English, history, math, and science have been the cornerstone of the education system for decades. Yet personal finance—a subject relevant to most everyone regardless of their career path remains largely absent from school curricula around the world.
Enter the UK, where schools will be required to incorporate personal finance curriculum into existing math classes starting in 2014. Schools in Northern Ireland, Scotland and Wales already cover personal finance, making the UK’s swift action more aligned with its neighbors. Plus, surveys showed how concerned young people in the UK were about money and teenagers didn’t know what the interest rate was on their credit cards. The need for this type of education was obvious.
The UK’s strategy, which aims to give students the “skills and knowledge to manage their money well and make sound financial decisions,” as stated in its February 2013 educational standards briefing (pdf, 149), is likely to serve as inspiration for other countries to copy.
And from a cost standpoint, schools in the UK don’t have to invest in developing separate classes with new teachers, since the curriculum will be embedded into existing math classes.
The US should watch closely to see how the UK rolls out its new program. And while 20 states have requirements to include money management material into existing classes, there are still 26 states with no such mandates, according to the JumpStart Coalition.
And it’s no surprise that students are paralyzed by the words “personal finance.” A study from Inceptia showed that 89% of first-year college students scored a “C” or worse on a sampling of 50 financial questions based on standards from the US Department of Treasury’s Financial Literacy and Education Commission.
While personal finance education is not a panacea, data show how impactful it can be. An April 2013 Discover survey showed that 60% of students created a budget upon taking a personal finance class—and that number was only 46% for students who took no money class.
Without the proper financial know-how, consumers tend to take on more debt. Remember the interest-only loans that helped bring our economy to its knees back in 2008? Consumers were simply taking on debt, which goes against the cardinal rule of personal finance: no debt.
A report last year from the Brookings Institution showed how homeowners who took on the most debt in 2007 also consumed some 10% less from 2007-2009 than those who weren’t as levered. And a drop in consumption is bound to have negative ripple effects throughout the economy.
Knowing how severe the 2008 recession was, it’s irresponsible to continue to raise financially illiterate generations. It’s akin to asking for another financial crisis.