In the wake of the recent financial crisis, financial literacy groups have begun to appear in large numbers in schools, on college campuses and at community events, and many banks and credit unions are jumping on the financial literacy bandwagon as well. Despite increasing visibility and popularity, the current models of financial education don’t seem to be worth the effort.
Financial education programs generally strive to guide people toward establishing healthy financial habits and behaviors to guarantee a future with a positive financial outcome. These programs frequently cover topics such as saving and investing, planning for retirement, and getting loans, insurance coverage, or mortgages, among other areas of interest. It is obviously important for all consumers of financial products to have an understanding of how they work, but the current methods for imparting that knowledge seem to be unsuccessful.
Experts at a conference panel at Brown University explained that most efforts to improve financial literacy provide broad, general overviews about finances. These programs are not very effective because they do not teach people the skills they need at the time when they need them. These broad initiatives may provide people with a general understanding about finances or economics, but they often fail to illuminate the jargon surrounding a specific financial product like a loan, mortgage, or insurance policy.
Programs that target individuals at the moments when they are making financial decisions, such as when trying to secure a loan, choose a retirement plan, or purchase insurance, would be a more successful type of financial education. Clear, simplified explanations of the implications of financial decisions and options at the time when these decisions need to be made could be successful in helping people make competent choices.
Many financial literacy groups are particularly focused on reaching out to young people in the hopes of helping children grow up with greater financial literacy. Unfortunately, financial education and advice for young people about issues such as life insurance and Social Security generally does not “stick” because it is not reinforced and is often not relevant to the children’s or teenagers’ lives.
Games or other activities that reinforce learning through fun can be a more useful way to teach children about finances, but what is perhaps most effective is to teach children what they need to know as they need to know it. Children and teens can learn best about budgeting and fiscal responsibility through receiving an allowance, and can learn about taxes when they receive their first paychecks for summer jobs.
Though current models of financial education may not be working, there are other options for educating consumers and young people to promote financial responsibility and fluency. There are opportunities for educational interventions each time a person makes a financial decision or purchases a financial product. Successful financial education is just a matter of shifting the focus of financial literacy groups away from broad overviews and toward the need-to-know specifics.
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