Financial Literacy versus Financial Life Building Skills

Financial Literacy Post1 Financial Literacy versus Financial Life Building Skills

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;

  • Debt
  • 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 icon smile Financial Literacy versus Financial Life Building Skills

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!



Comments

  1. Good
    discussion! I think the approach has to be comprehensive. Managing
    money is a skill critical to life and you have to expand it to cover
    subjects such as they why and how of insurance, retirement planning,
    taxes, etc.

  2. FamZoo.com says:

    Terrific post Lou with respect to your specific points about including the psychology of consumerism, critical decision making, and the art of frugality to the menu of things kids should learn to build good money habits. To me, those components certainly fall under the umbrella of the very broad definitions of “financial literacy” that you pulled from NFEC, Wikipedia, and Investopedia – none of which identified debt, budgeting and savings, and money management specifically as the exclusive components of financial literacy. So, as much as I like your points, and as much as I personally like the term “Life Skills”, I don’t see any compelling reason to focus on the term itself. I really like the idea of schools offering financial literacy programs that include the components you call out, I also like the idea of putting better tools in the hands of parents so they can be more effective money mentors regardless of their own personal finance skill level. (To your point about “what happens when the parents themselves aren’t financially literate?”) Money and values are so intimately intertwined that I believe parents have to be involved one way or another. The cool thing is that when parents start working with their kids on learning about and practicing good money habits, they naturally tend to improve their own habits. It’s a two-fer.

    • I couldn’t agree with you more Bill. What’s really cool is watching my kids develop the right “mindset” and learning how to make purchases while learning the difference between a want and a need and how to address each.

      As they see how our family lives and uses its resources, it is my sincerest hope that they are learning how to, as you say on your website; be ready for the real world!

      Keep up the great work at http://www.famzoo.com/ :)

  3. Great article. I do know of an organization that goes beyond just teaching about budgeting, checking and savings—they are teaching Financial Dignity to students in grades 4-12, as well as those on college campuses. The organization is Operation HOPE (founded by John Hope Bryant in 1992) and the program offering is called Banking on Our Future (BOOF) where like I said earlier, there is also a BOOF College Edition. They teach about dignity (and living with dignity), wants vs needs, avoiding predatory lenders, other basic life skills, and then of course: banking, savings and checking, credit, and investments. Visit http://www.operationhope.org

    • Thank you for the compliment. I have checked out Operation HOPE and it is very interesting. I will definitely investigate it more and greatly appreciate you bringing it to my attention!

  4. Very good article and very good feedback.

  5. Nancy Phillips says:

    Excellent comments Lou, financial life skills must include good daily habits and these are much easier to teach young children – if you have the information.

    Five years ago I began looking for a fun and comprehensive approach to teach my young children critical life lessons about money, goal setting and personal values. I couldn’t find what I was looking for so I began an intensive review of the literature. This is what led to the creation of the The Zela Wela Kids book series. The stories simplify the most important lessons and best practices in the financial and success literature for a children’s audience relative to age.

    The series features a multicultural cast of characters so all children can feel good about themselves and their ability to achieve their goals in life. Children relate to the characters in the stories and enjoy learning from the illustrations, as well as the words. Because the brain learns most effectively through pictures, the reader benefits by learning critical life skills in a simple and fun way. Parents find it easy to incorporate the books into story time and often comment that they learn things they were never taught as children. They can then implement the lessons into daily life which helps the child practice the skills necessary to develop responsible financial decision making. No surprise, The Zela Wela Kids Learn about Needs and Wants is the currently the most popular, many parents like yourself are trying to teach this important life lesson!

    The major themes throughout the books are:
    financial literacy, the process of goal achievement, respecting diversity, entrepreneurial thinking and the power of giving.

    You are giving your children an incredible life-long gift by teaching them financial life skills during their formative years Lou – congratulations to you.

    • Thank you very much for the comment Nancy. I would love to review your program as I have made it my mission this year as an involved parent with PTO, Student Advisory Council (SAC), and Student Advisory Forum (SAF) to take this message to parents.

      I will also be meeting with a School Board Member to discuss. We definitely need to connect! :)

  6. HouseholdBudgetMadeEasy.com says:

    I have learned from personal experience that teenagers are very hungry to learn what they can about their finances. About a year ago, I had the opportunity to teach a Money 101 class to about a dozen juniors and seniors.

    I allowed them to create the topics and I simply talked about things they needed to be aware of for each one. It was structured as mini seminars and became a big hit. The teenagers realized very quickly that they have not been prepared for the financial things that will become an everyday part of their life as they move into adulthood.

    So yes, I think financial life building skills is a better term, however, I do not think it matters what it is called as long as there is a connection made between the need for money skills and everyday life.

    I have put a few of the “seminars” up for others to benefit from at http://www.moscertificationtraining.com/learn/.

    “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!”

    Yes, I think this is key: being able to internalize that consumer debt is evil and should be avoided like the plague.

    How is this best done? Everytime I have talked with parents be it in a seminar or through financial coaching, I emphasize the need for them to pass down to their children the financial lessons they are learning themselves.

    The teenagers are hungry for financial life building skills. Let’s feed them well!

    How about an eBook for teenagers?

    • Thanks for the thoughtful post David. Having a 6 and 8 year old at home has taught me that they are hungry even at that early age, to learn. Because of my experiences and the way we live our daily lives in my household (happily I might add :) ) ,they are learning these important lesson every single day!

      If you want to stop the epidemic of credit and financial issues that are crippling amateur consumers everywhere, I would argue the way to accomplish that is to teach kids early and give them the life building skills that will ensure they don’t suffer the same fate as their parents!

  7. Barbara Pugh says:

    There are three classes that can be offered to high school students: Consumer Skills, Consumer Awareness & Consumer Finance. These are part of the Career Tech Pathways programs http://www.careertech.org/career-clusters/glance/careerclusters.html. I have been pushing for high schools near me to offer these classes. High school principals tell parents to begin sharing things like bank statements with their students. Unfortunately, many parents don’t really know what they are doing when it comes to consumer choices and managing finances. People should not learn about the basics from salespeople. At the end of the day, the banker or insurance salesman does not have your interest in mind, it is theirs. Why do we think America is where it is today?

    • Excellent point Barbara. I have really researched this topic over the last 60 days and every time I see corporate sponsors getting involved to teach financial literacy (more like financial functionality) I’m very skeptical knowing their reasons are less than altruistic.

      I believe teaching high school kids is starting too late. We need to start with the K-5 level, work our way through middle school, and make knowing comprehensive financial literacy a prerequisite to graduating high school!

      Thanks for joining in on the conversation Barbara and I will look into Career Tech Pathways :)

Leave a Reply to Raaq IsEvolving Cason Cancel reply

*


*