Financial Literacy: Sham or Real?
The college funding season begins in earnest on October 1, when the new Free Application for Federal Student Aid (“FAFSA”) form for the academic year 2022-2023 will be available. This is the main vehicle to apply for financial aid for college or graduate school and while the deadline to complete the form is not until next spring, some schools award aid on a first-come, first-served basis, so it is smart to complete it ASAP.
Unfortunately, many families are not talking about college funding, or any other money topic, until it’s too late. In its annual survey, Discover Student Loans found that about 1 in 3 parents have never talked to their child about the FAFSA form. And of course, the myths about FAFSA continue to prevail: 36% of parents believe it takes 1 to 3 hours to complete the FAFSA, when most families complete it in less than 1 hour. Meanwhile, 42 percent erroneously believe they will not qualify for federal aid, when 86 percent of first-time, full-time students at public 4-year colleges were granted aid.
The college funding process is anxiety-provoking and worrisome, but could it improve with more fundamental conversations with kids about money? For years, many have bemoaned the poor levels of understanding that Americans demonstrate about basic financial concepts. They have argued that only when these concepts are taught in the nation’s school systems, will we create a generation of smarter financial decision-makers.
I have been all-in on talking about money with kids as early as the toddler years. According to research, money habits start to form by age seven, so it’s imperative to start when they are even younger. But I have been dubious about the effectiveness of financial literacy as the way to create better outcomes. I rethought that notion after interviewing Susan Beacham, a co-founder of Money Savvy Generation, whose mission is to help parents and their children get smarter about money.
Beacham’s approach relies on reaching kids at a time in their lives when they are open to the financial content, when they can “touch kids emotionally and change their behavior.” Money Savvy tackles the basics to kids as young as age four in order “to get out in front of money management behavior before bad habits set in.”
To do so, the organization returns to the quintessential symbol of saving: the piggy bank. But instead of one cavernous body that acts as the repository for all things money, the Money Savvy Pig piggy bank has four chambers, SAVE, SPEND, DONATE, and INVEST, “one for each of the four money management choices a child should be taught from the time they are small.”
At about this time, you are probably thinking, “Wait, it can’t be that easy, can it?” Of course not. Just teaching the information will not necessarily mean that adults will thrive financially. After all, I wrote a whole book about why that may not be the case (The Dumb Things Smart People Do with Their Money: Thirteen Ways to Right Your Financial Wrongs). And critics of financial literacy as the panacea for financial woes rightly point out that even a solid foundation of literacy may not help adults when they confront the major financial decisions of their lives. But does that mean we should abandon the process altogether?
Beacham does not think so. Nor does Laura Levine, the president and CEO of Jump$tart, the non-profit Coalition for Personal Financial Literacy that is committed to advancing youth financial literacy. Responding to critics that have poo-pooed financial literacy efforts, Levine wrote, “We know that better education alone won't protect victims of financial fraud or discrimination, won't provide better access to service and opportunities, and won't guarantee workers a livable wage. We do believe, however, that financial education is a strong foundation on which equity, access, opportunity, service, and consumer protections can, and will, be built.”
To prove the point, Levine and Beacham point to independent research that supports the effectiveness of financial education. Although these efforts are relatively new, the paper cites two studies that show “if we teach children basic economic and financial concepts, they do learn.”
In addition to Money Savvy Generation, check out the Consumer Financial Protection Bureau’s web site, Money as you Grow to start money conversations with the kids in your life.
AND DON’T FORGET TO COMPLETE YOUR FAFSA FORM!!!