- 11% of 18- to 25-year-olds have more than 10 checking account overdrafts per year.
- 40% of Americans spend more than they earn.
- Nearly 20% of African-American and Latino households are “unbanked” — meaning they’re not part of the formal financial system in this country.
Are you surprised by these stats (from The Unbanking of America)? Or not really?
We’ve been talking about the crisis in financial literacy since before the Great Recession, but we don’t seem to be making any progress. Most studies have found that even when teens take classes in personal finance, it doesn’t translate into real-world adult skills. (See this Fox Business article.)
A few weeks ago, I met several young adults from disadvantaged backgrounds and heard a bit of their stories. They are high school graduates, but they do not have bank accounts or savings. They live in a cash-only world. It’s not just that they don’t understand mortgages or the power of compound interest — they don’t interact with our financial system in any meaningful way.
How is this possible in our country?
Maybe it’s because when we do teach personal finance in high school, we treat it like an academic subject, and it just doesn’t fit. Take a look at many of the financial education resources out there, and you’ll find three commonalities:
1 – The curriculum is one-size-fits-all. Every student is supposed to learn about budgeting, saving, buying insurance, buying a car, planning for retirement. The focus is on vocabulary words and calculations, just like many math classes. There are even multiple-choice tests.
This approach ignores the fact that some of our students have zero financial literacy, and our lectures seem as relevant as trigonometry. I’m not disrespecting trigonometry, but personal finance needs to be grounded in students’ experiences.
If your parents don’t use a bank, own a car, or hope to retire, where do you fit in these lessons?
2 – The lessons are written from a voice of authority. You should have a bank account. You shouldn’t use a payday lender. You should never rely on a credit card for major expenses.
Worse than authority, they border on condescension.
Do you know what it’s like for someone at the poverty line to try to get a bank account? Have you checked recently on minimum balances (and the fees for dipping below), wait times to cash checks, and overdraft fees? What makes perfect sense for middle-class income earners isn’t necessarily good advice for all. (Seriously, read The Unbanking of America)
3 – The lessons lack heart. There’s more to managing money than vocabulary and formulas. People don’t make money “mistakes” because they forgot the compound interest formula.
They overdraw their checking accounts because they need to pay a medical bill — or sometimes, just because they want new shoes.
They don’t fail to open savings accounts because they don’t know what they are. They don’t open savings accounts because they don’t have enough money for the minimum balance, or because the interest rate is 0.01%, or because they’re living on $7.25/hour and don’t have any extra.
No subject needs high student engagement more than financial literacy. We cannot afford not to teach our young adults these skills. They cannot afford not to learn them.
But we need to develop meaningful lessons that demystify the financial system without preaching about it. We need to address students’ questions and needs, not talk at them about upper-middle class savings strategies.
We can help young adults learn important skills like saving, but we need to be smarter about it.
Martha Rush is a teacher, blogger, author and speaker. Visit NeverBore.org or join the NeverBore LLC Facebook group for more information. @MarthaSRush