The Effects of Financial Literacy Education

“Honestly when I went into college and signed up for student loans, signed a lease for an apartment, and started living alone, I had no idea how to actually budget or how any of those decisions would affect me later,” said Katie Guise, a senior at George Mason University. “I had to learn through trial and error over the years,” said Guise. Guise had to learn on her own how to manage her finances and overtime built up experience on what she calls “adulting” but what is academically known as financial literacy. 

The lack of education regarding personal finance decisions is not unique to Guise as many college aged students do not know the basic knowledge to make educated personal finance decisions. 

The inability to understand how to make sound personal financial decisions can affect a person’s quality of life. Many eager freshmen, like Guise, go into college signing contracts for student loans without truly understanding how their loans and other big financial decisions will financially impact them.

Financial literacy includes subjects like credit cards, budgeting, writing checks, and student loans. In 2018, the Financial Industry Regulatory Authority sent participants a six question financial literacy questionnaire and only 7% of respondents answered all six questions correctly. 

The missing piece to the puzzle is financial literacy in schools. According to the 2020 “Survey of the States” by the council for economic education there are currently only 21 states that have laws requiring personal finance classes to be taught in highschool. 

The Financial Industry Regulatory Authority reports that “Specifically, those with higher literacy are more likely to plan for retirement and to have an emergency fund and less likely to engage in expensive credit card behaviors.”

Even with this data less than 17% of highschool students are required to take even one semester of personal finance classes.

“Having a good foundation of knowledge for how to handle your finances and invest in yourself for the future is critical. Without a base you are setting kids up for failure to make poor decisions early in their adulthood that could affect them in the future,” said Joseph Romeo, a Former Budget Analyst for Fairfax County Schools and Fairfax County Government.

Financial literacy curriculum has been tossed around in legislation for decades and some bills have succeeded to pass in certain states while  in other states parents and teachers have to take it upon themselves to implement financial literacy programs into their kids’ daily lives.

Financial illiteracy is more prevalent in immigrant communities, disabled communities, women, and people of color. Generational wealth and income in households can dictate the financial literacy of children. The issue of financial illiteracy can cause issues with aid, student loans, payments, and overall can keep families in the cycle of poverty. 

A study done by Ohio State University showed that those who are of immigrant status in the United States have lowered financial literacy scores by 27%. 

“I was never able to learn how to really fend for myself in the United States in terms of anything dealing with money because I had to learn the same time as my parents,” said Daniela Casas, an alumni of George Mason University whose parent both immigrated from Columbia when she was five years old. 

Rates of financial literacy have shown to differ based upon gender, age, level of education, household income, and more. 

Funding and legislation is one of the main reasons that financial literacy curriculums have not been able to be established in many states. Multiple states, like Florida in 2020, have tried to push through funding for classes relating to financial literacy but the funding requests have been blocked by their legislative bodies. The funding is used for curriculum creation, teacher training, books, and more. 

Guise, who is a Resident Assistant for the Environmental Sustainability Living Learning Community at George Mason University, wanted to create a financial literacy program for her 40 residents so that they did not have to go through the same trial and error as her. All of her residents are freshmen and for many of them this is their first time living on their own and making financial decisions. With no funding or help from the university, Guise created multiple powerpoints that go over different topics like budget balancing, planning ahead, and financial aid. 

Many of her residents showed up to her program and participated in the worksheets and interactive activities. 

“I feel like I should have learned all of this earlier on and not when I am already on my own financially,” said Lucas McCarthy, a resident of Guise, after the program had ended. 

Creating and implementing financial literacy programs starting from high school can allow for a more financially literate future generation. 

Financial literacy debate teams have been used in places like NYC, Chicago, and the Bay Area. These programs created by the Urban Debate League team up students with professionals as well give students the information they need for financial literacy. After the implementation of these programs financial literacy increased by 35% in the areas. 

The 2020 “Survey of the States” presented by the Council for Economic Education said results show that when students receive financial education, they borrow more sensibly, shifting from high-cost to low-cost financing. They also state education increases the likelihood of receiving aid for college, decreases the likelihood of credit card balances, and positively affects borrowing behavior.

A study by Purdue University showed that children can grasp concepts about money by the age of 3 and by age 7 they have formed their own financial habits and behaviors but yet our education system still has not implemented a system where these kids can build on their very early foundation of understanding. Working to create financial education literacy can positively affect the next generation and the future generations after that. 



Header Photo Credit: Damir Spanic, 2020