the final exam for my “Calc II” class. And what is not nurtured dies.

I fear teaching personal finance to high schoolers may suffer a similar fate.

High school students typically do not have a reference point when it comes to finances. More often than not, they depend on their parents for most financial matters. Sure, they understand earning money and spending money. Grasping the ideas and concepts is not the problem. The problem is applying the knowledge before it is lost.

For some who graduate high school and go straight into the working world, the ability to apply personal finance knowledge will become real sooner rather than later. Many students, however, graduate from high school and go straight to college. During those four years, it is likely they are not focused on which debt to pay off first, which insurance option provides the best coverage with a manageable premium, or how much to save for retirement. The knowledge developed in a required personal finance course in high school will likely have seriously diminished by the time they graduate from college.

So what can be done? Again, exposure to personal finance in high school is great. It surely can’t hurt. An even better way to teach children about finances, in my opinion, is by having parents model good financial habits at home and involving children in certain financial decisions.

But the best instructor of all is life. I suspect many will learn – or relearn, as it may be – personal finance the hard way. Just as it has always been.

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