For Better Financial Results, Study Math Instead of “financial Literacy”
Did you study personal finance in high school? How about college? Depending on when you attended class, you may have learned outdated information such as “how to balance a checkbook” and “why you should put money in a high-interest savings account.”
(Remember when savings accounts offered, for example, a 9% interest rate? If you’re millennial or younger, you probably won’t.)
Even if you were privileged to take a personal finance course between World Civ and AP English, you are probably not using most of the information you have learned – if any of that information is still relevant. You are more likely to recall Ethan Froome ‘s symbolism than the details of the budget exercise you did in 10th grade (probably on paper, and probably only including a small fraction of the expenses you currently manage each month).
Today’s high school graduates eat in the same marinade.
As Timothy Ogden, managing director of the Financial Access Initiative, explains, getting high school students to learn “financial literacy” is a waste of time and money :
According to the Council for Economic Education, 19 states now require this subject as a condition for high school graduation, up from 13 in 2011. The irony is that requiring schools to spend time and money teaching financial literacy is financially worse. a decision than anything these high school students are likely to make anytime soon.
Why? Two reasons.
First, the information presented in these courses is often unrealistic — that is, it has very little to do with the financial situation and budgetary constraints that today’s students will face. To quote Ogden:
Financial literacy is often measured by whether you can correctly answer a question such as, “You have $ 100 in a savings account that pays 10 percent per annum, billed annually. Will you have a) $ 100, b) over $ 120, or c) $ 120 in two years? “To borrow a joke from Bloomberg columnist Matt Levin, the correct answer is you have zero dollars because anyone who offers 10% interest today is a scammer who is going to steal your money.
Second, teachers provide this information too early. The simple budgeting spreadsheet you fill out in high school doesn’t really teach you how to balance your actual income and your true spending, or help you make choices like “how to choose the best health plan for your family.” Too big a gap between education and reality – plus, reality is much more complicated.
According to Ogden, the best time to learn about the potential benefits and / or consequences of a financial decision is right before you make it . Yes, that means students should learn as much as possible about the pros and cons of student loans before going to college, but they shouldn’t spend too much time learning how to evaluate different mortgage offers until they’re ready to buy. House.
This advice applies to adults as well; anyone who reads that article I wrote about whether we should apply for Social Security benefits at age 66 or 70 will need to be re-educated when they actually turn 60. At this point, our financial situation is likely to change, social security rules may change, and we will have a whole new set of benefits and implications to consider.
This does not mean, of course, that students should not learn to balance budgets, compare interest rates, or evaluate pay structures. However, such knowledge is not necessarily obtained in financial literacy courses. Instead, Ogden argues, students should study math – and he has data to support this:
Perhaps we can develop a financial education that is more closely aligned with the financial needs and preferences of the average American, and come up with a way to deliver it at just the right time. But until we do that, kids would be much better off spending more time in regular math classes than in trendy financial education courses. One study, which also showed no effect on financial education, found that complementary mathematics courses did lead to better economic outcomes for older students, including an increase in net worth by about $ 10,000 and a decrease in foreclosure risk of about $ 10,000. by 3.5 percent.
So, if you’re an adult looking to prepare for the financial hardships of the future, focus on the numbers . Learn how to determine which banks or investments offer high interest rates and low commissions. Ask yourself if you will get the best return on your dollar by investing it in paying off debt or putting it in an index fund. Remember that advice from a financial guru such as “pay off the smallest debt first” or “wait until social security benefits are needed” can be helpful, but you should always do the math yourself.
And if you’re a parent who wants your child to make smart financial choices, offer to take an extra math class next year.