Advertisement
Financial Planning

Financial Literacy: Does It Work?

You can’t expect much if you take only one class in high school.

Annamaria Lusardi is the Denit Trust Distinguished Scholar and Professor of Economics and Accountancy at the George Washington School of Business. She also heads the Global Center for Financial Literacy.

Some people say that teaching kids financial literacy won’t help them read a complicated, 50-page contract when they buy their first house. So why bother? That shows a major misunderstanding. Financial literacy is a basic tool that helps people cope with day-to-day financial management. We are living in a world with increased individual responsibility, and we’re asking people to make more decisions about how to invest and borrow. We don’t teach students literature so that they can write War and Peace. We teach literature so that they can appreciate a good book. Teaching financial literacy makes them able to frame everyday financial decisions in a more informed way.

Advertisement - Article continues below

What about studies that show students aren’t learning money skills? I’d be cautious about studies that measure financial knowledge. You need to measure other things also, such as the curriculum. Financial literacy is often an elective course taught at the end of high school. Almost no one learns math or science like that.

How can we improve financial education? We find a way to make it more effective. We look at the curriculum or change how it’s taught so that it becomes relevant. With financial literacy, having uniform standards would help. I’m working on standards with the Council for Economic Education that would include a number of concepts -- for example, gross versus net wages, compound interest, inflation, opportunity cost, and risk diversification.

Advertisement
Advertisement - Article continues below

You prefer the phrase "financial literacy" to "financial capability." Why? Capability refers to changing behavior, and we have to be humble about that. We can’t characterize what’s the best behavior for everyone. Financial literacy, on the other hand, empowers you to make choices.

Can you give an example? Even something like automatic enrollment in a retirement plan might not be right for everyone. For instance, if you have to pay down debt, you should take care of that first. We have to get away from one-size-fits-all, which fits no one.

Advertisement

Most Popular

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
Know Why Your Credit Score Changes: 9 Money Moves to Consider
credit & debt

Know Why Your Credit Score Changes: 9 Money Moves to Consider

Your credit score is a key indicator of your financial well-being and of the risk you pose to lenders. How good is yours?
July 10, 2020

Recommended

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)
tax deadline

12 Tax Deadlines for July 15 (It's Not Just the Due Date for Your Tax Return)

Between due dates for IRA or HSA contributions, paying estimated taxes and other deadlines, there's more to do by July 15 than just filing your federa…
July 10, 2020
Saver's Credit: A Retirement Tax Break for the Middle Class
Tax Breaks

Saver's Credit: A Retirement Tax Break for the Middle Class

Your retirement contributions could be the key to a lower tax bill.
July 9, 2020
401(k) Options After You’ve Left Your Job
401(k)s

401(k) Options After You’ve Left Your Job

Have you been diligently saving money in your 401(k)? What should you do with it when you switch jobs? There are four main options to consider, and on…
July 6, 2020
For Financially Responsible Kids, Do NOT Do These 3 Things
family savings

For Financially Responsible Kids, Do NOT Do These 3 Things

The key to putting your kids on the right financial path can be boiled down into one sentence.
July 1, 2020