For better or for worse, money pervades the fabric of American life. Money funds our life-résumés, from our most basic needs to our most extravagant experiences, but it is also the leading contributor to divorce, domestic abuse, stress, and low college persistence rates.
Given the considerable influence of money on the American psyche, one may imagine our society would go to great lengths to promote proven financial education strategies. In fact, we do. Millions of dollars are spent each year on financial education programs to educate our populace on the costs and benefits of sound money management. Unfortunately, to date, financial education has been remarkably unsuccessful.
A 2009 study found that students who have taken financial literacy courses are no more financially literate than those who have not. The effects of poor financial education are as disturbing as they are ubiquitous.
13 percent of U.S. adults use prepaid cards for everyday transactions.
33 percent do not pay their bills on time.
39 percent do not have non-retirement savings.
The Center for Financial Education uncovered more dismal revelations on the state of American personal finance:
132 million adults lack emergency savings.
The average borrower carries almost $11,000 in credit card debt.
More than half of American adults have subprime credit scores.
Needless to say, we are in dire need of financial education reform. This lack of progress hardly justifies the individual, corporate, and government money spent annually on financial education. To ignite true change, the financial education industry needs to expand its focus from mere knowledge acquisition to actual knowledge application. The industry can achieve knowledge application by cultivating organizations that think practically, take risks, and aim high.
Too many financial literacy programs waste time on impractical or outdated financial instruments, such as paper tax forms, bank reconciliations, and handmade budgets. But research suggests Americans are unlikely to utilize such tools. 90 percent of Americans rely on professionals or computer software to complete their taxes, only 13 percent of people balance their checking accounts, and less than half create a budget at all. Why waste time teaching concepts our students will never use?
The complex and uninspiring nature of current financial education materials makes retention improbable. Instead of teaching these outdated modes of financial literacy, programs should strive for financial capability, which can best be achieved through relevant, timely, actionable, and ongoing education. Instead of counting the number of terms students memorize and forms they recognize, financial educators should measure student mastery through behavioral change and other tangible, financial outputs.
We must support financial education organizations that are willing to take risks. For inspiration, the financial education industry should look to organizations in education reform. Teach for America places thousands of young teachers in under-resourced schools. Charter networks spark ideological battles on the future of public education. KIPP continues to mainstream Harriett Ball's mnemonic teaching strategies.
Notwithstanding the criticism that often attaches itself to these organizations, each has brought significant intellectual, monetary, and media attention to one of the biggest issues of our time: the educational achievement gap. Financial education needs similar divergence from the common course in order to incite true change. Donors looking to maximize their contributions should consider funding financial education catalysts, whose relative youth and lean balance sheets can produce transformative energy and higher risk profiles.
Realistically, improving financial education is not enough to solve the widespread economic and societal issues facing our country. Promoting new businesses, seeking policy change, and driving investment in organic businesses will go a long way towards revitalizing America's low-income neighborhoods. We must think outside the box about how to inspire entrepreneurial spirit, communicate policy needs to Washington, and infuse capital into our most impoverished areas. How will we educate a new generation of entrepreneurs? How will we stimulate opt-out retirement, anti-predatory lending, and financial education mandate policy? How will we finance small businesses in our emerging domestic markets?
Operation HOPE, the torchbearer in the Silver Rights Movement, exemplifies the big-picture thought leadership needed in the financial education space. By 2020, the organization aims to empower 5 million young Americans through targeted financial education, train 1 million young entrepreneurs within their "business-in-a-box" program, and establish 1,000 branch banks in low-income communities. Unfortunately, such ambitious industry stalwarts are rare.
The failures of financial education have plagued our society for decades. With Americans facing perishable pensions and waning net worth, financial education will continue to take center stage as one of the primary issues facing our country. Reviving financial education could ease economic hardship for millions of Americans, relieve government budgets, and reestablish the United States' claim as the premier world leader in economic growth, opportunity, and mobility.