Failure of financial education hurts customers

Financial Advisors

Although financial literacy education has received increasing political attention in recent years, new report Researchers at the National Council of Financial Educators (NFEC) argue that current school mandates still fall short of basic education standards.

NFEC CEO Vince Schaub said state-mandated financial education courses fail to provide students with well-trained teachers, course funding, and academic rigor. said no. As a result, even the minority of students with financial literacy education are still poorly prepared for future financial decisions.

legislative wave
Louisiana passed a bill earlier this month, making it the 22nd state to require high school students to take a semester-long personal finance course in order to graduate. Bayou is the latest state in a recent wave of state legislation mandating financial literacy education.

Half of all states with such mandates have passed laws within the past year and a half, according to the report. Next-generation personal finance. Still, just getting the mission through isn’t enough, Mr. Chaub said.

Some states require students to complete financial literacy coursework incorporated into established curricula, but are not required to take a separate course on the subject. In New York, high school students are required to take the following qualifications: 1/2 credit economics course It contains half of the modules on personal finance concepts for graduation.

“Many state standards dictate that you must be taught 10 or 15 hours of personal finance,” says Shoub. “You can’t learn enough in 10-15 hours. Imagine spending 15 hours trying to speak a foreign language. It’s like a group of people sitting and clapping. [saying] “Oh, that’s great, the standard the state has adopted teaches financial literacy.” But 10 hours isn’t much. ”

New York State Senator Leroy Comrie submitted a bill A pass-fail course on financial literacy, which would be required for high school students to graduate in 2021, has yet to be passed.

“The time has come to try to hold the state to some responsibility to teach the public the basic building blocks of budgeting, to understand how credit and money are spent.” Comrie told CityLimits,.

worsening trend
Researchers from the TIAA Institute and the George Washington University Business School found that Gen Z has the lowest financial literacy scores of any generation. investigated. Generation Z They range in age from 11 to 26 and number about 69 million. Two-thirds of Gen Z, who were between the ages of 18 and 23 at the time of the survey, answered less than 50% of their personal financial questions correctly.

Across generations, adults in the United States averaged only about 50% of the test questions correctly during the first five years of the project.

Financial advisors say this knowledge gap is a problem when advising clients.

“We’ve found that lack of financial literacy affects clients the most when it comes to risk tolerance,” said Dan Wood, a financial adviser at Zimmerman Wealth Management in Evanston, Illinois. “It’s natural to fear what you don’t understand. Lack of understanding leads to suboptimal decisions, such as poor investments, too little risk in your portfolio, and avoidance of ‘good debt’ such as mortgages. There is a possibility.”

Risk-related concepts are particularly difficult for American adults. A person who took the TIAA financial literacy test said he got the risk-related question right 37% of the time. This was the worst performance of any financial concept on this test. By comparison, test takers were almost twice as likely to answer borrowing-related questions correctly.

“In those cases, my first job is to educate my clients on the importance of our proposition and how they feel comfortable sticking to it in the face of market and life volatility,” says Wood. said Mr.

Financial literacy is “more important than ever,” said Julie Hall, who now serves on the board as advocacy director and president-elect of the Michigan Financial Planning Association. “Many financial advisors are interested in the wider adoption of financial literacy education in U.S. schools,” Hall said. “It will help the public seek quality financial advice and increase the number of financial planners, including women.”

Last year, Michigan became the 14th state to pass a bill requiring high school students to take a half-credit course in personal finance before graduating. Hall and her team recently met with the Michigan Department of Education to discuss financial literacy requirements.

“We would love to partner with MDE in some way to support the curriculum and provide support to schools in the community,” she said.

Personal finance is not math
NFEC’s Shove said states need to seriously consider how to structure course curricula to equip students with relevant knowledge to make short-term financial decisions. In Florida, Governor Ron DeSantis signed the bill last year, Half Credit Personal Finance Course The high school curriculum includes topics such as checkbook balances and the impact of receiving an inheritance.

Proponents are quick to applaud these laws, Mr. Shoub said. “So you read the bill and wrote the check? It’s outdated.”

Not only should students receive timely and relevant information from their personal finance classes, but they should learn more broadly what financial wellness means in their own lives. Personal finance isn’t a math class, says Schaub.

“In the field of personal finance, all the kids in that classroom have different experiences, different habits, different socioeconomic status, different goals, and different situations in the near future,” he said.

Ramona Myall, a financial adviser at Priority Financial Group in Phoenix, said clients often get stuck on financial details if they don’t “fully understand the implications of financial health.”

“It goes beyond portfolio returns and how you make money decisions, understand what money means to you, and make sure there are no major gaps in your financial situation.” Mr Myall said.

beyond elementary school
Ian Norris, a professor of marketing and psychology at Berea University in Berea, Kentucky, teaches students financial literacy courses that take a more holistic approach.

“This is a course about the psychology of money, the psychology of financial decision-making. This is not finance,” Norris said. financial literacy textbook With Nancy Sowers, also Professor Berea.

Berea College students are primarily from low-income backgrounds, 96% Number of Student Organizations Eligible for Pell Grants. “Students at Berea College are unique people,” said Norris. “So when developing the course, we thought very consciously about who our students are, where they come from, and what their knowledge base is.”

Kentucky passed law In 2018, ” [a] Norris said students must take a financial literacy course or program in order to graduate from high school. Still, the immediacy of the course is important for students as they begin to make more financial decisions, such as opening a bank account or learning how to read a payslip, he said, comparing renting versus buying and weighing the benefits of a job. Analyze.

“Students have a lot of life experience to draw on, and decisions matter. You are living semi-alone for the first time, so they have more involvement in the content,” Norris said. Told.

Financial advisors also tend to agree.

“The concepts that concern teenagers aren’t the same ones that concern seniors,” said Desiree Kaul, a financial adviser at Mainstreet Financial Planning in Satellite Beach, Florida. “Financial literacy is and will continue to be important, not just in high school, but throughout life.”

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