Teaching financial literacy is not for all

Anna Lusardi in a post says:

I regularly receive e-mails from people who recognize the terrible need for improving financial literacy among young people. Most of the people who write say they want to volunteer their time and teach financial literacy in high school. I am very impressed by how strongly people feel about financial literacy and I have been thinking of ways of harnessing that willingness to help and the generosity of volunteers. Financial literacy is much in need of promoters and organizers. It is a very important issue and we need to work for it.

While I want to encourage everyone to get involved with the schools, I am reluctant to recommend that individual volunteers teach financial literacy in schools, for three main reasons.

1. Contrary to popular belief, it is very hard to teach

2. Individuals seem to have many different ideas about how to approach the instruction of financial literacy. As I have mentioned in previous blogs, financial literacy is a topic grounded in economic and finance theory and it should be taught accordingly. But what I often hear suggested are topics like how to balance a checkbook or how to buy stocks. We need to stay away from these narrow “how to” lessons of financial literacy, as the objective here is to prepare people to understand and navigate a world of complex and changing financial markets.

3. It’s not always clear how well qualified individuals are to teach financial literacy. In several cases, I have found that college freshmen have set up web pages to teach financial literacy and are eager to go to high schools to offer some classes, even though they may have taken only one introductory course in economics. This is the curse of economics. I have found that many people feel very confident about their views of how the economy works even if they have never read an economics textbook.

Very well said Prof Lusardi. Pick up a newspaper, magazine etc and you see so many people telling you about vitues of financial planning etc. Especially at the year end you have tons of advice on what to do to save taxes etc. And buying stocks advice comes from all kinds of people all across the year.

So what is the way:

I do not want to discourage anyone who is interested in the pursuit of improving financial literacy in schools. Quite the opposite! Please be involved; do not let the school in your own district not pursue financial literacy, not teach these courses! But perhaps the best role is to be an “ambassador of financial literacy”; be an advocate for financial literacy without going directly to the blackboard. We normally do not let strangers into the classroom, in any course, not just financial literacy. In my view, teaching financial literacy requires a deep knowledge of economics, solid training, and a fair dose of humility.

3 Responses to “Teaching financial literacy is not for all”

  1. Teaching financial literacy is not for all « Mostly Economics Economic Finance news Says:

    […] More here: Teaching financial literacy is not for all « Mostly Economics […]

  2. Financial Literacy Says:

    Annamaria is the authority on Financial Literacy. Pay very close attention to what she says and what she does. They are completely in sync.

  3. Garth Bernard Says:

    I have spent my entire career in finnacial services. My background and technical capabilities are in the areas of finance. Annamaria Lusardi is right – although many people want to volunteer to teach financial literacy, most of them don’t have a clue what teaching financial literacy is all about.

    First, you have to understand the basics of finance, not economics. They are two different though related disciplines. Second, you need to have expertise in finance. Third, you need to have the gift of teaching … very few people know how to engage students in the process of learning. One’s own knowledge is not a sufficient indicator of one’s ability to impart that knowledge on others.

    I have the gift of teaching. Here’s how I teach financial literacy. First, I engage them in a view or perspective that is highly compelling and interesting. For example, I start by asking who wants to be a millionaire? The answer is everyone. I just got everyone’s attention regardless of their age. Next, I do a very simple exercise … I tell them that they first have to learn how to buy and sell money! This ALWAYS gets the student totally engaged. You can buy and sell MONEY??? No one ever thinks of money this way … as something that can be bought and sold. [Of course this is just another way of describing saving/investing and borrowing, but those terms do not engage people.] I plant two people in the audience so I can buy a dollar from one of them for a dollar five cents and sell it to the other for a dollar ten cents. We then discuss each transaction. Why do people want to sell money (save) and why do others want to buy money (borrow). And why would they pay more than a dollar for it? I also made 5 cents profit on the deal. I pay taxes of a penny and end up with 4 cents. All of a sudden, I have a room-full of people all engaged in the learning process.

    I can now introducing saving/investing, borrowing, time horizons, compound interest, stocks, bonds, investment risk, default risk, diversification, credit cards … you name it … all without initially using any technical terms. In other words, it is possible and necessary to conduct the delivery of knowledge in terms that a child can understand and engage.

    I can also introduce engaging learning aids that focus on specific financial topic areas.

    I’ve done this with 13-year old kids all the way up to adults! Every single one of them wlaks away with a new appreciation of basic financial topics … but more important, with a buring desire to learn and to apply the newfound knowledge.

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