With the recent announcement that middle schools in the state of New Jersey will be soon requiring a course on financial literacy, a new standard has been set in regard to the importance of teaching our children how money works. New Jersey was already one of just 17 states that require graduating high school students pass a financial literacy test, however, this is the first time a state has directed middle-schoolers to know their pennies and dollars too. And it’s about time!
For years we’ve (the BusyKid team) been preaching 1) students must take one year and pass a test on personal finance (not economics or accounting) in order to graduate, and 2) that students in middle school should be required to take (and pass) one year of personal finance. Taking just one class, or as some states currently ask – one semester, does no good if passing a test isn’t required to meet a national minimum.
Currently the United States ranks 15th globally in financial literacy. However, we probably rank first (if there are rankings) in total debt ($21.8 trillion), college loans ($1.5 trillion) and credit card debt ($1.04 trillion). While the high debt can’t be contributed to just poor financial education, it probably doesn’t help. If you don’t understand the ramifications of a bad decision, do you really care that you’re making one?
It’s important that more states join the financial education movement to help our children be prepared to face critical financial decisions in their lifetime. However, in-class education can only do so much. Our kids need to have hands-on experience and a solid routine to take what they learn in class into the real world. Good drivers don’t just walk out of a driver’s education class, they must practice and take a test behind the wheel.
In a recent survey from the Edelman Financial Engines’, 90% of parents with children ages 4 to 8 feel it is extremely important that their kids grow up with good financial habits. Further, 91% of these parents felt that they themselves are the ones who should teach their children about money. Here’s the funny part …. 49% of parents surveyed said they don’t know how to discuss money in ways they think their child would understand.
So now what?
Here’s what we think:
1. More States Need to Make Financial Literacy a Priority
While almost every state has taken some step to introduce personal finance into the classroom, there is no sense of urgency to make it a top priority. When kids will make financial decisions every day of the rest of their lives, why is there an option to take a finance course? This should be as required as math and science.
2. Practice, Practice, Practice
Talking about it in school is a great first step but kids need to practice managing money to fully grasp the understanding of it. Tools like BusyKid (or other apps) can provide practice and help develop sound fundamentals from an early age.
3. Leverage Technology
School will teach manual things like balancing checking accounts, writing checks and going to a bank to open an account. Kids are living at a time when everything is in their hands (literally), and technology has changed everything when it comes to managing money. Now they can instantly check their balance, pay bills, get a loan or send money to a friend. Make sure they understand how to manage this.
4. Invest Is Best
Schools will most likely focus on the least kids need to know (in order to pass required tests) but kids need to also know the importance of investing. Because of technology, kids can now learn how to invest with as little as $10 through platforms like BusyKid or Stockpile.
5. Don’t Stop Parenting
Parents are making a huge mistake if they think just because their child has passed a test in school, they are ready to face major financial decisions. Just because your child passes a driver’s test in school, would you let them get behind the wheel of a car without supervision? Parents need to stay involved to make sure the kids are practicing what they learned.