1 in 5 American students do not exceed a baseline of proficiency in applying their financial knowledge to everyday situations. In other words, young Americans struggle to understand the most basic of financial concepts, documents, and transactions that are central to personal financial management.
The Organization for Economic Co-operation and Development’s (OECD’s) Programme for International Student Assessment (PISA) recently revealed findings from a financial literacy assessment of 15 year olds from around the world; 18 countries and economies participated in the assessment, which sought to establish a global baseline for financial literacy amongst the young.
It isn’t just the U.S. that is lagging in this regard; 15 percent of students in the countries surveyed do not meet the baseline level for financial literacy.
A multitude of socio-economic factors define and influence these results, which call for universal action by financial leaders, particularly in the United States. Before we can fully address this issue, we need to have a moment of clarity to ourselves. Are we doing enough?
Research suggests we aren’t.
Filene’s, Gen Y Personal Finances: A Crisis of Confidence and Capability report found that a majority of 25-35 year olds rated themselves as having high financial knowledge. But when tested on 5 exceedingly simple financial literacy questions, only 24% answered the first three questions correctly. Financial illiteracy has a ripple effect: When we fail to address financial literacy with school age children we run the risk of having children carry these inadequacies in financial literacy into adulthood.
Over the years, Filene has been dedicated to understanding the importance of this issue through research and meaningful dialogue. On a global scale, the U.S. needs to outgrow the average outcomes related to youth financial literacy. The key to improvement begins with education. Here is a simple motto to keep in mind to help your credit union attack this issue: hit them early and often.
The earlier we begin our financial education in school, the better our prospects are in fostering generations of children that are financially literate. High school diplomas and college degrees should not be the measuring stick for determining whether or not someone comprehends basic financial concepts. After all, our economic health is entirely dependent on the behaviors of the American consumer. For credit unions, a financially literate member is one that saves for retirement, understands how a credit score impacts borrowing, and isn’t fooled by shady or unbalanced mortgage terms.
There are a number of ways to proactively address this issue:
- If your credit union wants to engage younger students, work together with schools in your local areas to offer financial literacy education to kids as early as elementary school. Make it a priority to send a financial representative to speak with children 1-2 times a month. These programs should be customized for each age group so there is a clear ladder of progression available to these students.
- If your credit union is interested in educating college aged students, develop financial seminars that can be taught at local universities. Filene’s Delivering Financial Education to Graduating College Students report analyzes the Financial Independence Seminar, a unique program developed by researchers’ Bob Hoel and Ron Smith that delivered customized financial education to segmented college audiences.
- Certain concepts such as risk diversification and inflation can be intimidating for many people. Remember to simplify these lessons so they are easy to digest. For example, you can try producing short video clips that address financial concepts in a fun, interactive manner. Filene is excited to launch our latest Impact pilot: It’s A Money Thing, a collection of effective and affordable financial education content. As part of the pilot, your credit union will receive a monthly financial education content pack that includes a video, infographic, supporting article, presentation, and handout branded with your credit union’s logo. Click here to sign up.
No longer can you afford to wait until children graduate from high school to initiate financial literacy programs with your communities. As students become financially savvy, they will understand why credit unions should be their financial institution of choice.
Source: Filene Research Institute
Nat, Manpreet. "Financial Capability and the Young: We Are Not Doing Enough." Filene Research Institute. Filene Research Institute, 17 Sept. 2014. Web. 13 Oct. 2014.