THE IMPORTANCE OF TEACHING PERSONAL FINANCE 1
The Importance of Teaching Personal Finance in Public Education and
The Dangers a Lack of This Knowledge Poses
Kathryn Rajnay
Texas A&M University – Commerce
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Abstract
The purpose of this research paper is to identify the current state of financial literacy regarding
personal finances among non-financially trained adults, to identify the personal consequences
that result from a weak level of understanding regarding personal finances, and to propose
measures to bridge the current knowledge gap and bolster the level of financial literacy among
adults in the United States. The paper briefly covers the history of personal finance, and cites a
growing level of attention to the issue of financial literacy, in both the domestic and international
arenas. The paper looks further into the growing concern that without a strategy rooted in
education, the individual and community at large will suffer. The paper explores the specific
avenue of requiring personal finance training through the primary and secondary education
process, and cites several locations where these efforts are already underway. If we hope to
avoid negative financial situations such as increased poverty, lack of personal savings, and ripple
effect of increased financial stressors, we will need to work to educate people in taking personal
responsibility for their financial health. This paper proposes a sound solution to moving forward
in this direction through a comprehensive education effort.
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The Importance of Teaching Personal Finance in Public Education and
The Dangers a Lack of This Knowledge Poses
In the developed world, money is a driving force. It controls most aspects of a person’s
daily life. From choosing a career, to buying groceries, to buying a house, money is at the
center. It would therefore be reasonable to think that people, in general, would have a solid
grasp on their personal finances. Investopedia (2017) defines personal finance as “the science of
handling money. It involves all financial decisions and activities of an individual or household –
the practices of earning, saving, investing and spending” (Personal Finance, 2017). In order for
an individual to make sound decisions regarding their personal finances, it would stand to reason,
that they must have an adequate level of financial literacy. Webster University, in St. Louis,
Missouri, defines financial literacy as “the set of skills and knowledge that allows an individual
to make informed and effective decisions through their understanding of finances. Education on
the management of personal finances is an essential part of planning and paying for
postsecondary education” (Financial Literacy, 2012). While the topics of personal finance and
financial literacy may seem like simple concepts, the practice of managing one’s personal
finances is sorely lacking in many adults as well as young adults today. One may argue that
there are many reasons for this, but at the core lies a lack of education and development of sound
personal finance behaviors during the years of formal education. Not having a firm grasp on
one’s personal finances opens up the individual to many dangers and hardships. This can be
damaging to both the individual and the community. Many Americans enter into financial debt
agreements, such as mortgages or loans that they truly cannot afford. They do this, in part,
because they do not entirely understand the risks to which they are exposing themselves, and this
lack of understanding on the part of the individual opens up the door for those with less than
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stellar integrity to take full advantage of the uninformed consumer of financial debt. Once a
person signs up for debt beyond what their income and lifestyle are truly able to withstand, the
dangers of growing personal debt begin to show themselves. Increased borrowing, use of one
credit card to pay off another, high-interest quick loans, and so on, often become the high-stress
norm for the financial life of an individual. It is a sort of financial quicksand into which many
uninformed people fall. These pitfalls do not discriminate based on age, race, gender, religion,
sexual orientation, or socioeconomic background (U.S. Department of the Treasury,
Office of Financial Education, 2008). Either a person is well equipped with a sound knowledge
of personal finances, or they are not. If the failure to educate young people in basic personal
finance skills is not addressed, personal debt will continue to spiral out of control, small
businesses will continue to deteriorate, and things such as poverty and crime are likely to
increase. Money and finance touch every aspect of our lives and understanding even the most
basic of concepts in regards to one’s personal finance is necessary to effectively function as an
adult. This paper will examine statistics put together from multiple institutions regarding aspects
of the personal finances of adults and young adults. This paper will also explain why personal
finance should not only be offered as an optional course in public education, but that it become
an integral part of compulsory education beginning early in the primary education years. The
paper will further explore how incorporating this education may benefit not only the individual,
but society as a whole. Failure to address this education need could ultimately lead us to a
catastrophic socioeconomic event within our lifetimes.
A Brief History on Personal Finance
Today, it is not difficult to find information on the Internet or in bookstores across the
country about understanding personal finances or advice on how to manage one’s personal
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finances. From videos to online classes to seminars held at your local church, the “self-help”
styled information is everywhere. The sheer amount of available information can actually be
intimidating and seem overwhelming.
However, the information available is, for the most part, fairly new. Personal finance has
not always been a widely taught or studied topic. In the early 1900s, personal finance was not a
term that would be heard being discussed even by economists. While it was studied by a few,
most education related to personal finance was limited to the aspects being taught as part of
subjects referred to as “home economics” or consumer economics”. There was limited education
available regarding personal finance for collegiate scholars, let alone for the average American.
The trouble with this was that the average American was the one making the day-to-day
decisions that personal finance affects. According to Hira (2009), in the 1940s, “Nobel Prize
winner Herbert Simon suggested that the decision maker possessed limited information
(knowledge) and did not always seek the best potential choice because of limited resources and
personal inclinations” (p. 6). Even up until the 1990s, economists who studied aspects of
personal finance did not think of their studies as being about personal finance. They considered
themselves family economists, household management specialists, consumption economists, and
consumer educators. Very little attention was given to the study of personal finance, while
broader topics and concepts of economy and business management were a main focus. Even
today, business classes offered at the undergraduate and even high school levels tend to shy away
from personal finance issues and bring more corporate issues and the movement of money
markets into the forefront of the classes. Only in recent history is the topic of personal finance
and associated financial literacy being recognized as important to the individual and society as a
whole. As cited in the forward of the G20/ Organization for Economic Co-operation and
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Development International Network on Financial Education Report on Adult Financial Literacy
in G20 countries presented July, 2017, “Financial education has gained a prominent position in
the global policy agenda. It is now universally recognized as a core component of the financial
empowerment of individuals and the overall stability of the financial system” (OECD, 2017).
Available Financial Education
While there are plenty of sources of information and financial education available to the
public for free and for a price, “financial literacy”, as it is often referred to, means something
different to many of the different sources. There is also not a standardized expectation for these
classes mandated or overseen by any government entity. This means that the core contents,
competencies, and impacts of the courses can vary greatly as well as the professional preparation
of the instructor of the course.
Traditionally, business classes are not offered as a part of curriculum in most American
schools. Even when a school is able to offer the class as an elective course, there is little
incentive for students to truly learn the material unless they are planning on pursuing a career in
business. As this is not a “tested subject”, meaning that standardized testing does not require a
competency in this subject matter, teachers may not be as inclined to focus much of their time,
resources, or energy on helping the students fully comprehend the importance of personal
finance. The fact that there is no requirement for the vast majority of high schools to teach some
kind of personal finance class is staggering when you look at how each state’s “financial
literacy” level was graded. According to a report issued by the Center for Financial Literacy, at
Champlain College in 2015, only five states in America were given a grade of “A” for their
efforts to improve financial literacy in schools, while twenty-six states received a grade of “C”,
“D”, or “F” (Is Your State Making the Grade?, 2015). This is not encouraging data. At present,
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only five states require by law that students at the high school level complete at least one
semester of money managing class or personal finance class. These states are Alabama,
Missouri, Tennessee, Utah, and Virginia. Of those five states, only one, Utah, requires students
to then be tested on what they have learned. This assessment is created and administered by the
state. The teachers of these classes are also required to go through training programs for
financial planning and credit and investing (Berman, 2015). Beyond that, only twelve additional
states require any type of personal finance education to be included in another course. This
means that, for the most part, today’s youth as well as most Americans who attended public high
school in the past twenty to thirty years have received little to no education on simple financial
concepts such as paying bills, preparing taxes, building good credit, and avoiding debt. This has,
in part, caused many young people to go deep into debt either because they have relied on loans
