Google financial literacy and it turns up over 9,540,000 results. Results vary from articles like Financial Literacy for the College Student to organizations like 360 Degrees of Financial Literacy , to thousands of personal blogs dishing out advice! To summarize, they all pretty much cover the same thing;
- Budgeting and Savings
- And Money Management
The Meaning of Financial Literacy
So what exactly does financial literacy really mean anyway? The National Financial Educators Council (NFEC) defines financial literacy as: “possessing the skills and knowledge on financial matters to confidently take effective action that best fulfills an individual’s personal, family and global community goals.”
Wikipedia defines it as the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources.
And finally, Investopedia defines it as possession of knowledge and understanding of financial matters and mainly used in connection with personal finance matters.
The Most Over-Used Financial Term in History
I would argue that the most overused financial term in history has to be Financial Literacy! Let me give you an example: This past weekend I attended Broward County’s Title I & Head Start Annual Parent Seminar. The Keynote Speaker was Dr. Boyce Watkins, one of the most highly sought after African-American scholars in the world and Finance Professor at Syracuse University who specializes in financial psychology.
I was given the opportunity to ask him a question during a group session and could think of no better question to ask than this; “Given the last 5 or 6 years of turbulent economic times we have just gone through, the fact that the room is full of many Title I parents and educators, and how little is actually being done nationally to make financial literacy a part of our children’s education, do you think financial literacy should be an important component in education?
The Financial Literacy Answer
When Dr. Watkins took the mic back, he stated he absolutely believed financial literacy was important and that schools were clearly lacking this component. However, he made sure to tell the parents in attendance to take it upon themselves to teach their kids these valuable lessons. But what happens when parents themselves aren’t financially literate? How then can they teach their children these Life Building Skills necessary to ensure a successful transition from school to life?
Upon Dr. Watkins finishing his statement, one of the presiding executive members of the Parent Advisory Council for Title I immediately asked for the mic to set me straight(I think :)) She said that in Broward County they had a Junior Achievement Program that taught financial literacy to students and that my kids just haven’t made it there yet since they were only in Kindergarten and Second Grade. Hmmm; I’ll have to investigate!
Responding to Criticism without Being Defensive
As a member of our school advisory council who interacts with educators and administrators, why is criticism or suggestions always followed with defensiveness? Another parent chimed in stating there were also programs where the kids could go to the bank and learn about using checking and savings accounts and how to write checks and use a debit card. Of course I had to ask for the mic back – just to set the record straight of course
Dr. Watkins was kind enough to allow me a rebuttal. I added that I was not talking about simply using a checking account, how to use a debit card, or to learn about understanding the free enterprise system as the Junior Achievement Program does. I was talking about “Building Life Skills” that would serve the children later in life such as learning the difference between a want and a need when making a purchase, the psychology of consumerism, and the mindset needed to achieve balance and happiness in life for our children’s long-term future.
And this is where the rubber meets the road!
Without a doubt, financial literacy is a very important component and I believe students should be required to pass a comprehensive course in high school in order to graduate! But financial literacy is much more than just learning how to budget, save, and money management; it also means learning the psychology of consumerism and how to protect yourself from becoming a part of our Debtor Nation…and this is where the rubber meets the road!
The fact is; consumerism is as American as baseball and apple pie. But in the process, consumerism has also made us a nation of debtors. If you want it, you’ll get it whether you actually have the cash to buy it or not!
A Nation of Debtors
Did you know that personal debt at the end of the nineteenth century was illicit, illegal, and always personal (between family and friends), and became by the end of the twentieth century, legal and institutional (between a person and a lending institution)?
Louis Hyman, Author of Debtor Nation: The History of America in Red Ink says the growth of consumer credit re-framed the largest business narratives of the twentieth century as the second industrial revolution. Sounds like this was a very well thought out strategy of capitalism and is definitely a topic and blog post for another day!
Comprehensive Financial Literacy Needed
So the question is not; which is better? The question is; should financial literacy be redefined and made more comprehensive to include financial life building skills? I believe the answer is an unequivocal and resounding YES! Here are the components I would add:
- The Psychology of Consumerism: The why’s, how’s, and when of making purchasing decisions and why the deck is stacked against you as an amateur consumer!
- Critical Decision Making: How to analyze and compare purchases as well as how and when to consider “alternatives” to making new purchases such as buying used or second-hand or re-purposing an existing resource, or simply coming to the conclusion that you really can do without .
- The Art of Frugality: Being frugal does not mean being cheap or having to settle for less! Frugality, as I have been living it for the last several years, is a virtue! Learning how to be frugal will free our kids from the chains of debt that many of us have been enslaved to and free them to pursue their dreams!
As parents, could we ask for anything more? For the record: since my financial and credit meltdown, financial literacy has become a huge part of my family’s life. Critical thinking and analysis is an everyday process we all use and we always discuss finances. I truly want my kids to be free to pursue their dreams before they get in the game of life – not during or after!
What about you? Are you teaching your kids Comprehensive Financial Literacy? Do you feel schools are doing enough to prepare our kids to participate in this ever increasingly credit economy? Please leave your comments below and share this story with your friends!