April 5, 2023

The Need To Incorporate Financial Literacy In U.S. Schools

Why are state governments pushing for financial literacy education in schools? Find out here.

Put simply, financial literacy is the ability to understand and utilize personal financial management skills such as banking, saving money, dealing with debt, and investing in worthwhile ventures. It means having a firm handle on personal economics by making informed financial decisions.

Financial literacy is a vital and useful life skill everyone should possess since handling money is part of everyday life.

So, how does one become financially literate? Generally, people learn to manage finances through personal experiences and mistakes. But self-taught financial literacy is proving inadequate, which is why various state governments and school districts are pushing for financial education programs in K-12 curriculums.

Is teaching financial literacy in school a good idea? Let’s find out.

The state of financial literacy in the US

Unfortunately, the US is lagging in financial literacy. Although measuring such an arbitrary quality is difficult, researchers still find ways to paint a picture of financial illiteracy in the country, mainly by quizzing Americans on basic financial skills and knowledge.

One study found that the average American scores 6.2 on a 1-10 financial literacy scale. Furthermore, 36% of Americans were deemed financially illiterate based on how they answered questions on various subjects. Baby Boomers were found to be the most financially literate generation at 71%, while Gen Zs trailed at 42%. Interestingly, those with a college degree were significantly more financially literate than those without a college degree. Also, higher-income households fared better than lower-income households. Perhaps the most intriguing find was that a quarter of the respondents who considered themselves financially literate actually failed the test.

Another study by the TIAA Institute concludes that many Americans function with poor levels of financial literacy. During the survey, researchers quizzed 3,582 American adults on eight areas of personal finance. On average, the respondents got only half of the questions right.

Many surveys like these come to the same conclusion: The US lacks in financial literacy, and the situation only worsens with every new generation.

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Why financial literacy matters

So, what makes financial literacy such a big deal?

Contrary to popular interpretations, financial literacy has nothing to do with having “more money,” at least not directly. It’s more about making sound financial decisions and observing financially-healthy practices. By doing so, one achieves financial well-being, security, and independence.

The best way to demonstrate the importance of financial literacy is by showing the effects of financial illiteracy. Here are some stats closely tied to financial illiteracy in the US:

  • 51% of American adults are financially fragile. (GFLEC)
  • Total household debt amounted to $16.9 trillion, and credit card balances reached $986 billion by Q4 2022. (Federal Reserve)
  • 40% of Americans are concerned about paying their monthly expenses, 52% are worried about maintaining their standard of living, and 63% fear they may not have enough money for retirement. (Gallup)
  • In January 2023, 60% of US consumers lived paycheck to paycheck. (PYMNTS)
  • In November 2022, one-third of consumers reported they were not saving any money. (PYMNTS)
  • The average American lost $1,819 in 2022 to lacking personal finance knowledge. (NFEC)
  • 38% of businesses fail due to cash flow issues and financial mismanagement. (CB Insights)

The scope of financial literacy goes beyond personal financial responsibilities. It’s also a crucial driver of economic growth. A financially illiterate population is more likely to make ill-informed decisions that collectively harm the national economy. For instance, the 2008 financial crisis can be partly attributed to the general public’s poor understanding of mortgage products and bad borrowing habits.

Combating financial illiteracy in classrooms

Financial illiteracy is a deep-rooted multidimensional problem. The government, private companies, and educators have all taken a stab at raising the country’s financial literacy rate. For instance, a host of personal finance coaches and advisors are ready to guide citizens toward financial well-being. Second, the government is actively cracking down on predatory lenders and protecting consumers by enforcing strict credit regulations. Third, adults and teens have a wide selection of online courses where they can learn about personal and business finance.

However, most attempts at closing the financial skills gap mainly focus on the individual level, which narrows their scope. And while financial courses are a great start, they rely on the learner volunteering (and sometimes paying) for the coaching or training. Plus, many of these courses center around debt counseling, which is only one part of the problem.

Nevertheless, education in financial literacy is the way to go. But the learning needs to start much earlier in life and, more importantly, be mandatory. Teaching financial literacy in K-12 schools is the only practical way to get that early start in a controlled learning environment.

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How to teach financial literacy in US schools

Kids can quickly grasp fundamental financial skills, such as making sound spending, earning, and saving decisions, from the tender age of 10 years — or even younger. And many state governments realize the need to teach financial literacy in schools. As of 2022, 23 states require that students take some form of personal finance training to graduate high school. Additionally, 25 states have mandated economic courses in schools.

Financial literacy education can take many forms, from class coursework and practical assignments to thought experiments. The goal is to ensure the students understand the following concepts:

  • Opening bank accounts
  • Budgeting and spending
  • Borrowing and using debt responsibly
  • Saving money
  • Making wise and financially-cautious investments
  • Setting and working toward short-term and long-term financial goals
  • Filing taxes
  • Planning for retirement and emergencies
  • Analyzing financial products such as insurance, loans, credit cards, and mortgages
  • Paying bills on time and maintaining a good credit score

The learners can apply these essential money management skills throughout their lives — as future employees, homeowners, parents, entrepreneurs, and leaders. It’s about laying the foundations for a financially-knowledgeable and responsible society.

About one in four US students have guaranteed access to personal finance education through school curriculums. That’s still a tiny portion of K-12 students, but it’s a bold step in the right direction. Granted, the policies around incorporating and standardizing financial literacy in schools are still too complicated and tied to dynamic social-political, economic, and environmental factors. Hopefully, more states and school districts will rise to the challenge and find effective ways to introduce financial education in more institutions.

The encouraging thing is that state-mandated financial education programs are already bearing fruits. In one example, Georgia, Idaho, and Texas saw a significant rise in credit ratings and a fall in delinquency just three years after incorporating financial literacy into the education system. And the ever-growing demand for professional financial talent is more than enough motivation to invest in financial education, if only to incite interest in financial careers and entrepreneurship among the youth.


At best, the US scores a C+ in financial literacy. Individuals, families, companies, banks, the government, and the economy pay dearly for this financial skill and knowledge gap. Fortunately, incorporating financial education into the K-12 system is a feasible and proven way to mitigate this problem. But this change is slow, though it will hopefully gather momentum with time.

However, it’s never too late to learn or utilize new financial skills. After all, finance is a constantly evolving industry thanks to technological innovations and shifting market trends. Loanspark educates entrepreneurs, business leaders, and investors on leveraging emerging financial opportunities. We work with B2B businesses, through co-brand partnerships, to offer their SMB customers meaningful funding solutions. Our services and fintech solutions spread vital financial expertise and technologies to business communities across the US.

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