A few problems with 'financial literacy'
As we wind down this Financial Literacy Month, let's reflect on what we're teaching when we teach personal finance and who has access to quality financial education
About the author: Dana Miranda is a Certified Educator in Personal Finance® and founder of Healthy Rich. She’s written about work and money for Forbes, The New York Times, CNBC, Insider, NextAdvisor, USA Today and Inc. Magazine.
April is Financial Literacy Month. In personal finance media and education, that gets a lot of us talking about the importance of financial literacy, the state of financial education, and the lifelong impact of financial skills and knowledge.
There’s a bit of back-patting involved, tbh.
But conversations about “financial literacy” raise a lot of questions, too. The most basic one is challenging the concept of financial literacy itself — a phrase that implies some people can be financially illiterate and, you could infer, suffer the consequences of making the wrong financial choices. It’s a ridiculously careless way of waving off the influence of systemic barriers and biases.
Like I pointed out in my latest piece for Insider:
[As interest in financial education grows], it’s wonderful to imagine our country is more invested in the wellbeing of its citizens and that folks are more interested in taking charge of their finances. But…when I look beneath the surface, this idea seems less about promoting socioeconomic prosperity and more about perpetuating the American reliance on rugged individualism that absolves our culture of any responsibility for the wellbeing of its constituents.
For the piece, I looked at some data from an audit by the Utah State Board of Education (USBE) of the state’s financial education, along with some other reports on the state of financial education in our country.
The Utah report is pretty bleak.
10 years after the state enacted a general financial literacy graduation requirement, demographic disparities in proficiency with personal finance topics remain stark:
17% of white students and 24% of students identified as “Asian” scored “not proficient” on a financial literacy test.
Meanwhile, 41% of Black students, 45% of Hispanic and/or Latinx students, 48% of Indigenous students and 41% of Pacific islander students scored “not proficient.”
Male students scored consistently higher than female students (other genders weren’t identified).
Lower proficiency correlated to a community’s lower income.
I mean, are we incredibly surprised financial education is fraught with the same biases and inequalities as all of education (and all of… everything)? I can’t say I am. But it’s good to remind ourselves how far we have to go.
Who gets financial education in high school?
States set their own graduation and curriculum requirements, so whether students have mandated access to financial education depends on where they live.
The Council for Economic Education does a periodic survey of the states to track financial education requirements. As of 2022, 27 states had some kind of requirement for students to take a personal finance course. But those requirements are pretty broad:
27 states require that schools offer a personal finance course.
Of those, 23 states require students to take financial education to graduate.
Of those states with graduation requirements, only 9 require a standalone personal finance course, while 14 allow it to be integrated with other coursework.
When personal finance is allowed to be integrated with other coursework, the likelihood that students actually receive financial education is around 37%, according to a report from the Institute for Labor Economics at Montana State University.
Next Gen Personal Finance (NGPF) also points out that ill-defined criteria for personal finance courses leave loopholes that minimize the usefulness of any education students receive. The site notes a trend in Kentucky, where districts consider a three-hour online module good enough to satisfy the state’s relaxed requirement.
And, of course, financial education suffers from the same disparities in school funding that all public education does. Financial education requirements are mostly unfunded mandates — lawmakers pass the requirement but don’t allocate budget accordingly. School districts rely on the wealth of their communities to fund programs, hence the persistent demographic and socioeconomic disparities in proficiency even after fin ed mandates.
In the next few years as mandates are fully implemented, 40.5% of high school students in the U.S. will be guaranteed to take a personal finance course, according to the latest report from NGPF. But in schools where more than 75% of students receive free or reduced-price lunch, or in those where more than 75% of students are not white, only one in 20 students are guaranteed access to financial education.
What are students learning about personal finance?
In my conversations with educators, the No. 1 concern is how under-resourced financial education is, regardless of state mandates. Schools don’t know where to put financial literacy in their curriculum, and it’s often not even assigned to any department. That basically guarantees funding will be hard to come by, and the overwhelming majority of instructors say their fin ed classes have no designated budget.
Without resources for training or curriculum development, instructors tend to look for turnkey curriculum they can plug into a classroom. If states don’t maintain curriculum resources, instructors turn to private sources. In the Utah audit (and, anecdotally, this holds true across states), Dave Ramsey resources were the most popular private source, used by almost twice as many instructors as the next most popular resource.
I haven’t been shy about how much I despise Dave Ramsey’s approach — but you don’t have to listen to me. Across personal finance media, many people have documented how following Ramsey’s debt-shaming protocol had been detrimental to their financial health, and experts consistently critique Ramsey's investing advice. Plus, he’s just mean.
Yet, this is where instructors turn when they need financial expertise — because they don’t have a better alternative. Even the resources that aren’t downright mean to people perpetuate harmful budget culture messages. From my Insider piece:
The National Standards for Personal Financial Education, as well as similar standards outlined by many states, focus entirely on individual choices and responsibilities. There’s no standard for a discussion of how systemic forces shape our financial circumstances. They reflect the foundations of what I call budget culture, the dominant paradigm around money that deploys messages of restriction, discipline, perfectionism and shame to shift focus from systemic inequalities to individual choices.
Teaching money management skills while ignoring the obvious forces that keep some people in poverty while propping up others into wealth reinforces the pull-yourself-up-by-your-bootstraps mentality too common in our culture. It feeds students the false narrative that they can be rich if they simply make the right choices and, therefore, breeds deep shame for any financial challenges they face.
Teaching personal finance in this way can only reinforce cultural biases. In addition to internalizing shame about their own financial choices, students stand to internalize long-standing racist, sexist and ableist messages about things like who deserves wealth, what constitutes good work ethic, and which purchases are considered “wants” versus “needs.”
Can we really celebrate ‘financial literacy’?
I’m in favor of measures to guarantee financial education access in public schools, one of few types of legislation that still gets bipartisan support in state legislatures. But these mandates are still fraught with problems.
Financial education could live up to the hype and change the trajectory of financial wellbeing in our country.
But that can’t happen if states continue to pass these mandates without funding to back them up. It won’t happen if public education continues to rely on local funding that exacerbates racial inequality. And it won’t happen if we continue to define “financial literacy” in line with budget culture messaging that perpetuates restriction, shame and wealth hoarding.
A few things you can do next…
From Dave Ramsey to modern frugality with Jen Smith
ICYMI: In my conversation with Jen Smith, co-host of the Frugal Friends podcast, we covered her journey into the world of personal finance, sparked, as so many are, by Dave Ramsey. Jen shares how Ramsey’s guidance helped… until it didn’t — and how that led her to the concept of “modern frugality.”
The Personal Finance Ecosystem
This simple visual (and quick video) from the National Endowment for Financial Education demonstrates a more comprehensive way to approach personal finance. It acknowledges financial knowledge as only one contributor to financial well-being, also noting access and inclusion, social support, structural policy, socioeconomics and culture, among other factors and influencers.
This interactive map from Next Gen Personal Finance can show you down to your school how well it’s doing on financial education. (It probably doesn’t catch every single district, but I looked for the school in our 780-person town, and it’s there!)
Learn where your state stands on financial education requirements. Find your state representatives; and email, call or visit them to talk about your state’s financial education needs. You can also contact your local school board (search “[your town/city] school district”) and your state’s board of education.
Did you have personal finance education in school? What do you remember learning? How have those lessons impacted your relationship with money personally and your view of money in our culture? If you didn’t have financial education, where did you learn about money? How has a lack of formal financial education impacted your relationship with money and your view of money in our culture?
Image by @childrennaturenetwork via Nappy
Anecdotal evidence based on my son's experience in high school: The teacher didn't know much at all, if anything, about personal finance. In some cases, they taught material that was counter-productive, e.g., how to pick individual stocks. The broader problem, as you point out, is the lack of resources devoted to personal finance, in this case, a lack of teacher training.
Great content. What resources can us parents use to educate our kids? Do you have resources?