Lack of Financial Literacy in Education


By Laur Davidson, an aspiring freelance writer

Being able to balance a checkbook, manage personal debt, and keep a high credit score are essential skills in today’s society. For many decades, American students learned these skills in school; unfortunately, some states no longer mandate financial literacy curriculum. As a result, most students reach adulthood without knowing how to be financially responsible – leading to problems as they graduate and attempt to navigate the student loan arena.

In 2016, a biennial study by the Council for Economic Education found that not only do some states leave personal finance out of their K-12 curriculum, but only 20 states mandate some type of training in economic principles. This means that students are graduating with a lack of understanding in basic finance.

Nan Morrison, president and CEO of the Council for Economic Education, stated that “most kids don’t need to learn about collateralized debt instruments, but they do need to know how to open a bank account, how much they need to save each month to reach their goals and, if they borrow…how much money they will need to earn to pay it back.”

Staten Island accountant, author, and advisor John Vento agrees, and warned in 2014 that “the problem of financial literacy is perhaps the greatest threat facing our country.” While the numbers show a slight increase in the number of states mandating personal finance training for high school students, the large majority are not receiving that knowledge before graduation.

Without an understanding of basic budgeting, how debt works, and what they can actually afford, many students take on more student loan debt than they can effectively pay back. Once they’re in the job market, they often take on mortgages they cannot afford and don’t understand – leading to a lifestyle beset with money problems.

Vento argues that “if you don’t understand how to compute interest and the difference between a stock and a bond, your chances of prospering or even surviving financially are almost nil.” While not all experts agree that being able to differentiate between stocks and bonds is a critical skill, they are of one voice when discussing the need for budgeting skills, checkbook balancing, and the ramifications of taking on debt.

The student loan crisis has reached incredible proportions; as of 2015, the total amount of loans was over $1 trillion. The internet is awash with advice articles about “How to Attend College Without Student Loans,” and at the top of the list is “work while attending school.” Some students, however, aren’t interested in trying to study full-time while holding down a job, and colleges often recommend that students work no more than 10-15 hours per week. Interestingly enough, the U.S. Census found in 2011 that 71% of undergraduate student were working on top of school, with 20% of them working 30 hours per week or more. The numbers include nontraditional students who are balancing work and families as well, and yet studies show that while many students are working, most of them are not using those wages to pay for school.

With more students working while attending classes, how is the student loan debt so high, and financial independence so elusive for college graduates? Some say it goes back to the lack of financial literacy. Students who lack those basic budgeting and debt management skills may manage their wages poorly, relying on student loans to pay for school and thinking they’ll pay the loans back ‘someday.’ The University of Nebraska – Lincoln reports that advisors there “have talked to countless freshmen that drain their savings accounts within the first month of college and then have to take 1, 2 or 3 part-time jobs just to pay for basic expenses.”

Some colleges – like UNL – maintain space on their websites to discuss financial issues and help students and parents alike through the process of paying for school. University of California – Davis publishes a 40-item list of tips for students trying to manage their finances. One article from UNL outlines some of the more common financial mistakes students make:

  • Not knowing where their money is going
  •  Not having a plan for their money
  • Not determining wants vs. needs
  • Succumbing to peer pressure
  • Abusing credit and ruining their credit score
  • Abusing student loans

Even a cursory perusal of the list above exposes a common thread: lack of financial responsibility and/or understanding of basic money management. With most states not teaching either of these in K-12, it’s no wonder that so many students are failing at personal finance – and a sure sign that the student loan crisis won’t be fixed anytime soon.

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