Should Schools Teach Financial Literacy Classes?

It’s no secret that many Americans are struggling financially. Over 60% of Americans live paycheck to paycheck and can’t set aside any money for short-term or long-term financial goals.

It’s not just a problem affecting low-income families either—41% of Americans earning between $150,000 to $200,000 per year live paycheck to paycheck. Not to mention, credit card and student loan debt are at an all-time high.

A growing number of states require teaching financial literacy in public schools for this very reason. However, it’s a surprisingly bipartisan issue—seven states have financial literacy class requirements, and 34 have pending legislation.
But, what is financial literacy, and what are the benefits of implementing these classes in public schools?

Financially literate individuals have an understanding of basic financial concepts and can apply those skills in their own life. Here are some topics that fall under the scope of financial literacy:

• How to open a bank account.

• Paying bills on time.

Creating and managing a household budget.

• How credit works and how to improve your credit score.

• Using debt responsibly.

• Saving money for retirement.

• Comparing financial products like credit cards or investments.

Financial literacy affects every area of your life. The sooner kids understand these concepts, the better, especially if they come from backgrounds with families who don’t prioritize financial literacy. Over time, financial illiteracy can lead to problems like poor spending habits and unmanageable debt. It’s harder to unlearn negative habits than it is to learn new ones, so these classes will, in theory, set the younger generation on a path to resilient financial health.

Four Benefits Of Financial Literacy Classes

It’s essential to start learning about money at a young age. According to the Financial Industry Regulatory Authority (FINRA), 53% of individuals with a higher financial literacy spent less than their income, and 65% had set aside a three-month emergency fund.

In comparison, 35% of individuals with lower financial literacy spent less than they earned, and 42% had a three-month emergency fund set aside. When you learn how money works at a young age, you’ll have the necessary skills to make positive financial decisions as an adult. Let’s look at four benefits of teaching financial literacy classes in schools.

Better Financial Decisions

The research shows that financial literacy classes help students make better financial decisions later in life. The FINRA Foundation found that students with higher financial literacy were less likely to have late fees, make only minimum payments on their credit cards and take out payday loans.

States that have implemented financial literacy requirements have also seen positive outcomes. Three years after implementing this change, Georgia, Idaho and Texas saw credit scores rise and delinquency rates fall.

Understand The Consequences Of Student Loan Debt

Another benefit of financial literacy courses is that students enter college with a better understanding of how their loans work. Most college students borrow money to pay for their education, but few understand exactly what they’re agreeing to or how much debt is appropriate.

Financial literacy classes can teach kids how to fill out the Free Application for Student Aid (FAFSA), utilize federal grants and apply for scholarships. They’ll also explain the difference between federal and private loans, the cost-benefit analysis of each option and why federal loans are a better option for most people.

Knowing The Importance Of Saving

The pandemic revealed just how ill-prepared many people are for a financial emergency. A Federal Reserve study found that many Americans would have difficulty coming up with $400 to cover an unplanned expense.

Financial literacy classes teach the importance of saving, even if it’s just a small amount. Students will also learn about compound interest and why it’s beneficial to start investing at a young age. Interestingly, even teachers who lead financial literacy courses tend to experience an increase in their own savings.

Financial Literacy Has A Positive Ripple Effect

One of the things many people don’t think about is that your finances have a ripple effect on every other area of your life—both for better and worse. Studies have shown a link between financial instability and mental health problems, like anxiety and depression.

Financial worries are the number one stressor in many people’s lives. Individuals with high financial stress often report compromised immune systems, digestive issues, high blood pressure and other health problems.

When you’re financially literate, you’re better able to manage the ups and downs of life as they happen—your physical health, mental health and relationships will be better off as a result.

The Bottom Line

Roughly 30% of children enrolled in public schools have access to financial literacy classes. It’s a step in the right direction, but this number still isn’t high enough.

When kids take financial literacy classes, they learn the basics of budgeting, saving and debt management. This education provides a strong foundation they can build on as adults and helps them avoid lifelong money problems, setting themselves on a path toward success early on.

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