Young Americans Don’t Understand how Money Works. Here’s What We can Do about It

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As the old saying goes, “nothing is certain but death and taxes.” Indeed, as sure as every American is destined to die, they’ll also eventually be faced with the unfortunate chore of managing their finances. And while you’d think that the common sense mantras would be passed down from generation to generation — budget appropriately, save a portion of your income each month, prepare for retirement, etc. — sadly, you’d be wrong. 

A January survey by Bankrate found that 40% of Americans with credit card debt (about half of American adults hold credit card debt) don’t know what their interest rate is. While inflation has dominated headlines in recent months, only half the country understands what inflation means. 

The Council for Economic Education’s biennial survey of the states found that only 21 states require personal finance coursework (but not necessarily a stand-alone class) for graduation. Only 36% of schools within states that do actually teach the required subject matter. Those courses also have an unfortunate tendency to put a life’s worth of information into one semester — often a random collection of resources with no overarching themes or standards. 

The temptation to tell kids everything they need to know about personal finance at once is understandable, but emphasizing the whole means educators cannot prioritize what kids need to know right now. That means more on inflation, interest rates, loan repayment, and budgeting; less on writing checks, investing in real estate, and planning for retirement. 

School districts that already teach financial literacy courses do a great job of unloading information. A meta-analysis from the Goethe University in Germany found that students in the United States and elsewhere, particularly those from disadvantaged backgrounds, can, upon completing a financial literacy program, answer financial questions more effectively than when they started. 

But the problem is that the information is extremely disorganized, and very little of it will be useful to students in the near future. Much like preventing death, managing one’s money is a long process that changes as a person ages. Health classes don’t teach kids how to use their pacemakers or how to find a doctor that accepts Medicare, nor should they. So why does the National Financial Educators Council ask middle schoolers to know about house flipping and getting a mortgage? 

The median age of a first-time home buyer in the United States was 34 years old in 2019. Very few people are going to remember what they learned about mortgages in their “Dollars and Sense” class 20 years before. 

Why are New Jersey’s financial literacy classes teaching middle schoolers about insurance and investment? Surely, learning about insurance can wait at least until students are old enough to drive. And while getting acquainted with the stock market at a younger age may help future generations navigate economic uncertainty, still, it seems like we’re putting the proverbial cart before the horse.

Student loans, on the other hand, are something that the typical high schooler may encounter immediately upon graduation. A 2020 Business Insider study found that more than a quarter of millennials surveyed did not understand what they were signing up for when they took out student loans. As a graduate student, I can’t tell you how many people I’ve heard refer to their student loan refunds as “free money.” With that kind of flippancy, it’s no wonder that student loans have put so many young Americans in crippling debt

Any sustainable solution to the student loan crisis requires that American students know how to manage their money, and we simply aren’t teaching them. Since kids have short attention spans and limited mental bandwidth, a back-to-basics approach is even more important. 

That’s not to say that more complicated subjects should be swept away entirely, but they can wait until young Americans have built a foundation through knowledge that meets their current needs. With that foundation in hand, picking up additional information is a smoother, less intensive, and self-driven endeavor. After all, in order to obtain a mortgage, one typically needs to know how a loan works to begin with. 

While more than a dozen states are pondering additional school financial literacy legislation, Florida’s proposal is perhaps the most promising. It would add a half-credit course in personal finance as a requirement for graduating high school. The curriculum would include “basic principles of money management, such as spending, credit, credit scores and managing debt, including retail and credit card debt.” The course would also be required to provide instruction on how to file federal income taxes. All of this would be directly useful to children within a few short years. The key is actually putting this idea into action.

Teaching kids about personal finance doesn’t have to be an odyssey, but neglect and years of bad policy have made it so. Anyone who expects kids to absorb every morsel of information thrown at them is kidding themselves. But by meeting students where they’re at in life with financial literacy classes that lay a useful basic foundation, we can raise a generation of secure Americans that spend less time worrying about taxes and more time enjoying their lives in preparation for that other thing.

Garion Frankel
Garion Frankel is a graduate student at Texas A&M University’s Bush School of Government and Public Service with a concentration in education policy and management. He is a Young Voices contributor, and Chalkboard Review’s breaking news reporter.