Teaching kids about cash: Whose job is it?


Annamaria Lusardi, Ph.D., says children in school should be studying dollar signs along with their ABCs.

The Denit Trust distinguished scholar in economics and accountancy at the George Washington University School of Business in Washington, D.C., believes the process of educating children about money management is too important to leave to parents.

Instead, she says schools should make the topic a requirement beginning at an early age. As a society, we must give schools the trained teachers and other resources they need to turn today's students into tomorrow's financial leaders, she argues.

Do you believe it is the responsibility of the parents to teach their kids about money and finances?

I believe it is primarily the responsibility of schools to teach young people about money and finance. There are two limitations of leaving this responsibility to parents. First, not every parent is financially literate. According to the 2009 Financial Industry Regulatory Authority Financial Capability Study, only one-third of the adult population in the United States knows about basic financial literacy concepts.

Second, the quality of the education provided by parents can be rather uneven. Thus, young people will start on a rather unequal basis; those whose parents have college degrees and experience in finance will be more likely to be financially knowledgeable, while those whose parents have limited financial knowledge or little experience or interest in finance will be likely to have lower levels of knowledge. However, every young person has to deal with financial decisions, the most important one being whether or not to invest in education.

Is educating students about money management the responsibility of a school?

Yes. As I have discussed above, I believe it is primarily the responsibility of a school. Money management is a rigorous topic, based on mathematics and economic principles. We normally do not leave the responsibility to teach math or science to parents. Moreover, financial literacy is an essential skill for success in today's society. Given its importance, it is perhaps not surprising that, in 2012, the Organisation for Economic Co-operation and Development's Program for International Student Assessment, or PISA, will dedicate an entire module to financial literacy.

Should it become a requirement to pass a financial literacy class to graduate?

We should make financial literacy a requirement and make sure schools have the resources and trained teachers to implement it. Unfunded mandates or stringent requirements such as "pass a fin-lit class to graduate" are not helpful.

At what age should schools start teaching about basic personal finance topics?

As early as possible. As I have mentioned above, financial education is like all other education. We do not learn about history or math or literature in one single course at the end of the senior year. Thus, for financial knowledge as well, we need to start simple and build on that knowledge in several courses.

In your research, you argue 'that financial literacy itself is an endogenous variable and that individuals can increase their human capital by investing in financial knowledge.' Could you elaborate on this point?

Financial literacy is associated with better financial outcomes -- for example, a higher return on investment. In my and other studies, we find that those who are more financially literate are more likely to invest in stocks. (And the causality goes from knowledge to investment in stocks and not the other way around.) Thus, some individuals may find it advantageous to invest in financial literacy to be able to do better in their investments and their financial decisions.

Are there any projects or research work you are currently involved in to enhance financial literacy in younger generations?

I am involved in several projects concerning financial literacy among the young. I have worked with a team of mathematicians at Dartmouth College to design a set of modules that can be used to teach financial literacy in both high school and college. They are available online at Math.Dartmouth.edu.

With another team of researchers -- which includes economists, psychologists and a linguist -- we have designed a set of videos that use narratives and stories to teach about basic but fundamental concepts, such as the power of interest compounding, the effect of inflation, the workings of risk diversification and so on. The videos are available on our website, RAND.org. We have also written a paper about the effects of these videos on knowledge and behavior. Links to the videos on our website and to the paper are here: Rand.org/labor/centers and Rand.org/pubs.

I am also the academic adviser of the new Museum of Saving in Italy, which opened last May in Turin, Italy, and whose objective is to stimulate learning and curiosity about finance and the history of finance among the young (and the old!). The link to the museum website is MuseoDelRisparmio.it.

Finally, as the chair of the Financial Literacy Expert Group in PISA, which designed the new financial literacy module, I look forward to getting the results of that module and analyzing the data both in the U.S. and across countries. The link for PISA is OECD.org/pisa/aboutpisa.

We would like to thank Annamaria Lusardi, Ph.D., the Denit Trust distinguished scholar in economics and accountancy at the George Washington University School of Business, and a research associate at the National Bureau of Economic Research, for her insight. Questions for this interview were contributed by Offain Gunasekara, content coordinator for Bankrate.com.

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