People often associate math, English, and science to be an integral part of the core school curriculum in various countries around the world; however, a critical addition must be made—financial literacy.
The reality of today’s education system is that while students can accurately tell you how to calculate the slope of a point on a curve, they do not understand vital concepts that are essential to function in modern society, such as how to pay taxes, what interest rates are, and how to manage their finances. It is awfully ironic how students are taught topics such as pre-calculus, that they may very well never use in the ‘real world,’ but are not taught financial knowledge that will be a necessary part of their lives when they come out of school. As a result of this, students are often lost and confused when they graduate high-school or move out from the safety of their parent’s home because they are simply not educated enough to make smart decisions about finances.
The earlier financial literacy is taught, the better
In 2012, participating children aged 10-14 scored an average of 54% on the National Financial Educators Council financial literacy test, with teens aged 15-18 scoring an average of 60%. Clearly, the majority of students– whether they are in middle school or high school, are not educated enough about financial literacy. In 2016, only about 30% of all test-takers were able to answer a simple annuity question: “If I invest $100 per month starting at age 21, and that money earns a 7% annual return, how much will I have after 70 years?” This is alarming considering the fact that annuities are every-day financial tools that nearly everyone will use at least once in their lifetime, such as a retirement fund.
Financial literacy consists of a wide range of topics related to finance, such as applying for a credit card, taking out a loan, filing taxes, and applying for insurance. This large variety makes it incredibly important for students to start learning the basics at a young age so that they are better well-equipped to face real-world challenges when the time comes around. If we take the case of a fresh University or College graduate who is in search of a loan to pay for a house but does not know anything about mortgages and interest rates, he/she will likely be the target of exploitative loan companies who will intentionally charge rocket-high interest rates. The poor graduate will then see themselves drowning in debt years later, still unable to pay back student loans let alone the mortgage.
A key topic in financial literacy is savings. According to the FED, about 50% of Americans in 2015 did not have enough money saved to cover a $400 emergency expense if something ever went wrong. Quickly, one can see how problematic this is; it is essentially a reason why financial literacy should be taught at a young age—so people can start saving up before it’s too late.
Being educated about finances doesn’t only prevent people from being taken advantage of from companies, or allow people to become more aware of the importance of managing their money; it also decreases the need for costly services that can easily be done at home. For example, instead of paying hundreds of dollars to a firm to file your tax returns, an individual who is educated about financial literacy is able to do this quite efficiently at zero cost.
It is an unfortunate fact that currently, many students are ignorant of finances and basic accounting principles. The good news is that this can change. School curriculums worldwide need to understand the importance of implementing financial literacy in the classroom at a young age so that students can grow up to be a confident, responsible user of money.