Financial literacy is falling short

Most people would agree that financial literacy skills should be taught at an early age, including in school. But that’s not enough. Even if our education system gets teaching money just right, it will still leave significant gaps in a person’s financial skills as they grow up. There is a lot of life between junior high and retirement.

Kids need to be exposed to healthy money behaviour early on and become lifelong financial learners. Here are five ways we can turn financial literacy into financial capability.

1. More current real-world scenarios

Financial literacy programs developed in schools aren’t necessarily developed by financial experts, or people who are used to teaching about money. They also aren’t as practical as they need to be.

The material is accurate mathematically, but there are a lot of important nuances, including reasonable incomes and expenses that are missing.

For instance, when my son learned about debt in school a few years ago, the example in class included someone buying a slightly used car for about $4,000. His hand shot up because he knew that it was an unrealistic price for a used car.

It wasn’t that the whole scenario presented smaller numbers either. The car price was disproportionate to income and other amounts, making a car seem more affordable to the students doing the exercise. That isn’t how you prepare kids for reality.

2. Consider presenter bias

We need to realize that how a teacher talks about finances will likely be influenced by their own personal experiences, values and understanding. Teachers, like many adults, have their own financial literacy gaps that may not be covered in the materials they are given to work with.

If teachers are going to be involved in delivering this education, they need some training from financial experts who have experience in the subject matter with real people.

Teachers need to understand how financial products work and how financial professionals are compensated. It’s not enough to learn general information like the definition of investments, or how our income tax system works.

Delivering financial education to teachers would improve their knowledge and confidence in teaching the material — and deliver the additional skills they need to manage their own finances.

3. Ensure parents have access to the materials

Children will mimic what they see at home over what they’re taught in school, especially day-to-day behaviours. If the teacher talks about spending carefully, but the parent taps away on their credit card without a care in the world, they are more likely to copy the parent versus leaning into what they learned.

If we want to raise financially-capable children, we need to ensure that parents have access to the same financial materials their children are learning in school.

Parents also need to be encouraged to invest in their own personal financial learning, and share what they’ve learned and how they’ve applied it with their children. Kids as young as 12 can understand things like weekly grocery costs. They should be given ways to participate in day-to-day family financial decisions.

4. Ensure financial education is in every workplace

When it comes to many subjects, people learn all they ever need to by the time they leave high school. But money isn’t like that. People haven’t learned enough about money by the time high school ends; they’ve only just begun.

A lot of financial concepts, if taught too early, won’t be retained. For example, teaching an 18-year-old how a mortgage works seems like a smart idea, but most won’t recall that information once they’re actually sitting in front of mortgage papers.

Financial education needs to happen throughout our lives. We need ongoing access to learning and tools to help us continually build our financial capability as the world changes around us.

Older teens nearing the end of high school need to learn about credit cards before they are marketed to them. And simply telling them credit cards are bad, isn’t going to help.

They need to know how to use them safely to establish their credit scores. And they’ll need to continue learning about credit as the financial world, and their own finances, evolve.

5. Be deliberate with your kids

Being a financial professional doesn’t guarantee that your children will end up more financially capable than the average person, especially if we don’t deal with our own financial blind spots.

For those who live on commissions, or charge fees for advice, managing a volatile income can lead to reduced financial capability, no matter how smart or knowledgeable the professional is. So, for both clients’ children and our own, pay attention to how parental financial behaviour shows up in the eyes of the kids.

Advisors are not immune to financial challenges. It’s a prime example of the knowing-doing gap. Financial knowledge alone doesn’t ensure success. Advisors who neglect cash-flow management often face their own money struggles. Avoiding the topic can create risks for their families and may reduce their comfort level in discussing this crucial topic with their clients.

Let’s do better. Let’s be more intentional about the outcomes required to declare financial literacy success. Let’s inspect what our kids are taught in school and look for ways to support financial education in the workplace. Managing money is a lifelong effort. So is learning about it.