In January 2021, GameStop’s stock surged 2000%. In June, AMC rose 600%. In November, Bitcoin reached an all-time high over $64,000.
By December, it tumbled down. Nearly 30% of Americans had bought a viral meme stock in January, and the media quickly depicted a David versus Goliath showdown of Wall Street versus Main Street. We assigned blame and clamored for regulation. Citadel became public-enemy number one. Robinhood was fined $65 million by FINRA and months later, a record $70 million by the SEC. Amidst the headlines, we failed to examine this craze as a symptom of a broader problem.
2021 showed us: if we don’t teach people financial literacy, they won’t suddenly stop investing. They’ll do it themselves, and the vast majority will lose money. They’ll invest less frequently, with less diversification, and into more speculative, Get Rich Quick, opportunities.
Instead of applying financial reasoning, we’ll apply logic from Reddit; instead of technical analysis, we’ll analyze tweets of financial influencers. We’ll invest in crypto because of a star-studded FTX Superbowl commercial, and the cost of financial illiteracy will rise.
Most Americans Don’t Understand Money
Nearly half of Americans are a $400 parking ticket away from the poverty line. That figure alone is scary, but the reality is terrifying when a 2022 survey from the National Financial Educators Council shows the average self-reported cost of financial literacy was $1,819.
When half of US workers make less than $35,000 per year, how many of them are trapped into poverty by their own financial mistakes?
Clearly, we have an education problem. 32% of teens still don’t know the difference between a credit card and a debit card and 11% of Americans with bank accounts paid overdraft fees in 2021. Without national standards and increased funding for formalized financial education, we are teaching financial literacy through financial ruin: debilitating families’ abilities to build generational wealth and threatening an economic crisis.
Studies have concluded that more than one-third of U.S. wealth inequality could be accounted for by differences in financial knowledge; perhaps if we provided people with a more informed financial perspective, we’d be better equipped to hold public institutions accountable. Or perhaps the system is working as intended: leaving people in the dark about money so they don’t ask questions about ballooning public school budgets with little to show in terms of outcomes and achievement.
Financial Education Is A Proven Investment We Aren’t Making
People with higher financial literacy scores are more likely to plan, save, invest in stocks, and accumulate more wealth. They also have been shown to be less likely to have credit card debt and more likely to pay off the full amount each month. They refinance their mortgages at the correct times, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods.
Despite the evidence that financial education can produce transformational outcomes, nearly half of students nationwide still lack access to a formal financial education. As of 2021, 75% of teens report learning about personal finance from their parents. 52% of teens learn from school and 42% from social media.
Social media is not an effective substitute for formal financial education programs; parents should not have to make up the gap left by tax-payer funded schools. If money makes the world go round, maybe schools should teach our kids about it?
Instead, financial literacy has devolved into a massive, generational game of telephone; if a child doesn’t learn about budgeting, saving, credit and investing from their parents, they never do. Financial literacy has become a double-edged sword for generational wealth: it benefits those with it and disproportionately hurts those without it.
Although 75% of teens lack confidence in their knowledge of personal finance, 73% reported wanting more personal finance education in 2021. An even greater number (86%) of teens were interested in investing.
They’re already engaged with the subject matter. Now it’s our job to leverage this engagement, promote digital, real-world learning that meets them where they already are – their smartphones – to produce learning outcomes that change the status quo.
We’re Improving State By State, But Not Fast Enough
Unfortunately, only 23 U.S. states require high school students to take a personal finance course to graduate as of 2022. 25 states require students to enroll in an economics course to graduate, but even many of these programs would benefit by making financial literacy more relevant, contextualized, and integrated into courses.
At Rapunzl, we provide a gamified financial literacy platform where students simulate real-time stock and crypto portfolios before entering into scholarship competitions funded by financial institutions, but we’re only one piece in a much broader solution. Rapunzl provides an educator portal with a rigorous and comprehensive financial education curriculum for middle school math and financial education, but we will not successfully address this crisis at the necessary scale without more public-private partnerships with government funding.
We need every state to require a full-semester, financial education course for high school graduation, and should be incorporating elements of financial literacy in middle school and earlier. With massive shortcomings in math achievement across the country, financial literacy offers the perfect opportunity to provide relevant, contextualized, real-world learning for students because kids love money and what could be a better project-based learning activity than managing an investment portfolio?
Making financial education cross-disciplinary means that we need to provide teachers with the necessary training and resources to teach financial literacy effectively. We need to solve the chicken-egg dilemma: how do we teach financial literacy when we never taught our teachers?
Anyone who has spent time in a classroom can tell you that a good curriculum is only as good as the teacher teaching it. We would be myopic to believe financial illiteracy is a new problem or exclusively afflicts younger generations. After teaching in hundreds of high schools across the country, I can attest that the questions we receive from teachers are the same as students, because our teachers never received a formalized financial education.
We need to come to terms with financial illiteracy and become comfortable talking about money. A solution requires us to set aside ego, acknowledge what we know works and what doesn’t, and ensure that we account for all education groups from microschools to homeschoolers to charter schools and public school districts.
The Federal Government Needs To Step Up
Beyond state initiatives, the federal government must begin taking financial education seriously. We should enact proactive policies that focus on wealth creation and invest heavily in teacher training because our teachers need to understand pensions before they can teach retirement to students. We should fast-track approval for digital learning tools that assist educators because these possess the greatest opportunity to truly provide equitable access to all students, regardless of zip code.
Policymakers should encourage Americans to adopt healthy financial habits at a young age. We should provide monetary incentives to parents to invest in their child’s financial future. Federal funding should follow effective programs and amplify their effects at scale. We should also tie this funding to the adoption of personal finance requirements in high school, which should be an overwhelming bipartisan issue.
Even minimal funding could have compounding effects by leveraging the networks of existing programs that have proven their efficacy in the classroom. Rapunzl has distributed over $300,000 in scholarships and impacted nearly 75,000 students in 5 years. What scale could we achieve with $1 million in scholarships in a school year? How many students would that impact if every school in the country needed to teach personal finance?
Any solution involving the federal government is challenging; however, we all benefit with more economically engaged citizens; and we need to act now.
Financial literacy can and should be woven into a student’s learning because it’s crucial in creating informed citizens. You can’t read the news without understanding financial markets because the world’s largest stakeholders are enacting policy and making business decisions based on economic factors. By providing students with a financial lens to view the world, we can help them avoid common financial mistakes and leverage the power of financial markets to help begin building generational wealth.