How can financial literacy be taught in the most effective way?
Are you able to learn it online, through books, or via courses? Do you prefer to teach it at home or in schools? Do you prefer trial and error or should it be taught at home?
Although we might not all agree on the best way of teaching financial literacy, there is one thing we can all probably agree on.
This country is suffering from a severe lack of financial literacy.
It is evident that people lack financial literacy everywhere they look. This country and its citizens are in greater debt than ever before. Consumption is rampant, savings have been cut, and many people will be unable to retire.
What can financial literacy advocates do when faced with such odds?
Although all the avenues mentioned above are helpful in teaching financial literacy, we have found that the best way to teach personal finances is simpler.
The Status of Financial Literacy
There has been much discussion about the lack of financial literacy in this country.
A large proportion of Americans and the entire world can be classified as financially illiterate. The Standard & Poor’s Global Financial Literacy Survey showed that only 57% of Americans are financially literate, while roughly a third of the global adult population is financially literate.
The study also showed that those with higher education and financial services use are more financially literate than those who have greater wealth. It is lower among those with lower incomes and less education than it is for women.
These statistics paint a grim picture. With increased financial services available over the past several decades, it is easy to see why so many Americans are in financial trouble. People without the necessary financial skills are now in greater debt and more at risk of default. This creates a vicious circle where people make poor financial decisions and are then forced to make worse decisions.
However, people who are financially educated are less likely than others to default on loans or not save enough for retirement.
Our country is clearly financially inept. So what can we do?
How do people learn (or not learn) personal finance skills?
It is a shame that financial literacy in America is so low.
People are learning. While they may not be following the most effective practices in personal finance, they are still learning.
Although there are three main sources from which most people learn their personal financial “skills”, only one is reliable.
School
School is the best place to teach personal finance skills. Personal finance teachers can help students avoid making costly financial mistakes by being knowledgeable about basic financial literacy.
It is not possible to rely on schools to teach personal finances. Half of the country does not require high school students to take a personal finance class. Many of these “skills” are integrated into other subjects like math and economics.
High schools may not be able to teach financial literacy to teenagers.
Children learn about personal finance well before they enter school. Their education can vary depending on where they live and what they are exposed to.
Media
Media plays a major role in shaping our beliefs and attitudes, whether we like it or not. Personal finance is no exception.
Studies show that media exposure, particularly media geared towards materialism and consumerism (aka ads), can lead to a more materialistic outlook.
Ads have been around for a long time, but they are now seen more often than ever. However, a newer and more powerful form of media can also affect your financial decisions: social media.
Younger people are particularly affected by social media. A study on social media and spending showed that 90% of participants in millennials felt social media made them compare their lives to others, with 60% feeling inferior because of the comparisons. Unfortunately, 57% of participants reported that these feelings led them to spend money they didn’t intend on spending.
Social media exposes users to more ads that will make them lose their money and increase their fear of missing out.
Home
People learn most of their personal financial skills at home by watching and modeling, just like other things in life.
This phenomenon is known as Social Learning Theory. It states that children learn from the behavior and habits of their closest friends and imitate them. Depending on how others react, that behavior can be reinforced or not.
In most cases, financial literacy for kids and later adults will closely relate to financial literacy for parents/guardians and other close family members.
The Best Way to Teach Financial Literacy
It’s not surprising that financial literacy continues to decline with media and family being the most influential and primary teachers. We can’t rely on the education system to pick up this slack without significant, systematic change.
The fact that money is often a taboo topic makes matters even more complicated. This is especially true if someone is having financial difficulties.
Many people don’t seek help even though they have the financial resources to do so.
These are the obstacles that financial literacy must overcome.
A widespread, systematic transformation of our country would be the ideal scenario.
Financial literacy would be taught in elementary schools and mandatory in middle and high school. To ensure consumers don’t get taken advantage of, it would be necessary to increase regulation and oversight of financial institutions.
The best way to teach financial literacy, however, is to simply lead by example and be open to discussing money with others.
Example
Children learn from watching the behavior and habits of others, just as adults can.
It’s important to have good money habits if you have children. Children will follow your example, not what you tell them.
However, modeling financial responsibility for others around you will help increase their financial literacy.
For adults, modeling good behavior is not enough, especially in the area of money. Because so many aspects of our financial lives are hidden, or behind the scenes, you can only assume so much about a person’s money habits by simply looking at them.
This is why modeling and talking about financial literacy is the best way to help people learn.
Get started with the conversation
Talking is the best way to teach financial literacy.
Discuss money topics, talk about yourself, and what you are doing, and ask questions about the work of others. Start talking.
Talk about money and stop treating it as taboo. Learn from and share your knowledge with others. Ask questions.
Even for financially literate people, personal finance is too vast for anyone to be an expert in all aspects. We are always learning new information about money topics and asking questions.
Individuals who are knowledgeable in personal finance topics should be open to sharing their knowledge wherever and whenever they can.
People who are not well-versed in the subject matter should be open to learning and willing to search for information. Prillionaires personal finance software is a great place to start because it allows you to see your finances in one application.
Begin a conversation with friends, family, or co-workers if you’re financially literate. Discuss how you spend your money and what you are doing with it. You can share what you have learned and any opportunities that you believe might be beneficial to others.
The best way to instill financial literacy is to be a role model and talk about money without being pushy.
Bottom line
Despite the concerted efforts of the personal finance blogger community, financial literacy is still lacking in America and all over the world.
We are currently facing unreliable media teachers and parents, of which half of them are financially illiterate.
Schools are not equipped to teach financial literacy. This is despite the fact that many young people have already learned financial habits from their parents and the media.
Personal finance, which is often taboo, can be a complicated topic, especially for those who are struggling.
Despite the difficulties, there are ways we can improve financial literacy in this nation. It all starts with us.
Modeling good financial habits is the best way to teach financial literacy. It’s also a great way to have conversations about money. Share your financial situation with others, and be open to receiving advice and resources.
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