In the journey of financial education, we build the foundations for financial well-being throughout our lives, acquiring the knowledge, skills, attitudes, and personality traits that enable us to manage finances as an adult during our childhood and youth.
Financial Socialization and Informal Impacts on Financial Well-being
In a literature review on consumer science, development psychology, and allied fields, Drever and co-authors (2015) found that avenues of financial socialization existed at each development life stage. Approaches to financial education noted in the study include:
- focusing on improving executive function in young children (critical despite lacking apparent “financial content”),
- emphasizing financial attitude development through dual-generation financial modeling for elementary and middle school students and their parents, or
- intentionally teaching financial lateral thinking and other practical skills to later adolescents and young adults.
Overall, Drever et al, propose a range of innovative strategies to improve financial education from early childhood to young adulthood.
The same study found that self-control among 3- to 5-year-olds is linked to adult financial well-being outcomes, though self-control among 6- to 11-year-olds was a stronger predictor. Accordingly, a strong executive function enables children to count and manipulate numbers in their minds to process financial information and to understand future timing to develop age-appropriate financial plans. Strong executive function also enables children to delay gratification to be able to save or to have the creativity to start their own business.
Financial well-being is a multifaceted concept that transcends both traditional financial literacy and the broader notion of financial capability. According to the Consumer Financial Protection Bureau, financial well-being entails “having control over one’s finances day-to-day and month-to-month, having the capacity to absorb financial shocks, being on track to meet financial goals, and having the financial freedom to make choices that allow one to enjoy life” (Consumer Financial Protection Bureau, 2015).
Differences in access to resources and opportunities are no doubt responsible for the variation in financial well-being across consumers, but some behaviors can improve financial well-being regardless of circumstances. These behaviors include managing resources effectively, planning, and making informed financial decisions.
Formal Education: K-12 Legislation
The National Conference of State Legislatures defines “financial literacy” as focusing “on the specific knowledge and concepts consumers need to manage their money and build wealth.” A National Field Study by the Fannie Mae Foundation described financial literacy as “the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being.”
A Heartland Institute Commentary on financial literacy classes in K-12 education, reports that some States are trying to reverse declining trends in consumers' financial preparedness by introducing financial literacy standards in their K–12 curriculums. This commentary mentions that in 2017, California, Florida, Kentucky, Maryland, Massachusetts, Mississippi, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, and South Carolina introduced legislation related to financial literacy courses. Some of these states considered bills that would include financial literacy courses as a graduation requirement, while others considered legislation that would direct their state education department to implement financial literacy courses in their K–12 curriculums.
The commentary further mentions studies have found that an individual student’s environment, including his or her home and family life, significantly influences a youth’s financial literacy, with minorities and low-income youth less likely to have access to mainstream financial systems. Furthermore, many low-income children and their families lack checking or savings accounts, investments, insurance, and access to employment-based retirement savings. Due to such great disparities among students, many schools are ill-equipped to provide the personalized instruction required to combat such challenges.
In 2021, thirty-eight states, Puerto Rico, and the District of Columbia had financial literacy legislation according to the National Conference of State Legislatures. Examples include:
- Alabama enacted legislation requiring financial literacy for student-athletes who earn compensation for the use of the athlete's name, image, or likeness.
- Arizona removed the termination date for the state seal of personal finance proficiency program.
- Arkansas required the division of higher education to develop an asynchronous module on the concepts of personal finance and macroeconomics for distribution to students enrolled in institutions of higher education.
- Hawaii adopted resolutions urging the department of education to coordinate with the department of commerce and consumer affairs to implement a graduation requirement of at least a half credit in financial literacy during the junior year or senior year.
- Illinois provided that, of the two years of social studies required to receive a high school diploma, one semester or part of one semester may include a financial literacy course beginning with pupils entering the ninth grade in the 2021-2022 school year, and each school year thereafter.
- Nebraska adopted the Financial Literacy Act, providing a graduation requirement, changing duties relating to academic content standards, harmonizing provisions, and repealing the original sections.
- New York required that the department of financial services website provide information to enhance consumer financial literacy and consumer awareness which shall include information on basic banking and personal financial management, how credit scores are determined and ways to establish good credit, options for investing, and increasing savings, best practices for protecting personal information, and any other topics deemed appropriate by the superintendent.
- Tennessee extended the Tennessee financial literacy commission to June 30, 2027.
- Virginia added to objectives developed and approved by the Board of Education for economics education and financial literacy at the middle and high school levels.
- Michigan and Rhode Island declared April 2021 as Financial Literacy Month.
AFSA Education Foundation has a map highlighting levels of state standards for financial literacy in K-12 environments.
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Author Thoughts and Conclusion
As I conclude, I must point out that there are factors that are within our control that affect financial education, literacy, and well-being. There also exist circumstances that you have no control over, like where you were born, which kind of family you were born into, or the country, race, or social structure into which one is familiarized. These formally and informally have a bearing on our attitudes, values, and habits concerning money and have come to be called financial socialization. Other factors that may influence financial decisions or habits include levels of education or immigration and putting this into perspective creates variations in financial well-being.
However, early exposure to financial education does indeed have a strong grounding on adult financial choices, therefore, policymakers can use these guidelines from Consumer Finance Protection Bureau and leverage their research in making policies, while parents or an adult interested in childcare and development, can access these tools to engage with children.
Continue this conversation and learn more in this episode of the Making Cents of Money podcast: