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What is Financial Literacy?

Financial literacy is the ability to manage one’s income wisely on a day-to-day basis and make intelligent long-term monetary decisions.

This year, seniors in Virginia became the first to graduate under a new law requiring high schools to include a personal finance and economic literacy course in the curriculum. Tennessee, Missouri, and Utah also have similar laws in place, but these states are the minority in their requirements for stand-alone classes. Seventeen other states have implemented laws that mandate financial literacy be taught, but it may be integrated into other subjects.

Exactly which topics should be integrated remains somewhat open to interpretation, but the Council for Economic Education recently created an outline of six major subjects that they consider fundamental to the financial education of students in grades K-12. These new standards are meant to provide national benchmarks for what students should understand about finance at different points in their academic careers. Developed by financial educators and economists, a complete list of the subjects includes:

  • Earning Income
  • Buying Goods and Services
  • Using Credit
  • Saving
  • Financial Investing
  • Protecting and Insuring

Many individual states also offer guidelines for educators to follow in their instruction of personal financial literacy. The Texas Education Code, for instance, has a list of approved materials for teachers to use. Their state legislature requires that financial education be included in mathematics courses through eighth grade. Working with Future Business Leaders of America, Georgia has created a course in financial literacy that aims to build on problem solving and critical thinking skills to increase student employability and help students make better post-graduation decisions.

Financial Literacy

Photo Credit: Flickr Creative Commons

Not everyone believes that financial literacy is a skill that can be easily learned, especially at a young age. There is a great deal of debate on whether financial education coursework at a high school level has any impact on the students’ long-term financial success. After all, if students forget what they learn in history class after the semester ends, why would they remember financial advice any longer? Some evidence suggests that financial literacy education alone may not be enough to change detrimental spending behaviors that develop into habits over time. Yet many students wish that their schools had taught them more real-life money skills when they enter college or the workforce and feel overwhelmed by the financial decisions they have to make. They lack understanding of basic financial terms, options, and skills – and the money mistakes they make at this age will likely follow them the rest of their lives.

As student debt continues to grow, financial literacy for students is becoming even more important. In 2015, approximately 71 percent of students with bachelor’s degrees were forced to take out a loan to finance their college educations. The average graduate currently owes $35,000 in loans and STEM scholars may accrue even more while pursuing advanced study. Not every STEM job requires a degree, but not having one can be limiting. “Just-in-time” education is one proposed solution to the issue. Instead of filling students’ heads with information on retirement and 401(k) plans, this tactic focuses only on what will be most practical and useful for students in their near future. Effectively contributing to financial literacy might simply mean helping students become more aware of their current financial options and responsibilities.

For teachers who want to help their students develop financial literacy but don’t know where to start, resources like EverFi are designed to teach financial literacy in an accessible online platform to students in grades K-12 and college. Money as You Learn is another tool for helping educators enhance Common Core requirements with financial information.

Want to learn more about helping STEM students finance an education? Read about how you can help your students find STEM scholarships.

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Leah Dearborn

Leah Dearborn is a freelance writer based in the Boston area. A graduate of the journalism program at University of Massachusetts–Amherst, she spends her time writing about science, history, and books.

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