persuasive essay about financial literacy

Essay on Financial Literacy for Students and Children

Importance of financial literacy, an introduction to financial literacy.

We go to schools, colleges, universities to complete our educated and start earning our livelihood. We take up jobs, practise professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them. 

Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy. 

Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life. 

Financial Literacy – What does it Involve? 

From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy. 

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As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach. 

Why is Financial Literacy so Important?

Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy. 

Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.

Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.

What should you read on / get informed about in Financial Literacy?

• Budgeting and techniques of budgeting
• Direct and indirect taxation system
• Direct tax slabs
• Income and expense tracking 
• Loans and debt – EMI management 
• Interest rate systems: fixed versus floating
• Business and organisational transaction studies
• Elementary Book-keeping and Accountancy
• Cash in-flow and out-flow Statements
• Investment & personal finance management
• Asset management:
• Business negotiation skills and techniques
• Make or buy decision-making
• Financial markets 
• Capital structure – owner’s funds and borrowed funds
• Fundamentals of Risk Management
• Microeconomics and Macroeconomics fundamentals

While there are various media to learn about financial literacy, we recommend that you join a short-term, weekend programme which helps you get financially literate.

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Should All Schools Teach Financial Literacy?

And should students have to understand topics like budgets, consumer credit, student debt, saving and investing in order to graduate?

By Shannon Doyne

Students in U.S. high schools can get free digital access to The New York Times until Sept. 1, 2021.

How well do you think you manage money? Has anyone ever taught you any money-management skills? In general, how “financially literate” do you think you are? For instance, do you know how to budget and save? How to set up a bank account? Apply for financial aid and college loans?

Does your school teach these skills already? If not, do you wish it did? Should passing a financial-literacy class be a requirement for graduating from high school?

In “ Pandemic Helps Stir Interest in Teaching Financial Literacy ,” Ann Carrns writes about the growing interest in teaching students personal financial skills in U.S. schools:

As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education , which promotes economic and personal finance education for students in kindergarten through high school. That was a net gain of four states since the council’s previous count two years earlier. “We are making progress,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education, a nonprofit group that promotes effective financial education. “I do think the pandemic is bringing more attention to the topic,” he said, noting that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures. An increasing number of studies support the effectiveness of financial literacy education when taught by well-trained teachers, said Nan J. Morrison, chief executive of the Council for Economic Education. And more teachers now say they feel confident teaching the material. A study released in March by researchers at the University of Wisconsin and Montana State University found significant increases in teacher participation in professional development. Still, the rigor of high school financial education varies. Just six states require high school students to complete a semester-long, stand-alone personal finance course, the council’s 2020 report found. Some states permit shorter courses or include the content as part of another class. In states that don’t require financial instruction, some schools opt to teach it and do an excellent job, but others ignore the subject completely — and they tend to be schools in less affluent districts, Mr. Hensley said.

The article also outlines the specifics on what the curriculum might look like:

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Financial Literacy: The Importance in the Modern World Essay

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In previous years, the issue of investing has become popular among beginning investors who follow the advice of bloggers and put their money in unsafe securities or individuals who hope for the burgeoning future of NFTs and cryptocurrency. However, instead of blindly following the advice of impostor financial advisors or buying securities without having knowledge about them, the public should focus on overall financial literacy. From a very young age, every person should learn how to use their money wisely and how it can help not only save but multiply the savings and have enough for a carefree retirement.

The first reason why acquiring the skills of financial literacy is essential is its protection against inflation. At the given moment, the rate of inflation is 7.7%, which means that if money is simply in the deposit account, at the end of the year, its value will decrease by this number (U.S. Inflation Calculator). This is why if people desire to make a big purchase after having enough money for it, eventually, they will be trapped in a vicious circle of constant saving since the prices will be rising together with inflation.

Another point that representatives of younger generations must understand is that financial literacy enables skills of wise saving for retirement. According to The New York Times, schools do not have obligatory courses on 401(k)s and Individual Retirement Accounts, despite the fact that the majority of employees are now responsible for their own retirement plans (Lieber and John). As a result, many children, adolescents, and adults are unaware of the fact that if they start investing $5,000 annually at the age of twenty-two, by the age of 67, they will accumulate approximately $1 million dollars (Lieber and John). However, if they start at thirty-two and invest the same amount of money, they will only manage to generate $500,000 (Lieber and John). Thus, this is the compound interest effect that many people with a lack of financial literacy fail to understand.

Moreover, it is vital to see the benefits of saving in order to have a safety cushion. According to Forbes, two out of three Americans are spending their savings because they are concerned about inflation (Campisi). As a result, these individuals who refuse to save will not have an emergency fund, and if there is a crisis situation, they will have to seek loans. In comparison, those who have basic financial literacy skills know that panicking is the worst enemy, and they are prepared for such scenarios, which is why financial literacy is crucial.

Still, it is important to review other valid opinions regarding investing and saving. While it can be a helpful skill, sometimes financial literacy, along with consistent investing, can be disrupted by certain risks. For instance, the financial crisis of 2008 led to a loss of $2 trillion dollars (Merle). However, it is noteworthy that the results of such outcomes were external factors rather than personal actions.

Hence, it is necessary to learn the fundamentals of financial literacy from a young age in order to have a carefree retirement, emergency funds, and protection against inflation. I believe that it is unfortunate that children do not acquire this knowledge at school and, therefore, it should be either personal or parental responsibility to either learn or teach such skills. With such an approach, both children and adults will be more careful with money and be prepared for any hardship or crisis, being able to grow into financially independent people.

Works Cited

Campisi, Natalie. 2 Out Of 3 Americans Say They’re Blowing Through Savings to Cope With Inflation—Do This Instead . Forbes, 2022. Web.

Lieber, Ron and Todd S. John. How to Win at Retirement Savings . The New York Times, n.d. Web.

Merle, Renae. A Guide to the Financial Crisis — 10 Years Later . The Washington Post. Web.

U.S. Inflation Calculator. Current US Inflation Rates: 2000-2022 . U.S. Inflation Calculator, n.d. Web.

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Why financial literacy should be taught in every school

Professor and Co-Director of Behavioural Economics in Action at Rotman (BEAR), University of Toronto

Disclosure statement

Dilip Soman serves on the research sub-committee of the Financial Consumer Agency of Canada. He has received research funding from the Social Sciences and Humanities Research Council of Canada (SSHRC).

University of Toronto provides funding as a founding partner of The Conversation CA.

University of Toronto provides funding as a member of The Conversation CA-FR.

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What would you do if you spotted a wild animal in your proximity?

If you know that inflation forecasts were one per cent lower than actuals and commodity bundles would cost two per cent more than expected, how much more should you save every year so that your retirement quality of life is not compromised?

If you had quick answers to the first question but were not sure about the second, you are not alone! Several years ago, when our ancestors lived in rudimentary dwellings and had a barter economy, their decision-making primarily focused on questions like the first.

As our society has evolved and our economy has become more complex, we have to deal increasingly with questions about debt repayments, retirement savings, budgeting, mortgages and lines of credit.

And yet, the human brain has evolved over hundreds of years with the goal of survival. The more civilized and developed we have become, the more we are asking our brains and its associated apparatus to do what it was simply not designed to do.

Finance is non-intuitive for humans

Financial capability is one domain in which the inadequacies of humans are particularly stark. Changes in the financial landscape over the past 20 years have taxed our cognitive capabilities to new levels.

In the United States and elsewhere, the move to defined contribution pension plans rather than defined benefits has put citizens in the driver’s seat for making contribution and investment choices.

Rising costs of education also require families to plan better. An increase in the number of options and complexity of financial products ranging from mortgages, loans, investment options and credit cards require citizens to be even more knowledgeable about their features.

And easy access to credit means that citizens have to make decisions about allocating consumption over time — a relatively new skill that wasn’t needed in the pre-credit era.

Finally, finance is non-intuitive to the human brain. Research has shown that people consistently fail to grasp the impact of compound interest or ongoing expenses on their wellbeing.

The financial inclusion challenge

So, how well do we do on financial capability? A 2011 study entitled Americans’ Financial Capability painted “a troubling picture of the state of financial capability in the United States…. The majority of Americans do not plan for predictable events such as retirement or children’s college education. Most importantly, people do not make provisions for unexpected events and emergencies, leaving themselves and the economy exposed to shocks.”

In Canada, the news was equally dim. The 2010 recommendations of the Task Force on Financial Literacy , set up by the federal government, found that financial capability in Canada was no better than other countries. A total 31 per cent of Canadians were struggling to meet their bills and payments.

The task force also found that the diversity in our country makes financial inclusion challenging. “Aboriginal Canadians,” “young adults,” “very recent immigrants” and “low-income and low-net-worth households” were the categories of people found to be struggling just to make ends meet.

In writing about the importance of financial literacy, the task force wrote: “It is more than a nice-to-have skill. It is a necessity in today’s world — and, moving forward, should be treated as such by policy-makers, educators, employers and other stakeholders across the country.”

Fixing the handicap

Over the past seven years, efforts in Canada and elsewhere have focused on improving financial literacy and helping citizens make better financial decisions.

The Financial Consumer Agency of Canada (FCAC) has led the charge in creating a culture of a financially literate Canada. The news is encouraging — there have been demonstrated improvements in financial capability and Canadians seem less stressed about their finances.

Yet, there is much work to be done. As the adage goes with any behavioural change challenge: It is relatively easy to make a change, but sustaining and growing the momentum are more difficult.

In particular, efforts have currently focused on teaching Canadians critical skills at the right time. This includes efforts such as “just-in-time” financial literacy and guidelines or “rules-of-thumb” to make better choices .

In the language of the behavioural sciences, these efforts are referred to as rebiasing efforts . Rebiasing simply refers to fighting one form of cognitive handicap with an intervention that may not necessarily fix the handicap. Giving people a rule of thumb to make better mortgage decisions doesn’t help them understand the theory of mortgages any better, it just helps them choose.

On the other hand, debiasing refers to interventions that truly fix the handicap . When confronted with a mortgage, for instance, a debiased citizen might truly think in terms of interest rates, net present values and budgeting for payments rather than relying on a rule of thumb. It requires a fundamental mindset shift! It requires ongoing training and practice!

Financial literacy in schools

What better place to change mindsets of future citizens than our schools and colleges?

The Organisation for Economic Co-operation and Development (OECD) runs a program called the Programme for International Student Assessment (PISA). Since 2012, this program added financial literacy to its assessment of math, science and reading in 15 countries (including seven Canadian provinces).

The measurement of these skills are essential — after all, it is difficult to impact something that can’t be measured. Critical to success in these initiatives is a curriculum that allows kids to make financial decisions and get feedback in a safe space.

This can be done through a combination of traditional classroom activities, technology enabled games and some limited real world practice.

Most Canadian provinces and territories embed financial literacy in their school curricula to some degree. The financial education children receive, however, varies significantly depending on where they live .

British Columbia stands out: A new curriculum includes mandatory financial literacy instruction within math courses at every grade level, beginning in kindergarten.

The need for “street smarts”

Results from PISA show that teaching financial capabilities in schools does have a significant and positive impact on financial decision-making by 15 year olds .

The boost from school programs is especially significant in cases where there are high levels of parental involvement and when capabilities are developed through practice (either in simulated or real bank accounts) rather than through mere lectures.

The study — which included data from seven Canadian provinces, and in which Canada ranked third, after China and Belgium — also shows that socio-economic status matters. It shows that while numeracy (being able to compute interest rates etc.) is important, it is definitely not sufficient.

Being “street smart” about things such as recognizing that some deals really are too good to be true, understanding the role of income tax or being vigilant for fraudulent e-mails also play an important role in financial capability.

A financially-trained citizen base

Developing a financially literate and fair marketplace has three large building blocks:

Financial literacy for adults who need it now.

Behaviourally-informed regulation that ensures a fair marketplace.

A citizen base that acknowledges the centrality of financial capability to wellbeing and is trained to think financially.

We have made inroads into the first two of these three blocks, and it is now time to tackle the third!

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Financial Literacy: What It Is, and Why It Is So Important To Teach Teens

Education is the key to a successful financial future

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What Is Financial Literacy?

Understanding financial literacy.

• Why It Matters

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Financial literacy is the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.

When you are financially literate, you have the essential foundation for a smart relationship with money. This can help start a lifelong journey of learning about the financial aspects of your life. The earlier you start to become financially literate, the better off you'll be because education is the key to a successful financial future.

Key Takeaways

• The term “financial literacy” refers to understanding a variety of important financial skills and concepts.
• Financially literate people are generally less vulnerable to financial fraud.
• A strong foundation of financial literacy can help support various life goals, such as saving for education or retirement, using debt responsibly, and running a business.
• Key aspects of financial literacy include knowing how to create a budget, plan for retirement, manage debt, and track personal spending.
• Financial literacy can be obtained through reading books, listening to podcasts, subscribing to financial content, or talking to a financial professional.

Investopedia / Paige McLaughlin

Since about 2000, financial products and services have become increasingly widespread throughout society. Whereas earlier generations of U.S. residents may have purchased goods primarily in cash, various credit products are popular today, such as credit and debit cards and electronic transfers. A 2021 survey by the Federal Reserve Bank of San Francisco revealed that 28% of all payments were made via credit card, with only 20% being made in cash.

Given the importance of finance in modern society, a lack of financial literacy can be very damaging to an individual’s long-term financial success.

Pitfalls of Illiteracy

Being financially illiterate can lead to many pitfalls, such as being more likely to accumulate unsustainable debt burdens, either through poor spending decisions or a lack of long-term preparation. This, in turn, can lead to poor credit , bankruptcy, housing foreclosure , and other negative consequences.

Thankfully, there are now more resources than ever for those wishing to educate themselves about financial topics. One such resource is the U.S. government-sponsored Financial Literacy and Education Commission, which offers a range of free learning opportunities.

Financial literacy can help protect individuals from becoming victims of financial fraud, a type of crime that is becoming more commonplace.

Scope of Financial Literacy

Although many skills might fall under the umbrella of financial literacy, popular examples include household budgeting, learning how to manage and pay off debts , and evaluating the tradeoffs between different credit and investment products. These skills often require at least a working knowledge of key financial concepts, such as compound interest and the time value of money.

Financial literacy can cover short- and long-term financial strategies. The strategy you use will depend on several factors, such as your age, investment time horizon, and  risk tolerance . Financial literacy also encompasses knowing how investment decisions made today will impact your tax liabilities in the future.

Financial products such as mortgages, student loans, health insurance, and self-directed investment accounts have grown in importance. It is imperative for individuals to understand how to use them responsibly. It's also important to know which investment vehicles are best to use when saving, whether for a financial goal like buying a home or for retirement.

Other developments in finance such as e-wallets, digital money, and P2P lending can be convenient and cost-effective but require that consumers be educated adequately to use them to their advantage.

Why Financial Literacy Matters

It supports financial well-being.

Day-to-day living expenses, living within your means, short-term borrowing, long-term budget forecasting. To manage these and other essential financial realities properly as you go through life, you must be financially literate.

It is important to plan and save enough to provide adequate income in retirement while avoiding high levels of debt that might result in bankruptcy, defaults, and foreclosures.

In its "Economic Well-Being of U.S. Households in 2022" report, the U.S. Federal Reserve System Board of Governors found that many Americans are not prepared for retirement. Twenty-eight percent indicated that they have no retirement savings, while about 31% of those not yet retired felt that their retirement savings were on track. Among those who have self-directed retirement savings, about 63% admitted to feeling low levels of confidence in making retirement decisions.

Millennials' Challenge

Lack of financial literacy has left millennials—the largest share of the American workforce—unprepared for a severe financial crisis, according to research by the TIAA Institute. Even among those who reported having a high  knowledge of personal finance , only 19% answered questions about fundamental financial concepts correctly.

Forty-three percent reported using expensive alternative financial services, such as  payday loans  and pawnshops. More than half lacked an emergency fund to cover three months’ of expenses, and 37% were financially fragile (defined as unable or unlikely to be able to come up with $2,000 within a month in the event of an emergency).

Millennials also carry large amounts of student loan and mortgage debt. In fact, 44% of them said they have too much debt.

Though these may seem like individual problems, they have a wider effect on the entire population than previously believed. The lack of knowledge of mortgage products prior to the 2008 financial crisis created widespread vulnerability to  predatory lending . The financial impact of that crisis affected the entire economy.

Financial literacy is an issue with broad implications for economic health.

If you are a younger individual, retirement may seem years away. Yet it is one of the best goals to begin saving for. That's because the earlier you start, the longer your invested savings will have to compound and the more money you'll end up with. An employer-sponsored retirement account, such as a 401(k) , can help.

Benefits of Financial Literacy

Broadly speaking, the benefit of financial literacy is that it empowers individuals to make smarter decisions about their finances. In addition:

• Financial literacy can prevent devastating financial mistakes : Floating rate loans may have different interest rates each month, while traditional individual retirement account (IRA) contributions can’t be withdrawn until retirement. For someone unaware of these and other financial facts, seemingly innocent financial decisions may have long-term implications that cost them money or impact life plans. Financial literacy helps individuals avoid making mistakes with their personal finances.
• Financial literacy prepares people for financial emergencies : Topics such as saving or emergency preparedness get individuals ready for uncertain times. Though losing a job or having a major unexpected expense can be financially impactful, an individual can cushion the blow by saving regularly.
• Financial literacy can help individuals reach their goals : By better understanding how to budget and save money, individuals can create plans that define expectations, hold them accountable to their finances, and set a course for achieving important financial goals. Though someone may not be able to afford a dream today, they can create a plan that can help make it happen.
• Financial literacy gives rise to confidence : Imagine having to make a life-changing financial decision without all the necessary information. With knowledge about finances, individuals can approach major life choices with greater confidence. They'll be more likely to achieve the outcome they desire and less likely to be surprised or negatively impacted by unforeseen outcomes.

Strategies to Improve Financial Literacy Skills

Developing financial literacy involves learning and practicing skills related to budgeting, managing, and paying off debts , and more. It means understanding and using credit and investment products wisely. The good news is that, no matter where you are in life and financially, it’s never too late to start practicing good financial habits.

Here are several practical strategies to consider.

Create a Budget

Track how much money you receive each month and how much you spend. You can use an Excel spreadsheet, paper, or a budgeting app . Your budget should include income (paychecks, investments, alimony), fixed expenses (rent/mortgage payments, utilities, loan payments), discretionary spending (nonessentials such as eating out, shopping, and travel), and savings.

Pay Yourself First

To build savings, this reverse budgeting strategy involves choosing a savings goal, such as paying for higher education, deciding how much you want to contribute toward it each month, and setting that amount aside before you divvy up the rest of your expenses.

Pay Bills Promptly

Stay on top of monthly bills, making sure that your payments are always sent to arrive on time. Consider taking advantage of automatic debits from a checking account or bill-pay apps, and sign up for payment reminders (by email, phone, or text).

Get Your Credit Report

Once a year, consumers can request a free credit report from each of the three major credit bureaus —Equifax, Experian, and TransUnion—through the federally created website AnnualCreditReport.com.

Review these reports and dispute any errors by informing the credit bureau of inaccuracies. Because you can get three of them, consider spacing out your requests throughout the year to monitor your credit regularly.

In a 2022 survey by the Federal Reserve, 27% of adults in the U.S. reported not "doing okay" financially. The number who reported not living comfortably increased from 2021.

Check Your Credit Score

A good credit score enables you to obtain the best interest rates on loans and credit cards, among other benefits. Monitor your score via a free credit monitoring service. Or, if you can afford to and want to add an extra layer of protection for your personal information, use a credit monitoring service . In addition, be aware of what can raise or lower your scores, such as credit inquiries and credit utilization ratios.

Manage Debt

Use your budget to stay on top of debt by reducing spending and increasing repayment. Develop a debt reduction plan , such as paying down the loan with the highest interest rate first. If your debt is excessive, contact lenders to renegotiate repayment, consolidate loans , or find a debt counseling program.

Invest in Your Future

If your employer offers a 401(k) retirement savings account, be sure to sign up and contribute the maximum to receive the employer match . Consider opening an IRA and creating a diversified investment portfolio of stocks, fixed income, and commodities. If necessary, seek financial advice from professional advisors to help you determine how much money you will need to retire comfortably and develop strategies to reach your goal.

Example of Financial Literacy

Emma is a high school teacher who tries to inform her students about financial literacy through her curriculum. She educates them on the basics of a variety of financial topics, such as personal budgeting, debt management, saving for college and retirement, insurance, investing, and even tax planning. Emma’s students can and will use these concepts for things like renting an apartment, getting a first job, or even just paying for fun activities such as going to the movies.

Understanding concepts such as credit cards, bank accounts, interest rates, opportunity costs, debt management , compound interest, and budgets, for example, could help her students start saving and manage the student loans that they might rely on to fund their college education. It could keep them from amassing dangerous levels of debt and threatening their credit scores.

Similarly, she expects that certain topics, such as income taxes and retirement planning, will eventually prove useful to all students, no matter what they end up doing after high school.

Why Is Financial Literacy Important?

Financial literacy gives an individual the tools and resources they need to be financially secure throughout their life. The lack of financial literacy can lead to many pitfalls, such as overspending and accumulating unsustainable debt burdens. This, in turn, can lead to poor credit, bankruptcy, housing foreclosure, or other negative consequences.

How Do I Become Financially Literate?

Becoming financially literate involves learning and practicing a variety of skills related to budgeting, managing and paying off debts, and understanding credit and investment products. Basic steps to improve your personal finances include creating a budget, keeping track of expenses, making timely payments, being prudent about saving money, periodically checking your credit report, and investing for your future.

What Are Some Popular Personal Budget Rules?

Two commonly used personal budgeting methods are the 50/20/30 and 70/20/10 rules, and their simplicity is what makes them popular. The first entails dividing your after-tax, take-home pay into three areas: needs (50%), savings (20%), and wants (30%). The 70/20/10 rule also follows a similar blueprint, recommending that your after-tax, take-home income be divided into segments that cater to expenses (70%), savings or reducing debt (20%), and investments and charitable donations (10%).

What Are the Principles of Financial Literacy?

There are five broad principles of financial literacy. Though other models may list different key components, the overarching goal of financial literacy is to teach individuals about earning, spending, saving, borrowing, and protecting their money.

Financial literacy is the knowledge of various aspects of personal finance and the ability to make smart decisions about money.

It includes preparing a budget, knowing how much to save, recognizing favorable loan terms, understanding what impacts credit, and distinguishing different investment options that can be used to save for retirement.

The financial skills that come from financial literacy can help individuals handle their personal finances responsibly which, in turn, can help them protect the well-being of their financial futures.

Federal Reserve Bank of San Francisco. “ 2022 Findings from the Diary of Consumer Payment Choice .” Page 6.

U.S. Department of the Treasury. “ Financial Literacy and Education Commission .”

Board of Governors of the Federal Reserve System. “ Economic Well-Being of U.S. Households in 2022 .” Pages 68, 71.

Bolognesi, Andrea and et al. “ Millennials and Money: Financial Preparedness and Money Management Practices Before COVID-19 .” TIAA Institute Research Dialogue , no. 167, August 2020, pp. 5, 6, 15, 22.

Bolognesi, Andrea and et al. “ Millennials and Money: Financial Preparedness and Money Management Practices Before COVID-19 .” TIAA Institute Research Dialogue , no. 167, August 2020, pp. 13.

Federal Trade Commission. " Free Credit Reports ."

Board of Governors of the Federal Reserve System. “ Economic Well-Being of U.S. Households in 2022 .” Page 5.

MyMoney.gov. " My Money Five ."

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Argumentative Essay on Financial Literacy

Financial literacy entails teaching students the basics of managing money through investing, budgeting and saving. This knowledge gives the foundation for learners to have resilient money habits at an early age to avoid problems later in life (Morgan, and Long 105). Financial literacy is critical to high school students because it lays a strong foundation for financial stability, reduces minor financial errors, and facilitates students’ debts to initiat e  saving.

Financial literacy helps students to have a strong foundation for gauging their financial stability which is essential to future leaders. Students with these skills reflect excellent financial management initiated by how a person creates his spending plan and budget (Grohmann and Menkhoff 84). Students with solid skills and firm foundations in financial stability will be able to develop sensible minds that allow them to distinguish between needs and wants

Furthermore, students with financial literacy make fewer financial errors in school. There are several financial mistakes students without financial literacy make, including overspending the little cash given by their parents. Overspending on luxurious things creates an irresponsible trait for students who will be the future adults. Financial literacy equips the students with skills that allow them to develop wisdom on how to minimize their expenditure (Grohmann and Menkhoff 90). Quality expenditure promotes saving and planning hence inculcating stable financial systems in the country and improving the economic status.

Nevertheless, financial literacy alleviates debts in students because they can understand the value of money. When students appreciate the money value, they become capable of handling their cash better. They become more aware of the importance of budgets and savings hence avoiding unnecessary expenses (Jayaraman and Jambunathan 169). Financial literacy helps students avoid unhealthy debts as they only buy the essential items needed in their lives, thus reducing impulse buying.

Financial literacy is essential in high school students because it instills the value of saving and investing in learners. This practice is vital because it forms a saving habit for the student early in life. A student with saving skills needs to have a financial plan, both long and short terms, and learn their implementation procedures (Jayaraman and Jambunathan. 170). Students with such skills are mindful in setting their personal financial goals and can calculate their expenditures to see if they are within their budget limit. Such students will focus on high savings and investments in their future lives.

However, financial literacy is not taught in many schools in the United States of America because the program is not included in the national curriculum provided by the government. To the state, including this course needs more funding while some schools may not be able to cater for these expenses. For the schools to provide a central curriculum, they should adopt an education system that is affordable and accessible to all students and schools (Kyoung et al. 195). Some education stakeholders, like teachers, believe that students should only concentrate on their academic studies. To the teachers, financial literacy skills are irrelevant to students who are still learning and not in a position to earn money.

Conclusively, financial literacy involves skills and knowledge in saving, budgeting, and spending money. High school students need these skills to have a strong foundation for financial stability, reduce overspending errors, alleviate debts, and promote savings and investment. However, this literacy is not practiced because it’s not in the education system of the national curriculum.

Works Cited

Grohmann, Antonia, Theres Klühs, and Lukas Menkhoff. “Does financial literacy improve financial inclusion? Cross country evidence.”  World Development  111 (2018): 84-96.

Jayaraman, J. D., and Saigeetha Jambunathan. “Financial literacy among high school students: Evidence from India.”  Citizenship, Social and Economics Education  17.3 (2018): 168-187.

Kim, Kyoung Tae, Somer G. Anderson, and Martin C. Seay. “Financial knowledge and short-term and long-term financial behaviors of millennials in the United States.”  Journal of Family and Economic Issues  40.2 (2019): 194-208.

Morgan, Peter J., and Trinh Quang Long. “Financial literacy, financial inclusion, and savings behavior in Laos.”  Journal of Asian Economics  68 (2020): 101197.

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The Case for High School Financial Literacy

Why high schools.

Personal finance education should start early at both home and school. Ideally, personal finance concepts should be taught in elementary, middle and high school, and should continue into college. In mathematics, you start with counting, move on to addition and subtraction, and then move on to division and multiplication. You need to learn letters before you can read. Personal finance education should be a cumulative process, with age-appropriate topics taught each school year. The reality is that many states and school districts do not provide any substantive personal finance education until high school, if at all.

The basics of personal financial planning-teaching young people about money, its value, how to save, invest and spend, and how not to waste it-should be taught in school as early as elementary school. But too many school districts teach personal finance for the first and only time in high school.

According to the National Center for Education Statistics, in 2015, 69% of students enrolled in college in the fall immediately following high school completion. 1  That means that about 31% of students are likely entering the workforce after high school. For those graduates who choose to go on to higher education, personal finance education in college is often scant and scattered, with few colleges offering a personal finance elective and even fewer requiring personal finance instruction as a graduation requirement. Regardless of when a young person’s formal education ends, they will be thrust into situations where they need to know how to manage daily living expenses. So, high school seems like the best and most logical place to deliver personal finance education to America’s youth.

Admittedly, a high school focus could omit some of the students who have dropped out of high school. The National Center for Education Statistics indicates that the high school dropout rate (the percentage of people ages 16 through 24 who are not enrolled in school and have not earned a high school credential) was about 6% in 2015. 2

The Center’s High School Report Card focuses on each state’s financial literacy education policy because that data is obtainable. It is very hard to measure the amount and intensity of personal finance instruction that is occurring in people’s homes, and meaningful data on this topic is hard to obtain for the thousands of elementary and middle schools across the country. Definitive college data is equally hard to find in this area. However, a lot of great things are happening in our colleges and universities as well as our elementary and middle schools. In the section of this report entitled “Extra Credit: State Policies and Programs That Are Making a Difference,” we attempt to give you a small sampling of the many state initiatives that are trying to bring personal finance concepts to K-8 children and to young adults in college or the workplace.

Personal finance education in high school provides students with the knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. Here are just some of the reasons our young people need to learn about personal finance:

• The number of financial decisions an individual must make continues to increase, and the variety and complexity of financial products continues to grow. Young people often do not understand debit and credit cards, mortgages, banking, investment and insurance products and services, payday lending, rent-to-own products, credit reports, credit scores, etc.
• Many students do not understand that one of the most important financial decisions they will make in their lives is choosing whether they should go to college after high school, and if they decide to pursue additional education, what field to specialize in.
• Kids are not learning about personal finance at home. A  2017 T. Rowe Price Survey  noted that 69% of parents have some reluctance about discussing financial matters with their kids. 3  In fact, parents are nearly as uncomfortable talking to their children about sex as they are about money. Only 23% of kids surveyed indicated that they talk to their parents frequently about money, and 35% stated that their parents are uncomfortable talking to them about money.
• On an  international financial literacy test of 15-year-olds , the U.S. ranked 7th out of 15 countries,trailing China, Canada, Russia and Australia, and was just slightly better than Poland-what a”Sputnik moment.” 4
• A  2016 survey  indicated that only 31% of young Americans (ages 18 to 26) agreed that their high school education did a good job of teaching them healthy financial habits. 5
• Most college students borrow to finance their education, yet they often do so without fully understanding how much debt is appropriate for their education or the connection between their area of study and the income level that they can expect upon graduation. Many students attend college without understanding financial aid, loans, debt, credit, inflation, budgeting and credit scores.
• At many colleges, financial literacy education is largely composed of brief, federally mandated entrance and exit loan counseling for students. Student feedback indicates that most do not comprehend the information presented, and view it as one more requirement of the financial aid process rather than a learning opportunity.
• Student debt can be very high for some recent college graduates and large debt variations exist from state to state. According to a recent study of 2016 four-year public and private college graduates, these students left college with average student debt that ranged from a low of $20,000 in Utah to a high of $36,350 in New Hampshire. The percent of these students graduating with debt ranged from a low of 43% in Utah to a high of 77% in West Virginia. 6  According to the U.S. Department of Education, 11.5% of students who graduated from college in 2014 have loans in default. 7
• Employee pension plans are disappearing and being replaced by defined contribution retirement programs, which impose greater responsibilities on young adults to save and invest, and ultimately spend retirement savings wisely. If they fail to do this, they could become a significant economic burden on our society.
• A  2014 study  indicated that only 24% of Millennials (ages 18 to 34) surveyed could answer four out of five questions correctly in a financial literacy quiz. 8  By comparison, 48% of Baby Boomers (born between 1946 and 1962) were able to answer four out of five correctly. While Boomers should be more knowledgeable, our young citizens are dangerously illiterate in this area.
• Credit scores are a difficult concept for many young adults. The economic cost of low (or no) credit score is very high. One’s credit score and borrowing history impacts one’s daily life: applying for a credit card, purchasing a home or car, renting an apartment, buying insurance, signing up for certain utilities, and even getting a new job. Having an excellent credit score could save a consumer in excess of a $100,000 in interest payments over a lifetime (see:  Credit.com’s Lifetime Cost of Debt Calculator ).

Financial literacy leads to better personal finance behavior. There are a variety of studies that indicate that individuals with higher levels of financial literacy make better personal finance decisions. Those who are financially illiterate are less likely to have a checking account, rainy day emergency fund or retirement plan, or to own stocks. They are also more likely to use payday loans, pay only the minimum amount owed on their credit cards, have high-cost mortgages, and have higher debt and credit delinquency levels.

As a society, we need more training programs that increase the number of financially literate citizens who are able to make better and wiser financial decisions in their own lives. Such programs are not just good for the individual but also helpful to society. The 2008 financial crisis clearly shows that poor financial decisions by individuals had negative consequences on our country.

The good news is that studies indicate that financial literacy educational interventions in high school appear to have a positive impact on knowledge and measurable financial behaviors:

• MANDATED FINANCIAL LITERACY EDUCATION IMPROVES CREDIT BEHAVIOR.  Researchers focused on three states where material personal finance high school education mandates were recently enacted ( Brown, Collins, Schmeiser, and Urban, 2014 ). 9  Default rates and credit scores of recently graduated students who received this education were compared to similarly aged individuals in bordering states that did not change their financial literacy education requirements in high school. It was found that mandated personal finance education in high school improved the credit scores and reduced the default rates of young adults. There was no measurable change in the bordering states over the same time period measured.
• ROBUST EDUCATOR TRAINING AND A WELL-DESIGNED CURRICULUM WORK.  Another study shows that a well-designed personal finance course (one semester in length), taught by highly trained educators who attended a 30-hour week-long training program and used a specific curriculum, improved the average personal finance knowledge of the students in all standard and concept areas covered by the researchers’ assessment examination ( Asarta, Hill, and Meszaros, 2014 ). 10
• EDUCATORS WHO LEARN TO TEACH PERSONAL FINANCE IN A GRADUATE-LEVEL COURSE ARE DRAMATICALLY MORE CONFIDENT AND EFFECTIVE.  Students who learn personal finance from these trained teachers showed significant knowledge gains in all test topics, while a control group of students who did not receive personal finance education dropped slightly in knowledge in all but one area. Also, students who received formal education by trained teachers reported some improvement in most personal finance behaviors measured. Indeed, students who received personal finance education by trained teachers had “high financial literacy” on par with the literacy levels of Generation X (ages 35 to 49) and higher than that of older Millennials (ages 18 to 34) ( Champlain College’s Center for Financial Literacy, 2015 ). 11

As former President Bill Clinton stated, financial literacy is “a very fancy term for saying spend it smart, don’t blow it, save what you can and know how the economy works.” 12  Financial literacy, just like reading, writing and arithmetic, builds human capital by empowering individuals with the ability to create personal wealth to buy a home, go to college, have a rainy day and retirement fund.

We would not allow a young person to get in the driver’s seat of a car without requiring driver’s education, and yet we allow our youth to enter the complex financial world without any related education. An uneducated individual armed with a credit card, a student loan and access to a mortgage can be nearly as dangerous to themselves and their community as a person with no training behind the wheel of a car.

1 – U.S. Department of Education, National Center for Education Statistics and the Institute of Education Sciences. “Fast Facts, Back to School Statistics.”  https://nces.ed.gov/fastfacts/display.asp?id=372 .

2 – U.S. Department of Education, National Center for Education Statistics and the Institute of Education Sciences. “Fast Facts, Dropout Rates.”  https://nces.ed.gov/fastfacts/display.asp?id=16 .

3 – T. Rowe Price. “Parents, Kids & Money Survey.” http://www.moneyconfidentkids.com/content/money-confident-kids/en/us/media/research/2017-parents–kids—money-survey-results.html.

4 – Organisation of Economic Co-operation and Development (OECD). PISA 2015 Results: “Students and Money: Students Financial Literacy (Volume IV).” PISA, OECD Publishing.  http://www.keepeek.com/Digital-Asset-Management/oecd/education/pisa-2015-results-volume-iv_9789264270282-en#.WeUF0ltSyUk .

5 – Bank of America/USA TODAY Better Money Habits Report, “Young Americans & Money, Fall 2016.”  https://about.bankofamerica.com/assets/pdf/BOA_BMH_2016-REPORT-v5.pdf .

6 – The Institute for College Access & Success. “Student Debt and the Class of 2016.” https://ticas.org/sites/default/files/pub_files/classof2016.pdf.

7 – U.S. Department of Education, Federal Student Aid. “Official Cohort Default Rate for Schools.”  https://www2.ed.gov/offices/OSFAP/defaultmanagement/cdr.html .

8 – Mottola, Gary. “The Financial Capability of Young Adults-A Generational View.” FINRA Foundation Financial Capability Insights.  http://www.usfinancialcapability.org/downloads/FinancialCapabilityofYoungAdults.pdf .

9 – Brown, Collins, Schmeiser, and Urban, 2014. “State Mandated Financial Education and the Credit Behavior of YoungAdults.”  https://www.federalreserve.gov/pubs/feds/2014/201468/201468pap.pdf .

10 – Asarta, Hill, and Meszaros, 2014. “The features and effectiveness of the Keys to Financial Success curriculum.”  http://nebula.wsimg.com/7c3014715076f1f6a49caa6f4b6af123?AccessKeyId=27E1C5C94AE9959DA340&disposition=0&alloworigin=1 .

11 – Champlain College’s Center for Financial Literacy, 2015. “Prepped for Success, A Study of Teacher Training, Financial Literacy & Classroom Outcomes.”  https://www.champlain.edu/centers-of-excellence/center-for-financial-literacy/report-prepped-for-success .

12 – Klein, Asher and Giordano, Jackie. “Bill Clinton Visits USC to Teach Kids Value of Financial Literacy.” Channel 4, Southern California.  http://www.nbclosangeles.com/news/local/Bill-Clinton-Visits-USC-to-Host-Financial-Literacy-Event-282070241.html .

2017 National Report Card on High School Financial Literacy

The Case for High School Financial Literacy Results Summary Keys to Success Rating Method

Essay on Financial Literacy

Students are often asked to write an essay on Financial Literacy in their schools and colleges. And if you’re also looking for the same, we have created 100-word, 250-word, and 500-word essays on the topic.

Let’s take a look…

100 Words Essay on Financial Literacy

What is financial literacy.

Financial literacy means knowing how to manage money. This includes understanding how to save, spend, and invest your cash. It’s like learning a new language but for money. It helps you make smart choices with your pocket money or savings from a part-time job.

Why Save Money?

Saving money is like keeping seeds for planting. You save now and have more later. It’s important to save for things you might want in the future or if something unexpected happens, like a broken bike that needs fixing.

Spending Wisely

Spending wisely means thinking before buying. Ask yourself, “Do I really need this?” or “Can I find it cheaper somewhere else?” This helps you avoid wasting money on things you don’t need or paying too much.

Investing is like planting your saved seeds to grow a tree. You put your money in a place where it can grow over time, like a bank account or stocks. But be careful, investing can be risky, so you should learn about it first.

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250 Words Essay on Financial Literacy

Financial literacy means knowing how to manage your money smartly. It’s like learning a new language, but instead of words, you learn about savings, budgeting, and how to make your money grow. Just as you need to know math to solve problems, you need financial literacy to make good choices with money.

Saving Money

Think of saving money as a game where the goal is to keep as many coins as you can in a piggy bank. You do this by spending less on things you don’t need. Saving is important because it’s like having a safety net on a trampoline; it’s there to catch you if you fall or if something unexpected happens.

Making a Budget

A budget is a plan for your money. It’s like a map that shows you how to spend your allowance or earnings from chores. When you make a budget, you decide what you’ll spend on snacks, games, or saving for something big like a new bike. Sticking to your budget means you’re in charge of your money, not the other way around.

Smart Spending

Smart spending means thinking carefully before you buy something. Ask yourself, “Do I really need this?” or “Can I find it cheaper somewhere else?” It’s like choosing the best candy in the store, so you get the most yumminess for your money.

Growing Your Money

Understanding financial literacy helps you make smart choices now and prepares you for the future. It’s a tool that helps you build the life you want, just like learning to read and write.

500 Words Essay on Financial Literacy

Financial literacy is knowing how to manage money. This means understanding how to earn, save, spend, and invest your money wisely. It’s just like learning how to read or write, but instead of letters and words, you’re learning about numbers and dollars. When you’re financially literate, you can make smart choices with your money that will help you in the future.

Earning and Saving Money

Spending money wisely.

Spending money is something everyone has to do, but spending it wisely is a key part of financial literacy. This means thinking about whether you really need what you’re buying and if you’re getting it at a good price. It’s okay to spend money on fun things, but you should make sure you have enough for the things you need first, like food and clothes.

A budget is a plan for how to spend your money. It helps you keep track of what you earn, what you need to spend on things like food and rent, and how much you can save or use for fun stuff. Making a budget can help you make sure you don’t run out of money and can save up for big things you want in the future.

Why Financial Literacy is Important

Being good with money is important because it helps you feel secure and ready for the future. If you know how to manage your money, you won’t have to worry as much about not having enough for things you need or want. It also means you can help your family and even give back to your community by donating to people who need help.

Financial literacy is a big part of growing up and becoming independent. It’s about being smart with your money, so you can take care of yourself and your loved ones. Learning about earning, saving, spending, budgeting, and investing can seem like a lot, but step by step, it can become as easy as reading your favorite book. Start learning about money now, and you’ll be ready for all the adventures life has to offer!

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Dollars and sense: The case for teaching personal finance

Americans aren’t good at managing their money — and there are signs that the problem is getting worse.

Already saddled with record levels of student debt, young adults today, for example, are even more unlikely to monitor their credit card debt and bank balances. Some people trick themselves into thinking that store refunds or anything less than $5 amount to free money . And too many people pay for online subscriptions they don’t use.

Thanks to the pioneering work of Stanford economist Annamaria Lusardi , numerous studies show how little people know about money. For two decades, Lusardi has been tracking financial literacy rates using three basic questions that she helped design and are now used as a standard measure around the world.

Her latest analysis of how Americans responded to those three questions in 2021 underscores their lack of financial know-how.

Only 53.1 percent of respondents demonstrated an understanding of how inflation works as prices on everything from cereal and cars were spiking. About two-thirds (69.4 percent) knew how to do a simple interest-rate calculation, but only 41.5 percent understood how, when it comes to investment risks, mutual funds are generally safer investments than a single company’s stock.

In all, just 28.5 percent of survey participants answered all three questions correctly, while the rest either got them wrong, or indicated they didn’t know.

The results are especially troubling as methods of managing money have evolved, says Lusardi, a globally recognized expert on personal finance who joined Stanford in September as a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR) and director of the new Initiative for Financial Decision-Making. Workers now shoulder more of their retirement planning; consumers quickly and easily move money using their mobile phones; and investors make increasingly complex decisions.

“The world is changing really fast and we just expect people to have the skills to make financial decisions that have critical lifelong impacts,” says Lusardi, who is also a professor of finance (by courtesy) at the Graduate School of Business (GSB).

High rates of financial illiteracy are also problematic, she says, given today’s heightened economic uncertainty and growing wealth inequality. Respondents who were young, less educated, female, or not employed scored the lowest. Black Americans and Hispanics were also among the least financially literate.

A global pattern of illiteracy

Financial illiteracy, it turns out, is pervasive around the world, according to a newly published global analysis in the Journal of Financial Literacy and Wellbeing . Whether they are in a Nordic country with strong education systems, like Finland, or in a Latin American country, like Peru, which experienced inflation in 1990 upwards of 10,000 percent, most people don’t understand how money works, says Lusardi. And just like in the United States, the least knowledgeable tend to be women, racial minorities, the least-educated, and the unemployed.

Lusardi’s latest U.S. analysis — co-authored with Jialu Streeter , the executive director and a senior research scholar at SIEPR — is part of a special edition of the journal that includes analyses of 16 countries. Each study in the issue is based on the results of the “Big Three” questions that Lusardi and her longtime collaborator, economist Olivia Mitchell of The Wharton School at the University of Pennsylvania, crafted 20 years ago.

In 2011, Lusardi oversaw and contributed to a similar series of country comparisons — which yielded similar results and appeared in the Journal of Pension Economics & Finance .

“Financial illiteracy has been and continues to be a global phenomenon,” says Lusardi, who is one of the founders and inaugural editors of the Journal of Financial Literacy and Wellbeing , published by Cambridge University Press .

Why the ABCs of money matters

Beyond measuring and analyzing financial literacy rates, Lusardi’s extensive research has found how people who understand basic financial concepts are better at managing money. They save more for retirement, make smarter investment decisions, and manage their debts more effectively. Lusardi’s latest study shows that people who are financially literate are more likely to have money on hand to weather at least the early stages of an economic shock like a pandemic.

Lusardi has also shown that people think they know more about personal finance than they actually do, which she says makes them even more vulnerable to poor decision-making.

Stanford’s commitment to improving financial literacy is a key reason Lusardi says she joined The Farm. In addition to the Initiative for Financial Decision-Making — a collaboration between SIEPR, the GSB, and the Department of Economics in the School of Humanities and Sciences — Lusardi continues to serve as academic director of the Global Financial Literacy Excellence Center , which she founded in 2011. Prior to Stanford, Lusardi was the University Professor  of Economics and Accountancy at The George Washington University.

The Big Three as global standard

In Lusardi, Stanford gains a leader in establishing financial literacy as a specialty within the field of economics.

Lusardi’s contributions to the field began in 2004, when The University of Michigan’s closely watched Health and Retirement Study added the so-called Big Three to a module dedicated to financial literacy and retirement planning. Then, in 2009, the financial education arm of the Financial Industry Regulatory Authority, which helps provide oversight of registered securities brokers and brokerage firms, began incorporating the same measures in its triennial survey of roughly 25,000 Americans.

Since then, other organizations, including central banks around the world, have integrated the Big Three into their respective assessments of household finances.

The underlying datasets in these surveys differ, but the results have uniformly shown that most people don’t understand how money, or financial systems broadly, functions, Lusardi says. In the U.S., this remained the case even after the Great Recession of 2008 and 2009 — the most severe economic downturn since the Great Depression — buffeted household finances.

“The continuous surprise is just how low financial literacy is in the United States and around the world,” says Lusardi, whose policy work includes advising the U.S. Treasury, the Organisation for Economic Co-operation and Development, and chairing the Italian Financial Education Committee in charge of designing a national strategy for financial literacy.

Solutions in education

To Lusardi, the answer to financial illiteracy lies in providing people with a basic education on the ABCs of personal finance.

“Developing personal finance skills is as important as learning how to read and write,” says Lusardi, who has been teaching financial literacy to undergraduate and graduate students for more than a decade. In fact, her move to Stanford is rooted in her experience working with SIEPR’s Michael Boskin and John Shoven to organize the first annual Teaching Personal Finance Conference in 2022.

“I’m not talking about expecting people to become Warren Buffet,” she says. “I’m talking about teaching people, especially the young, how to make savvy financial decisions. For first-generation or low-income students, it often means talking about topics they seldom discuss with their parents.”

Even as personal finance education has become somewhat of a cottage industry, results are mixed at best. Instructors, Lusardi says, often lack training and students tend to forget what they learn. In a 2014 journal publication , Lusardi and Mitchell noted that lack of sufficient funding or teacher training in financial education are still an issue; in a follow-up paper published this past fall, however, they said there’s reason for optimism.

More than half of U.S. states, for example, have added personal finance instruction as a high school graduation requirement. Universities, including Stanford, are now offering personal finance courses. Employers, too, are recognizing that financial anxiety hurts employee productivity and are sponsoring personal finance lessons in the workplace.

“Financial literacy education is really accelerating,” Lusardi says. “We’re finally seeing things turn around and, to me, that’s a very positive result.”

This story was updated on Feb. 15, 2024 with the new official name of Stanford's Initiative for Financial Decision-Making. 

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Article contents

Introduction, the overarching value of financial literacy, using financial instruments: from mortgages to crypto assets, financial education in school and the workplace, concluding remarks, the importance of financial literacy and its impact on financial wellbeing.

Published online by Cambridge University Press:  12 June 2023

In this editorial, we provided an overview of the papers in the inaugural issue of the Journal of Financial Literacy and Wellbeing. They cover topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy. They also cover financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, they cover financial decision making in the context of complex instruments, such as mortgages, reverse mortgages, and crypto assets. The papers all share similar findings: financial literacy is low and often inadequate for making the types of financial decisions that are required today. Moreover, financial literacy is particularly low among already vulnerable groups. Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments. In a nutshell, financial literacy improves financial wellbeing.

Financial literacy is an essential skill for making savvy financial decisions, understanding the world around us, and being a good citizen. Changes in the pension system, the increasing complexity of financial instruments (including new instruments such as crypto assets), inflation, and increased risks (from the war in Ukraine to climate change) are some of the reasons behind the increasingly urgent need for individuals to have the knowledge and skills that will increase their financial resilience and wellbeing. The OECD Recommendation on Financial Literacy, adopted in 2020, recognized financial wellbeing as the ultimate goal of financial literacy. Footnote 1

Despite this urgency, levels of financial literacy are remarkably low, even in countries with well-developed financial markets and in which individuals actively participate in financial markets. According to the latest OECD adult financial literacy survey, financial literacy is low in many of the countries belonging to the G7 and G20 bloc. This aligns with findings from a global survey on financial literacy that showed that only a handful of countries rank high on very basic measures of financial literacy. Footnote 2 , Footnote 3 Not only is financial illiteracy widespread in the population, but it is particularly acute in some demographic sub-groups that are already financially vulnerable, such as women and those with low-income and low-educational attainment. Footnote 4

Financial literacy is also low among high school students, indicating that the next generation of adults is ill equipped to face the challenges and changes that are ahead of them. According to the latest wave of the OECD Programme for International Student Assessment (PISA), in some G7 countries, such as Italy, about 20 percent of students do not have basic proficiency in financial literacy. In other countries, such as Peru or Brazil, that proportion is higher than 40 percent. Footnote 5

Much research has been done so far, from measuring financial literacy to assessing the effectiveness of financial education programs to evaluating the link between financial literacy and behavior and the impact of financial literacy on individuals as well as the macro-economy. The number of papers on financial literacy has increased exponentially over the past decade. Footnote 6 Financial literacy has become an official field of study, with its own Journal of Economic Literature code (G53). For all of these reasons, it was time to have an academic journal dedicated to financial literacy. Its mission is to provide the most rigorous research to advance knowledge and to inform policy and programs.

The inaugural issue of the Journal of Financial Literacy and Wellbeing covers topics that are at the center of academic research, from the effects of financial education in school and the workplace to the importance of financial literacy for the macro-economy. It also covers financial inclusion and how financial literacy can promote the use of basic financial instruments, such as bank accounts. Moreover, it covers financial decision making in the context of complex instruments, such as mortgages, reverse mortgages, and crypto assets.

Because the authors of the papers in this inaugural issue have done a vast amount of work on the topics under consideration, we have asked them, when possible, to provide an overview of their work so to gain a perspective of what we have learned so far and what are the most fruitful directions for future research.

There are three principles that bring all of these papers and topics together. First, financial literacy’s relevance at the global level: it affects all countries and economies, irrespective of levels of economic development. The papers in this issue cover experiences from Peru, the United States, Canada, Australia, India, and Sub-Saharan African countries, among many others. When it comes to financial literacy, we can learn from many countries around the world, and the issues discussed in these papers are strikingly similar. Second, whether we are considering the use of basic financial instruments such as bank accounts, or complex ones such as crypto assets, skills are needed if they are to be used to minimize risk and maximize benefits. Third, improving the effectiveness of financial education requires effort as well as ingenuity, and one of the things we can learn from many of these works is how policy and programs can be improved with the help of research. For example, given that financial education in school can affect parents in addition to children, it might make sense to involve parents more directly in financial education programs in school. And because people require support to use financial instruments, attention should be paid to how the use of technology can be improved or can be better complemented with financial education.

In the following sections, we provide a brief description of the papers that are part of the inaugural issue and what we can learn from them.

The benefits of financial education can be far reaching. For example, there has been a push around the world, and significantly in the G20 countries, for promoting financial inclusion. Footnote 7 A high proportion of people in many emerging economies do not have easy access to even basic assets such as bank accounts, let alone access to financial markets, including the stock market. If finance can be important for growth, so is financial literacy, as it can promote participation in financial markets and savvy use of financial instruments. And as financial markets become more sophisticated, the ability to take advantage of new investment opportunities can help reduce inequality (Lo Prete Reference Lo Prete 2013 ).

But there is another important and under-explored avenue related to the impact of financial literacy, which is whether and how much policy makers can be successful in implementing economic reforms. Like individual financial decisions, many reforms involve a trade-off between a sacrifice today for a benefit in the future. However, if people have low financial literacy, they may fail to appreciate future benefits or may not be fully aware of the workings of government budgets and of institutions such as Social Security and the pension system. Overall, attempts to reform pension systems have been met with sharp opposition, even in the face of increasing longevity, decreasing birth rates, and other changes that put existing systems on potentially unsustainable paths. Can financial literacy help with the implementation of those reforms, thus improving the performance of an economy in the long term? And how important is knowledge of pensions?

These are some of the questions pursued by Fornero and Lo Prete ( Reference Fornero and Lo Prete 2023 ). The authors have not just done pioneering work in this area, but Professor Fornero implemented a sweeping reform of the Italian pension system when she served as the Minister of Labour, Social Policy and Gender Equality in Italy from November 2011 to April 2013. They first make the case that it is very important to improve pension literacy, both because there have been many changes to pension systems and because there are a lot of complexities in those systems. Better pension literacy can, for example, help people plan better for their own retirement. This can be particularly important for women, who live longer than men, have lower labor market attachment due to childbearing and other household responsibilities, and have lower wages. As the authors argue, the level of pension literacy is still very low and is particularly low among women, both of which are factors that can jeopardize retirement security.

Most importantly, the authors investigate whether financial literacy helps in the implementation of pension reforms. They report promising evidence that populations with a higher average level of financial literacy are less likely to punish governments for implementing reforms. And financial literacy can help individuals be better citizens (and more educated voters) and less likely to suffer from fiscal illusion, i.e., voters’ failure to estimate the (net) cost of a tax reduction (in terms of higher debt and/or the lower provision of public goods and services). According to their paper, financial literacy can also impact electoral participation, which is another good outcome for the workings of democracies.

It may be useful to note that the countries that started financial literacy programs or were the first to create national strategies for financial literacy did so because of their focus on the pension system and changes in pensions. The focus has now expanded to other topics, but pensions remain an important area of interest. And more than 80 countries have or are implementing national strategies for financial literacy, i.e., policy makers as well have acknowledged the importance of financial literacy at the national level.

Continuing on the topic of the global economy and pioneering work, if we want to have a good understanding of how finance and the use of financial instruments can be important for the wellbeing of individuals and the economy at large, we need to turn to the World Bank Global Findex. It is the most comprehensive database on financial inclusion; the data, which are collected directly from users of financial services, provide unique information on how adults save, borrow, make payments, and manage financial risks. Findings are sobering. The paper by Ansar et al. ( Reference Ansar, Klapper and Singer 2023 ) reminds us that, as of 2021, as many as 1.4 billion adults – or 24 percent of adults – worldwide are without even the most basic asset, i.e., a financial account, or are unbanked . Interestingly, the characteristics of those without an account are very similar to those with low financial literacy: women, poor adults, less educated adults, young adults, and those living in rural areas.

We can learn a lot from looking at the reasons why people do not have an accounts, which speaks to the importance of collecting these types of data. Specifically, the data show that a sizable number of respondents cite lack of help or being uncomfortable using an account as a reason for being unbanked. In developing countries, 64 percent of unbanked adults said they could not use an account at a financial institution without help, a proportion that becomes higher among women and other vulnerable groups. This finding is further evidence that we cannot underestimate the difficulties in using financial instruments. And even those who have an account do not always make good use of it. For example, in India – where every adult with an Aadhaar biometric ID was de facto given a no-minimum-balance, no-fee accounts account as part of the government’s Jan Dhan Yojana program – it was found that many accounts were dormant or had little or no activity. Inactive account holders in India often cite their discomfort level with financial services among the top barriers to account usage. Specifically, about 30 percent of inactive account holders do not use their account because they do not feel comfortable doing so by themselves. And looking at a subsample of 25 Sub-Saharan African countries, where mobile money accounts are widespread, the paper reports that 31 percent of mobile money account holders cannot use their account without help.

These data point to an opportunity for financial education. Strengthening financial literacy can result in more efficient and effective use of basic financial instruments.

Given that the use and good management of basic financial instruments, such as bank accounts, presents difficulty for many people, more complex financial instruments pose an even greater challenge, especially in the context of accelerated digitalization of financial services, which brings new risks for consumers (OECD 2018 ).

We were particularly interested in behavior related to mortgages because the home is the most important asset for most families. Choosing a suitable mortgage is therefore critical to financial wellbeing and, if the financial crisis of 2007/2008 is any indicator, a poor mortgage choice can be a major source of financial distress.

The paper by Torp et al. ( Reference Torp, Liu, Agnew, Bateman, Eckert and Iskhakov 2023 ) helps us to shed light on decisions related to mortgages. In a series of randomly assigned tasks, the authors assessed participants’ subjective comfort with a range of home loan amounts, framed as lump sum debts or equivalent repayment streams. Does framing matter when it comes to decisions about mortgages and does financial literacy and broker advice help? It is not easy to translate stocks into a flow of payments, but often individuals must do so when making financial decisions. As mentioned earlier, high levels of financial literacy cannot be taken for granted, even among the G20 countries. Like other papers in this issue, the authors measure financial literacy using the Big Three financial literacy questions, which assess knowledge of basic financial concepts related to interest rates, inflation, and risk diversification, which are essential elements of financial decisions, including mortgage choice. Less than half of the participants in their sample, i.e., people age 25–64 who have bought or are interested in buying a house, are able to answer these questions.

Similar to findings in other contexts, for example, pension wealth, the authors found that borrowers are less comfortable when loans are framed as lump sum debts rather than equivalent repayment streams. Borrowers are also less adept at translating repayment streams into equivalent lump sums. Interestingly, financial literacy tends to make borrowers more cautious and less comfortable with debt in general and less sensitive to framing. Also, financially literate borrowers can match liabilities with servicing burdens, a key component of sound mortgage management.

Turning to the people who have consulted mortgage brokers, they report higher levels of comfort with debt in general and less discomfort with lump sums compared to repayment streams. Brokers also seem to help clients better grasp the link between loan amounts and repayments. After accounting for potential endogeneity, the authors’ found that, while brokers increase people’s confidence and probably improve their understanding of home loans, they also appear to influence clients’ comfort with debt.

This paper sheds light on the potential effects of financial education: when it comes to household mortgage decisions, financial education can reduce mortgage stress by inducing caution in borrowers and reducing susceptibility to framing. It may also help in using the services of brokers to the household’s advantage.

And given that the house is such a major asset in a household’s balance sheet, what to do with it (including after retirement) is also an important decision. Specifically, do people understand reverse mortgages and does financial literacy help in dealing with these products, which can be even more complex than standard mortgages?

The paper by Choinière-Crèvecoeur and Michaud ( Reference Choinière-Crèvecoeur and Michaud 2023 ) aims to understand the interplay between financial literacy and the valuation of reverse mortgage products. As explained in the paper, a reverse mortgage is a financial product that allows a homeowner to convert a portion of the current equity of their principal residence into cash. Unlike many other mortgage products, the borrower is not obligated to make payments before moving out, selling, or dying. In addition, the borrower is insured against the risk that the loan will be worth more than the house when it is sold. This is called the no-negative equity guarantee (NNEG) of the reverse mortgage. This feature means that the borrower’s longevity risk, as well as the risk of a decline in house prices, is transferred to the lender.

As the definition of the product makes clear, the valuation of reverse mortgages is complex. Specifically, the insurance value of the NNEG is likely to be quite difficult to grasp and compute. It involves projecting house prices in the future, survival risk, and other considerations, such as when one expects to sell the house. Consumers with limited financial literacy may have a harder time making sense of the price and value of the products offered.

To understand how consumers value reverse mortgages, the authors conducted an experiment in which respondents were offered different reverse mortgage products and had to evaluate them by giving their probability of buying each product within the next year. The authors investigate how financial literacy as well as prior knowledge of reverse mortgages shapes the evaluation of reverse mortgage products, in particular the actuarial value of the NNEG and the interest rate charged.

In their sample of 55- to 75-year-old respondents living in the provinces of Quebec, Ontario, and British Columbia, the authors find that more than half of eligible Canadians (55.5%) lack a basic knowledge of reverse mortgages. Moreover, only a little more than half of the respondents in the sample (54.1%) could correctly answer the Big Three questions, indicating that financial literacy is low even among older respondents, who have presumably made many financial decisions.

The findings from this paper show that the effect of financial literacy goes beyond simply increasing or decreasing the likelihood of purchasing a product. In some instances, such as with reverse mortgages, financial literacy enables respondents to better evaluate and assess the value of financial products. Consistent with many other papers, the empirical work in this paper also makes clear that insurance is a hard concept for households to understand, particularly when it involves complex risk calculations. More research should be devoted to understanding how financial education may help households better grasp concepts related to risk and insurance.

Crypto assets are another complex product, and one that is likely to be at least as hard to understand as insurance. Ownership of crypto assets is increasingly rapidly across countries, particularly among the young, which is why we are particularly interested in learning more about decisions related to new and risky products.

A very interesting hypothesis often mentioned in the general media, and pursued in the paper by Gerrans et al. ( Reference Gerrans, Babu Abisekaraj and Liu 2023 ), is that given the rapid increase in the price of crypto over time, people have fear of missing out, or FoMO, on the earnings that can result from crypto ownership. The field of behavioral finance has documented that emotions, attitudes, and behavioral biases can play an important role in financial decisions and the authors build on that field and the literature examining differences in psychological status and personality between investors and non-investors.

The analysis is carried out on data from a survey of undergraduate students at the University of Western Australia as part of a program examining the financial literacy of young adults, including students who enroll in an elective personal finance unit. The survey was conducted in the last week of July 2021, when crypto and stock prices had risen substantially in the 12 months prior to the survey. The relevance of FoMO is considered in addition to financial literacy and important preference parameters, such as risk tolerance. The authors look at both the direct effect of FoMo and the indirect effect of financial literacy and risk tolerance.

Estimates from a simple investment model identify a significant role for FoMO, along with financial literacy and risk tolerance, in current and future investment intentions related to both stocks and crypto. Interestingly, FoMO effects are largest for crypto and future investment intentions and smallest for current stock investment. While risk tolerance and financial literacy have positive effects for current crypto investment, these effects are small and smaller than the effects of FoMO. Financial literacy retains a significant small effect for future stock investment but not for crypto. Risk tolerance and financial literacy have larger effects than FoMO on current ownership of stocks. Thus, factors beyond those traditionally considered in investment models can play a role when looking at new and complex assets.

In addition to direct effects, financial literacy has an indirect effect on investment via FoMO, suggesting that FoMO has some basis in knowledge, though this is a small effect and only robust for stocks. Financial literacy is a significant predictor of FoMO for stocks but only weakly for crypto. Moreover, FoMO is a significant positive predictor of risk tolerance, though the estimated effect is not economically meaningful. Interestingly, FoMO explains only a small amount of gender difference in current crypto ownership, and it does not significantly explain observed gender difference for stock ownership.

As discussed at the end of the paper, the authors are agnostic on whether FoMO is good or bad. To the extent that non-participation in stock markets is a mistake, FoMO may serve a positive role. Given positive associations (although small) between financial literacy and FoMO for stocks, interventions directly addressing FoMO may be useful. For crypto as well, interventions that tap into FoMO could have some effects.

More than ever, the promotion of financial literacy is important; it is particularly important among the young, as it will help them make savvy decisions about very risky assets, such as crypto.

While financial literacy is an essential skill, particularly among the young, many young people lack knowledge of basic financial concepts. Back in 2000, the OECD started PISA, an ambitious project to assess student performance in critical areas. PISA gauges whether students are prepared for future challenges, whether they can analyze, reason, and communicate effectively, and whether they have the capacity to continue learning throughout their lives. Since its first wave in 2000, PISA has tested 15-year-old students’ skills and knowledge in three key domains: mathematics, reading, and science. In 2012, PISA introduced an optional financial literacy assessment, which became the first large-scale international study to assess youths’ financial literacy. The PISA financial literacy assessment measures the proficiency of 15-year-olds in demonstrating and applying financial knowledge and skills.

This is the definition of financial literacy from the team of experts who worked on this assessment Footnote 8 :

“Financial literacy is knowledge and understanding of financial concepts and risks, as well as the skills and attitudes to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial wellbeing of individuals and society, and to enable participation in economic life . ” ( OECD 2019b )

As reported in more detail in Lusardi ( Reference Lusardi 2015 ), there are four innovative aspects of this definition that should be highlighted. First, financial literacy does not refer simply to knowledge and understanding but also to its purpose, which is to promote effective decision making. Second, and in line with the objectives of this journal, the aim of financial literacy is to improve financial wellbeing, not to affect a single behavior, such as increasing saving or decreasing debt. Third, financial literacy has effects not just for individuals but for society as well. Fourth, financial literacy, like reading, writing, and knowledge of science, enables young people to participate in economic life. We highlight this definition because it represents many of the principles covered in this inaugural issue.

The PISA financial literacy data have become a critical source of information with which to assess the level of financial literacy among the young. Starting from the original wave in 2012, we have found that several rich countries do not have high levels of youth financial literacy. For example, both the United States and some European countries, such as Italy, France, and Spain, ranked at the OECD average or below the average on the 2012 financial literacy scale. Moreover, and importantly, financial literacy is strongly linked to socio-economic status: the students who are financially literate are disproportionately those from families with higher levels of education and income and from homes with a lot of books. (OECD 2014 ; Lusardi Reference Lusardi 2015 ).

The PISA 2022 financial literacy assessment will provide further insights into young people’s financial literacy across 23 countries and economies, and take into consideration changes in the socio-demographic and financial landscape, such as the use of digital services, that are relevant for students’ financial literacy and decision making.

Countries have started to add financial education in school, in some cases making it mandatory. Notably, Portugal made financial education mandatory in school in 2018, adding it to the civic education curriculum, and many states in the United States have passed legislation to make financial education mandatory in high school curricula. Recent empirical evidence on the effectiveness of financial education in school shows it holds much promise. For example, according to a meta-analysis covering financial education programs from as many as 33 countries on 6 continents, and considering the programs evaluated most rigorously, financial education is found to affect both financial knowledge and downstream behavior. Remarkably, the effects are similar across age groups, i.e., they hold among the young and the old, and they hold across countries. Footnote 9 Other work examining the effect of financial education in high school also shows that young people who were exposed to high school financial education are much less likely to have problems with debt as young adults (Urban et al. Reference Urban, Schmeiser, Collins and Brown 2020 ).

While the focus on financial education has been on whether it improves the knowledge and wellbeing of students, it could also affect others. Frisancho ( Reference Frisancho 2023 ) in this inaugural issue examines whether financial education in high school can also affect parents. This is a very innovative paper and for many reasons. First, the analysis is carried out on a large sample of schools in Peru. As mentioned earlier, Peru is a country with a high percentage of students who perform poorly on financial literacy assessments. Second, it is possible to link the data with information from credit bureau records, which provide data on financial outcomes. This is more rigorous information than can be obtained by relying, for example, on self-reports. Third and importantly, the evaluation is based on a large-scale experiment, where students were randomly assigned to control and treatment groups, which is the most rigorous method with which to assess the impact of financial education. We hope many programs can be evaluated using these methods and that this study can provide guidelines for other countries.

The findings speak of the power of financial education: in addition to affecting students, it helps parents, specifically parents of low-income students. Among parents from poorer households, default probabilities decrease, credit scores increase, and debt levels increase too. And there is an important gender effect: it is mostly the parents of daughters who experience improvement in their financial behaviors. These findings are intrinsically important and have policy implications: Financial education in school can be far reaching and can have important spillover effects, in particular for vulnerable groups.

And if schools can be suitable places to provide financial education to the young, the workplace can be ideal for financial education programs for adults, as also recognized by the OECD in the Policy Handbook on Financial Education in the Workplace (OECD 2022 b). There are many reasons why workplace financial education can be important. First, employers may benefit too. A simple statistic from the work of Hasler et al. ( Reference Hasler, Lusardi, Yagnik and Yakobski 2023 ) is quite informative. In an attempt to provide a crude proxy of the cost of financial illiteracy, the 2021 Personal Finance Index ( P-Fin Index) survey asks respondents to give an estimate of the total number of hours per week they spend worrying about their personal finances, and how many of those hours are spent at work. Findings are startling. In 2021, U.S. adults reported spending about 7 hours per week, on average, thinking about and dealing with issues and problems related to their personal finances, with over three of these hours spent at work. The most financially literate respondents (who answered over 75 percent of the P-Fin Index questions correctly) reported spending much less time dealing with their personal finances: about three total hours per week with 1 hour per week at work. In contrast, the least financially literate respondents (those who answered 25 percent or less of the P-Fin Index questions correctly) reported spending a staggering 11 total hours per week and over 4 hours per week at work thinking about and dealing with issues related to their finances.

Hasler et al. ( Reference Hasler, Lusardi, Yagnik and Yakobski 2023 ) use these data to do a back-of-the-envelope calculation of the return to a workplace financial education program. For a company with 30 minimum-wage employees (earning $15 per hour) who work 50 weeks per year, financial education can recover $22,500 of value per year for an employer, which is conceivably greater than the cost of many workplace financial wellness programs. In other words, scalable, low-cost financial education programs would likely create a positive return on investment, in particular for large employers.

Because of the shift from defined benefit to defined contribution in the United States, a number of large firms have started to offer financial education programs. However, it is difficult to access that data without working directly with an employer. It is also difficult to acquire data that are representative of the population of workers or employers. The research of Clark ( Reference Clark 2023 ), who has worked with many employers in different sectors, is rather unique and helps us to shed light on the workings and promises of workplace financial education. As noted in his paper, providing financial education when workers are first hired is ideal, because it is in the interest of both employers and employees to understand the benefits offered by the firm and how to best use them. Providing education related to retirement and retirement planning is also beneficial to both parties, given that a substantial portion of employer benefits relate to pensions and the promotion of financial security in retirement. However, as the author effectively argues, financial education should not be limited to retirement topics, as other financial decisions made by employees can interact with decisions about whether or not to participate in pension plans and how much to contribute to those plans. Holistic financial education programs offered throughout the life cycle may better fit the needs of a heterogeneous population of workers. And programs provided well before retirement may enable workers to take better advantage of the power of interest compounding, helping them begin to save as early as possible and take advantage of employer matches. It is not always possible to evaluate the effectiveness of programs using randomized controlled trials or controlling for certain factors, such as whether program attendees are those who are inherently interested in financial education, but the evidence provided in this overview of two decades of work shows that workplace financial education holds much promise.

Clark’s work has included personal interactions with employers and employees, providing opportunities for both quantitative and qualitative work, and the evidence from small samples can be illuminating too. For example, the author shows that financial education programs are appreciated and rated with high marks by employees. While self-selection may play a role in program attendance, offering this type of benefit can be a useful retention tool, particularly in the tight post-pandemic labor market. We specifically encourage reading the last part of the paper, which provides useful best practices for increasing the effectiveness of employer-provided financial education programs.

The papers in this inaugural issue all share similar findings: financial literacy is low and often inadequate for making the types of financial decisions that are required today, from opening a bank account, to managing a mortgage, to using reverse mortgages later in life, to investing in new and risky assets such as crypto. Moreover, financial literacy is particularly low among already vulnerable groups, such as women and individuals with low-income or low-educational attainment. Importantly, financial literacy matters: it helps people make savvy financial decisions, including being less influenced by framing, better understand information that is provided to them, better understand the workings of insurance, and being more comfortable using basic financial instruments. In a nutshell, financial literacy improves financial wellbeing! The effects of financial literacy extend beyond individuals: financial literacy can affect the macro-economy as well.

Financial literacy is essential for the promotion of financial inclusion, as people need knowledge and skills to effectively use financial instruments, even the most basic ones, such as bank accounts. Every financial instrument carries potential costs and risks, and some basic knowledge is necessary to use these instruments well. And when financial instruments are complex (as in the case of mortgages, including reverse mortgages) or risky (as in the case of assets such as crypto), financial literacy becomes a must for informed consumer use along with adequate financial protection.

Financial literacy is also expected to help individuals deal with emerging trends and challenges in the financial landscape, from digital financial services to sustainable finance, as recognized in the priorities of the OECD International Network on Financial Education for the next biennium.

Policy makers, practitioners, the private and public sectors, and academics can benefit from the findings reported in the papers in this inaugural issue. Our objective is to publish the most rigorous and relevant work. But most importantly, we hope that this journal will become a source for relevant information and that the research that is published here will have an impact and improve the financial wellbeing of individuals around the world.

1 See OECD ( 2020 a).

2 See OECD ( 2020 b) and Klapper and Lusardi ( Reference Klapper and Lusardi 2020 ).

3 The OECD will release the results of a new data collection in 2023 from developed and developing countries, which will look not only at financial literacy but also at the financial resilience and financial wellbeing of consumers around the world in an internationally comparable way (OECD 2022 a).

4 See Lusardi and Mitchell ( Reference Lusardi and Mitchell 2014 ) for a discussion and review of the empirical evidence on financial literacy.

5 See OECD ( 2020 c). The next PISA financial literacy assessment will be released in 2024.

6 See Kaiser et al. ( Reference Kaiser, Lusardi, Menkhoff and Urban 2022 ).

7 See the G20 High-Level Principles for Digital Financial Inclusion ( 2016 ).

8 Lusardi and Messy both participated in the work leading to this assessment.

9 See Kaiser et al. ( Reference Kaiser, Lusardi, Menkhoff and Urban 2022 ).

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• Volume 1, Issue 1
• Annamaria Lusardi (a1) and Flore-Anne Messy (a2)
• DOI: https://doi.org/10.1017/flw.2023.8

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Speech The Importance of Financial Literacy

Keith Hall Assistant Governor (Banking and Payments)

Address to the Conference on Deepening Financial Capacity in the Pacific Region Sydney – 25 August 2008

PDF version 49 KB

Let me first of all take this opportunity to welcome you to Sydney and to the Reserve Bank's Training Centre here at Kirribilli – a centre named after the RBA's first Governor, HC (Nugget) Coombs who was both a passionate believer in the importance of financial education and a good friend of Australia's Pacific neighbours. So it's fitting that we should be here today. Let me also take the opportunity to thank the multilateral agencies – the ADB, IFC, IMF, UNDP and the World Bank – for combining to organise this Conference; it bodes well for its success that we have their combined weight behind us. And finally, let me single out for particular thanks, Susan Adams, Director of the Pacific Financial Technical Assistance Centre, who I know has been a driving force behind this gathering.

Over the next two days, the Conference will be exploring various ways of deepening financial capacity in the Pacific region – by which we mean ways of developing the financial infrastructure so that individuals and communities have better access to a suitably wide range of financial services. These are services that extend well beyond the provision of credit, to the availability of well-tailored savings and investment products, to insurance, both life and general, and of particular importance to many countries in this region, access to appropriately priced money transfer services or remittances. In my remarks this morning I want to emphasise one particular point, which is that efforts to deepen financial capacity will have a far better chance of succeeding if they go hand-in-hand with efforts to raise financial literacy. We need to be sure, in other words, that we are providing individuals and communities with the level of financial education needed to grasp both the benefits and pitfalls of their easier access to financial services. Delia Rickard of the Australian Securities and Investment Commission, who is our next speaker, will expand on the recent initiatives here in Australia to lift financial literacy. For my part, I want to set the scene by making a number of generalised observations about financial literacy and why financial education is so important. In doing so, I am very conscious that these observations will be drawn from a financial system that in some cases will be very different to your own, but hopefully they are still worth sharing.

What do we mean by financial literacy?

When we talk about financial literacy we are usually referring to a set of skills that allow people to manage their money wisely. As a minimum, these skills include the attainment of basic numeracy so that rates of return on savings and borrowings can be readily calculated and compared. They also extend to some understanding of essential financial concepts, not least an appreciation of the trade-off between risk and return. And not to be overlooked is the capacity to understand when the time may have come to seek professional financial advice and where you need to go to find it. Broader concepts of financial literacy also assume that people will make better judgments about their financial affairs if they understand the relationship between their own finances and the wider economy. I want to touch very briefly on this broader definition later on.

Why financial literacy matters

Financial literacy matters at many levels. From a social welfare perspective, it obviously matters greatly whether or not people are able to manage their financial affairs wisely and live within their means. But the benefits of financial literacy extend well beyond stronger household balance sheets to the promotion of a more resilient financial system and, ultimately, to the more efficient allocation of resources within the real economy.

The importance of financial literacy for individuals and families

For individuals and families, the benefits of financial literacy – which using shorthand we can describe as ‘being good with money’ – are well understood. The financially astute recognise the wisdom of sound financial planning from an early age and, by doing so, improve their chances of achieving their financial goals. These goals commonly include the purchase of a family home – usually by combining savings and a sensible amount of mortgage debt – putting enough money to one side for the education of children and, importantly, making suitable provision for old age. If you wanted to single out the one characteristic that signifies a financially astute person – in Australia, at least – I suspect that it would be their awareness of the need to save for retirement from an early age. This is not immediately obvious to those who are new to the workforce, who face many competing and what seem to be more appealing uses for their money. As a result, saving for retirement is routinely postponed until late, sometimes too late, in the life cycle – an observation that in Australia led to the phasing-in of a compulsory superannuation system from the early 1990s onwards. Nonetheless, even with this compulsion, it remains the case that the financially educated are quick to appreciate the importance of making additional personal contributions to their superannuation – at least if they want to live comfortably in retirement.

The costs of financial illiteracy – of ‘being bad with money’ – are equally apparent. Those who go through life making poor financial decisions will inevitably end up with a far lower standard of living than was otherwise achievable. Unfortunately, the opportunities for making poor financial decisions come thick and fast through life. Many of these – particularly for the young – are associated with easy access to credit and the ‘buy now, pay later’ marketing of many retailers. For some people, this fuels poor spending habits – indiscriminate and compulsive spending behaviour – which leads on, in turn, to spiralling debt problems. And as we all know – hopefully only anecdotally – it's no easy matter to get out from underneath a heavy debt burden. But even those individuals and families who budget carefully and spend wisely can still fall into costly financial traps. It is often astonishing to learn just how easily otherwise sensible people can be parted from their hard-earned money. This usually occurs in one of two main ways. Some people fall prey to straight-out financial ‘scams’ or frauds – offers that ‘seem too good to be true’ and are. Others – especially in a low-inflation, low-interest rate environment – are tempted to go off in search of investments offering far higher returns without fully understanding that these higher returns are likely to go hand-in-hand with much more risk. We have all too many examples in Australia of personal investors, often retired couples, losing their life savings by investing in property-related ventures where the returns were high but so was the underlying risk, which was, admittedly, often quite well camouflaged.

While financial literacy has always been important, the need for financial education has assumed greater urgency in many countries as an ever wider range of financial products and financial services have been marketed to consumers. There was a time in Australia, for example, when a new customer had to do little more than choose between a couple of basic bank products – a cheque account and a passbook account, both easy to open and easy to maintain. When the customer had established a suitably long savings record – and not a moment before then – the same bank might deign to offer a housing loan of a fixed term and at a standard variable interest rate. Those days are long since gone. Now there are a bewildering number of banking products for a customer to select from: on the deposit side, there are accounts with fees that pay interest; those with no fees and no interest; those with no fees but with limits on the number of transactions per month – and so on. On the loan side, borrowers can now shop around, courtesy of a broker, to find not only the cheapest mortgage but one that provides them with maximum flexibility in terms of use, drawdown and repayment. And credit cards these days come in a dazzling array of permutations.

While all of these developments are to be welcomed from a consumer choice perspective, there is no doubt that they are simultaneously increasing the complexity of decision-making around even the most basic of financial products. Financial literacy is very much about empowering individuals so that they can master this complexity and take full advantage of the benefits that flow from financial innovation and new financial products.

Equally important, especially for countries with remote and isolated communities, is the revolution in the way that financial services are now being, or will soon be, delivered. In countries such as Fiji, the Solomon Islands and Tonga, mobile banking units have made an appearance. While in others, like Australia and New Zealand, you need not visit your bank at all. Your bank comes to you, so to speak, via the internet or through your mobile phone. These electronic services are increasingly available to customers across the Pacific region. While they open up enormous potential in terms of access to financial services, they do require that customers are properly schooled in their use and understand their limitations.

The increase in the number of people accessing a greater range of financial services also imposes important obligations on financial institutions. The sheer variety and greater complexity of financial products make it imperative that fees and charges are sufficiently transparent so that consumers can make informed decisions. I know that a number of countries represented at this Conference have gone some way towards ensuring improvements in this area. Tomorrow, Governor Mafi from the National Reserve Bank of Tonga will provide an account of efforts towards ensuring greater disclosure by financial institutions in her country. And the decision of the Australian and New Zealand aid agencies to fund the development of a remittance-comparison website for the South Pacific region is a very welcome initiative from a transparency perspective.

I doubt it will surprise you to hear that the lowest levels of financial literacy – and, hence, the greatest need for financial education – are generally to be found among the most vulnerable members of our society. A study funded by the Commonwealth Bank in Australia in 2004 [1] showed that there was a definite lack of financial skills and knowledge among people with certain demographic characteristics. The results of the survey showed that 10 per cent with the lowest financial literacy tended to be younger people, males, students, people with lower levels of education, the unemployed and those on lower incomes. Older people also displayed lower financial literacy skills, suggesting that literacy is not just a function of age or experience. Lower financial literacy was also found to have an impact on an individual's general health and to be significantly related to problems in paying off mobile phone, credit card and utility bills.

The good news is that the same study suggested that increasing the level of financial literacy among the 10 per cent of Australians who are least financially literate would raise their incomes and help reduce the number of unpaid bills. The study estimated that over a period of 10 years these benefits would add $6 billion a year to GDP and create over 16,000 new jobs. In other words, money spent on financial education would be money very well spent.

The importance of financial literacy to the financial system

If we accept that financial literacy has a role to play in promoting stable household balance sheets – and small business balance sheets for that matter – then it isn't too much of a stretch to see the benefits that can flow through from better financial education to the stability and efficiency of the financial system.

The existence of a stable financial system has much to do with the prudent management of risk by financial institutions, particularly credit risk – which is the risk of financial loss arising from the default of customers and counterparties. Of course, credit loss can never be eliminated completely, but good systems and controls can certainly help contain it. Nonetheless, history tells us that financial institutions are quite myopic in their lending behaviour – they will tend to be quite liberal with credit when the economic times are good, only to repent of their generosity and tighten lending standards when times turn bad. This ‘procyclicality’ in lending behaviour can spell danger for over-leveraged borrowers and, by extension, for the financial institutions themselves, especially if the economic downturn is sharp or prolonged. In a financially educated society, however, borrowers will be less likely to take on more debt just because credit is cheap and freely available. As a result, they will have a far better chance of riding out an economic downturn without defaulting on their debt repayments – which, in turn, will help minimise the bad debt experience of financial institutions and, by doing so, help bolster the stability of the financial system.

The importance of households being able to manage their debt bears repeating. One of the objectives of financial deregulation and financial sector reform is to ensure that businesses and households have easier access to credit; and in many countries households, in particular, have been very quick to take advantage of this. As a result, financial deepening often goes hand-in-hand with a sharp rise in household indebtedness. In Australia, for example, household debt, mainly in the form of mortgage debt, has risen from below 100 per cent of disposable income at the beginning of the decade to well above 150 per cent. This has raised some questions about the ability of households to service their higher levels of debt in a harsher economic environment. But so far, even though mortgage interest rates have risen by around 150 basis points over the past year, there has been only a slight increase in household default rates. This suggests that most households have been borrowing quite prudently – which, in turn, would seem to vindicate the efforts being made by the Australian Government and, importantly, the banks themselves to improve the standards of financial education in Australia.

There is also a view that financial literacy can bolster financial stability by enhancing market discipline within the financial system. By market discipline, we mean the process by which customers can collectively influence the behaviour of financial institutions for the better, so that they are more likely to operate in a safe, sound and efficient manner. Certainly, if there is enough transparency in the financial system so that customers are both knowledgeable and well-informed, it does seem reasonable to predicate that they will direct their business away from riskier, poorly run financial institutions to those that are better managed. Our colleagues in New Zealand place particular emphasis on the role of disclosure and market discipline in safeguarding financial stability. But it also forms an important part of the New Basel Capital Framework – to which many countries subscribe – which recognises that market discipline has the potential to reinforce capital regulation and other supervisory efforts designed to promote the safety and soundness of banking systems.

The importance of financial literacy to the economy

What is good for individual households is often good for the economy as a whole. As I noted earlier, financial literacy is very much about encouraging individuals and families to use their money wisely – both their own hard-earned income and that borrowed from financial intermediaries. But encouraging households to save, for example, is not just good for them, it is also very much in the longer-term national interest. Economic development is very much about the successful channelling of domestic savings into productive investment opportunities.

Similarly, promoting the sensible and prudent use of credit is both good for individual households and for the wider economy. Used wisely, access to credit can provide households with a number of important economic benefits. In particular, it allows them to purchase goods and services, notably a home, much earlier than they could by relying on just their own income. This will help boost economic activity. But there are many other benefits: auto finance, by helping households buy a car, assists the mobility of labour within the economy; and student loans to fund further study can make an important contribution to raising a country's intellectual capital. For anyone wanting to start up a small business – and a thriving small business sector is often the key to a vibrant, expanding economy – access to credit is vital.

Finally, it's worth noting that any market economy will function much more effectively if the population is knowledgeable, forward-looking and financially literate. An efficient economy is one in which participants maximise their risk-adjusted returns so that resources flow to their most productive use relative to risk, leading to higher longer-term growth rates. When participants misjudge the risk-return trade-off, the consequences for the economy can be quite damaging. We have a very good example of this just now in the United States in the form of the sub-prime mortgage crisis. It is quite clear that many of the users of US sub-prime mortgages – loans made to borrowers unable to qualify for a traditional mortgage – never fully understood the risks of borrowing this way. It is equally apparent that the investors who ultimately funded this lending by buying securities backed by this sub-prime debt also failed to recognise the underlying risks. As you all know, the fall-out from these misjudgments has been very costly for the US economy and for the global financial system. As a result, one of the questions now being asked in the wash-up is whether a better level of financial education might have helped borrowers and investors to avoid the pitfalls of embracing new financial products so wholeheartedly.

These problems may seem very distant from the ones you currently face in your own financial systems, but I hope you can identify with the underlying theme here – that financial education can help safeguard against some of the risks that inevitably attach to financial innovation.

Financial literacy and monetary policy

Having spent most of my time extolling the virtues of financial literacy, it may surprise you that I want to finish off by noting the limitations around financial education: that no matter how good our financial education programs, they will never do away with financial hardship within our communities. Unfortunately, in every society there will always be some individuals and families who fall on hard times, often through no fault of their own: jobs will be lost, serious illness may strike and, in some cases, families may find themselves the innocent casualties of a breakdown in law and order. Nevertheless, while some level of financial hardship may be inevitable, public policy can certainly do much to contain it. In a well-managed economy there will be fewer job losses; a decent medical system can do much to promote public health; and an effective policing and judicial system will promote law and order.

Of course, central bankers like to believe that they too are playing an important role in minimising financial hardship. And I doubt it is much of an exaggeration to say that sound monetary policy and the maintenance of low inflation is one of the foundations of a prosperous society – one in which everyone has a decent shot at achieving a good standard of living. This takes me back to that broader definition of financial literacy that I mentioned earlier – one in which financial literacy includes an understanding of the intersection between household balance sheets and the broader economy. Central banks would like to think that this extends to an understanding of why inflation matters and why central banks sometimes need to take the unpopular decision of raising policy rates. As the Reserve Bank tightened monetary policy in Australia over the last year or so, we sometimes felt we were struggling to effectively communicate our actions to the wider general public, not least because we lacked support from some sections of the popular press. Internally, this has prompted us to consider whether there are ways in which we could improve our contribution to financial education. In late 2007, the Bank decided to release a short statement following each monthly Board meeting whether or not the cash rate was changed. The minutes of these meetings are also now made public, with a delay. This increase in information is complemented by a website that seeks to explain our policy role and a number of community programs, including the sponsorship of a university economics competition and the hosting of numerous school visits to our museum. But there is clearly much more we could do and we are giving some thought to how we might better get our message across.

Financial literacy matters on many levels. It helps people manage their financial affairs and improve their standard of living. But it also makes an important contribution to the soundness and efficiency of the financial system and to the performance of the economy.

So the point that I want to leave you with today is that, as you contemplate ways of improving financial capacity in the Pacific region, don't overlook the importance of financial literacy and financial education. Like the proverbial ‘horse and carriage’, efforts to improve financial capacity and to raise financial literacy best go together; it makes for an easier and more successful journey. This Conference is an important step in that journey.

Commonwealth Bank Foundation, (2004): ‘Improving Financial Literacy in Australia: Benefits for the Individual and the Nation’. Available at <http://www.commbank.com.au/about-us/download-printed-forms/FinancialLiteracy_KeyFindingst2004.pdf>. [1]

More From Forbes

Should schools teach financial literacy classes.

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CEO & Founder of National Business Capital , the leading fintech marketplace offering streamlined small business loans.

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?

What Is Financial Literacy?

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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How Teaching Personal Finance Helps Students Go to College Debt-Free

6 Min Read | Dec 21, 2021

Teachers, we know you care about developing your students. You make sure they know how to write persuasive essays, crunch numbers to see what “X” equals, not break microscopes that cost hundreds of dollars, and learn from history so they aren’t doomed to repeat it—all so they can grow into fully educated adults who make a positive impact on the world.

And because you care so much, you won’t be satisfied to sit back and watch your students walk blindly into the $1.6 trillion—yep, we’re way past millions and billions—of student loan debt that’s plaguing our nation. 1

The good news is, you can help rescue your students from plunging headfirst into the deep, dark pit known as the student loan crisis. Why you ? Because as their teacher, you have one of the best opportunities to transform the way they manage money—by preparing them with a solid financial education before they even walk across that auditorium stage.

5 Ways Teaching Personal Finance Can Crush the Student Loan Crisis

That’s right! Teachers like you can spark change when it comes to the student loan crisis. Right now, your students are looking to you for the knowledge and skills they need to make it in the real world. Who knows—you might be their only hope to avoid the dream-swallowing debt of student loans.

But can teaching personal finance really combat a trillion-dollar debt crisis? Yes! Don’t believe us? Check out these top five ways financial literacy leads students to a life that isn’t weighed down by a mountain of debt.

1. Financial literacy encourages students to avoid debt.

Seriously, teaching students to go against the toxic money culture and choose not to rely on debt is one of the main ways personal finance courses take on the student loan crisis. This type of education explains how things like interest work, and that helps students understand exactly what they’d be getting into if they took out a student loan.

A lot of students don’t even realize it’s totally possible to earn a college degree without taking out loans. And if no one shows them how, they might never believe it—which means they’ll be more likely to borrow tens of thousands of dollars to pay for their education.

When you teach your students practical steps to pay for college without debt, you’re giving them hope. And that hope will inspire them to power through their education and land a job they love—one with a good salary they don’t have to share with Sallie Mae month after month and year after year.

2. Financial literacy empowers students to take control of their money.

Teaching students to take control of their money at this stage in their lives helps them learn responsibility. The basics of personal finance show them how to budget their money down to the last penny each month so no dollar gets overlooked or wasted.

Students will also learn the value of saving up an emergency fund to protect them from anything life throws at them. If they’re not prepared, they’ll be tempted to borrow money when an emergency hits—and that slippery slope will lead to a lifelong habit of using debt. But students who learn smart budgeting skills will realize they have the power to protect themselves from emergencies and save for big things like buying a car and even paying for college.

3. Financial literacy gets students thinking about career goals.

Learning about personal finance helps students see that money comes from work. And that will really get them thinking about how they’d like to earn a living one day. Students can be tempted to pick a college because it’s “popular” without seriously considering how much tuition costs or if going there will really be better for their future career than a cheaper option.

Are you a teacher? Help your students win with money today!

But financial literacy teaches students how important it is to pick a college—or choose an alternative route (like joining the military or starting a business)—that matches their budget, interests and abilities. It shows them that a less popular college can offer the same value as a well-known (or well-marketed) college.

4. Financial literacy helps students feel the weight of choosing an affordable college.

At this point in their lives, many students probably rely on their parents to handle most of their expenses. So the enormous cost of college might not even register in their minds—much less be something they look at when choosing a school.

By offering students a personal finance class, you’re giving them a chance to experience real-life examples of managing income and expenses. This can help teens start to see just how steep the cost of college really is—and how big of a deal student loans really are. Then when it comes time to make a call on where to apply, they will keep cost in mind.

Instead of rolling their eyes when they hear “out-of-state colleges are more expensive,” financially literate students understand what it means to pay an average of over $16,000 more just to go to school across the state line. 2 Yikes!

5. Financial literacy gives students a plan to pay cash for college.

Students who learn this important stuff early can start thinking about how to pay for college in a way that won’t delay their future plans—like getting married, buying a house, investing for retirement, and having kids. If their first “bundle of joy” in their adult life is a monthly bill to pay back student loans, they’ll have to put a lot of their life goals on hold.

But when you teach students these personal finance skills in school, they’ll learn the benefits of applying for scholarships, grants and financial aid. They’ll also see the value of getting sweat on their brow by doing some good ol’ fashioned work before they even hit college—and while they’re in college.

Imagine how excited your students will be when you help them discover all the options there are to get free money for college—and how much they’ll grow in maturity when you motivate them to work overtime with a goal in mind.

Ready to Fight the Student Loan Crisis in Your School?

If you’re ready to take action and get your students fired up to fight back against the crushing student loan crisis, start teaching financial literacy at your school. To find curriculum that’s made a difference in millions of students’ lives, check out Ramsey Education’s Foundations in Personal Finance and give your students hope to graduate from college debt-free so they can pursue the life of their dreams.

Get personal finance curriculum for your school!

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Why we must start teaching children about financial literacy in schools

Schools need to teach real-world, better financial literacy to students, to prepare them for better spending and borrowing in a worsening cost-of-living crisis

Over the past few weeks, there’s been widespread talk of Rishi Sunak’s upcoming plans to make mathematics lessons compulsory until the age of eighteen. Whilst the responses to the idea have been mixed – with some claiming the move will be traumatising for teens and others claiming they would be more financially confident if they had been taught maths until the age of eighteen – the proposed changes raise important talking points about how we learn about financial literacy.

If Sunak’s plans are to be more focused on financial independence and financial freedom, then in my view, the change is a welcome one.

Sunak’s plans are to be more focused on financial independence and financial freedom

In fact, I argue that financial literacy lessons – not maths lessons specifically – should be compulsory in all schools at all levels. Not just one-off sessions. The world of finance is a vast and expansive one, and at some point or another, we either have been or will be exposed to financial terminology or processes that we don’t understand.

Whether that happens when applying for a mortgage, loan, or credit card, or trying to organise our own tax returns , compulsory financial lessons will help the general population to be more savvy and knowledgeable when it comes to their finances.

There is a basic lack of understanding of common financial processes

When debates arise around whether real-world lessons should be taught in schools, many experts argue that the school education system doesn’t need to teach pupils about them because the system is designed to develop transferable skills . Whilst there may be an argument within that (and the need to be able to figure things out independently) as a society we have a duty to give children both academic and practical educational lessons.

Yes, we need to teach pupils about advanced Pythagoras theorem and algebra if they want to study mathematics at university level, but it’s also important for them to know and understand the risks associated with taking out a payday loan, or what 64% APR means when it comes to applying for a credit card.

It’s also important for them to know and understand the risks associated with taking out a payday loan, or what 64% APR means when it comes to applying for a credit card

Overall, there is a general lack of understanding about financial processes within our society, and schools should have a responsibility to teach children something that will affect them in their everyday life.

Without knowledge or education about finances, we’re open to exploitation

When we think about the health, safety, and wellbeing of members of our society, the government takes a level of responsibility to ensure the safeguarding of citizens.

To put this into context, think about the numerous anti-smoking, anti-gambling, and drink-aware campaigns that governments around the world roll out to citizens to ensure they ‘know their limits’ and raise awareness of the dangers of recreational activities. But what about when it comes to spending and borrowing?

There is clearly a lack of knowledge and awareness around the dangers of borrowing too much money, maxing out credit cards, and damaging our credit scores. This is becoming even more apparent with the Buy Now Pay Later trend that many financially vulnerable citizens engage with, namely students and those on lower incomes.

https://twitter.com/AnnMCairns/status/1613868472852774912

If we were all taught the drawbacks and benefits of borrowing at school, then we might think twice about applying for finance or knowing where to go if we need support in dealing with our finances.

Ultimately, if you don’t have someone to educate you on the dangers that come with borrowing credit, then you’re more open and vulnerable to being exploited by them . On the flip side, if you don’t know how to invest, then you might miss out on building personal wealth.

Financial literacy can help prevent a perpetual cycle of poverty

For the most part, young people learn financial literacy and personal finance skills from their parents, both explicitly and subconsciously. If a parent is struggling to deal with finances themselves, there may not be time or even a conversation about how children should approach their finances as they become adults.

This leads to less awareness and knowledge of financial processes and can result in ill-informed decisions, again, perpetuating the cycle of poverty from generation to generation. If schools had a more hands-on approach to teaching children about personal finance, making it a regular lesson in their curriculum (say one hour per week) then there wouldn’t be a dependence on children to ask their parents about financial matters, and they could gain access to reputable, trustworthy, independent financial lessons from industry experts.

As a society, it’s our duty to create independent, confident citizens of the future, and that mission starts with financial literacy.

This piece was written by Roger James Hamilton, founder of Genius Group

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Home — Essay Samples — Economics — Money — Importance of Money Management and Financial Literacy for Students

Importance of Money Management and Financial Literacy for Students

• Categories: Literacy Money Personal Finance

About this sample

Words: 1537 |

Published: Aug 14, 2023

Words: 1537 | Pages: 3 | 8 min read

Table of contents

Importance of financial literacy and financial education, how other countries apply financial literacy, what can be done within our current school systems, my own financial literacy level.

• Anderloni, L. and Vandone, D. (2010), “Risk of overindebtedness and behavioral factors”, Working Paper No 25, Social Science Research Network, Santa Monica, CA.
• ASIC (2011), “National financial literacy strategy: Australian securities & investment commission Report No. 229”, available at: www.financialliteracy.gov.au/media/218312/national-financialliteracy-strategy.pdf (accessed 23 October 2016).
• Atkinson, A. and Messy, F. (2012), “Measuring financial literacy: results of the OECD/International Network on Financial Education (INFE) Pilot study”, Working Paper No. 15, OECD Working Papers on Finance, Insurance and Private Pensions, OECD Publishing, Paris.
• Filipiak, U. and Walle, Y.M. (2015), “The financial literacy gender gap: a question of nature or nurture?”, Discussion Papers No. 176, Courant Research Centre: Poverty, Equity and Growth.
• Huston, S.J. (2010), “Measuring financial literacy”, The Journal of Consumer Affairs, Vol. 44 No. 2, pp. 296-316.
• National Strategy for Financial Literacy (2012), “Commission for financial literacy and retirement income”, available at: www.cflri.org.nz/sites/default/files/docs/FL-NS-National%20Strategy2012-Aug.pdf (accessed 24 October 2016).
• Organisation for Economic Co-operation and Development (OECD) (2012), OECD/INFE High-Level Principles on National Strategies for Financial Education, OECD Publishing, Paris.
• Vitt, L.A. (2004), “Consumers financial decisions and the psychology of values”, Journal of Financial Service Professionals, Vol. 58 No. 6, pp. 68-78.

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