As April – National Financial Literacy Month – comes to a close, some may puzzle over why so many Americans struggle when it comes to managing their money. After all, there are countless programs available to help them free of charge.
Yet most of these efforts don’t produce long-term results. The evidence can be seen in the millions of people pursued by bill collectors, stuck in debt traps or mired in other avoidable situations each year. The reasons range from inadequate saving, overspending and abusing credit to simply living without a budget.
So what’s wrong with the nation’s approach to Fin Lit education and how can it be fixed? Critics fault established programs, where they exist, for taking an unemotional approach, skipping over the need for basic math skills and offering little reward for developing good habits. There isn’t a national policy on the issue, and more often than not it’s left to parents to help their kids learn money skills.
It’s a huge mistake that financial literacy isn’t taught in every school, experts say. The subject is required learning in just 17 states.
“Too often the hard lessons of financial literacy come from the school of hard knocks,” says Gary Alt, a certified financial planner in Monterey, California. “It would have been better to teach these lessons in the classroom years before so financial disaster could have been averted.”
Another challenge is a lack of math skills. Linda Sherry, director of national priorities for Consumer Action in Washington says studies show some people simply don’t know enough math to make good financial decisions.
Then there’s the tendency to leave emotions out of the conversation. Most financial education programs treat saving and spending as rational decisions, when they’re usually anything but.
“Money is very linked with emotional baggage,” Sherry says. “Money is so emotionally charged, from the time we are in grade school.”
It doesn’t help that American culture obsesses over material goods, and people grow up feeling judged for their clothes or neighborhood, Sherry says. “There are so many pressures that work counter to making good financial decisions.”
When people do save, watching the amount slowly rise doesn’t provide much emotional kick. Prize-linked savings programs offer an answer and this year became legal at banks and credit unions nationwide. Started six years ago, these programs have helped participants in four states save at least $94 million.
Many financial literacy programs aren’t sufficiently tailored to specific communities, says Tara Alderete, director of education for ClearPoint Credit Counseling Solutions in Atlanta. People don’t always know how to apply what they learn, she says, and may not remember key lessons that aren’t relevant at the time.
Just a quarter of millennials correctly answered four or five financial literacy questions, and the average adult American couldn’t score 60% on such a quiz, according to Financial Industry Regulatory Authority research.
Financial education can be more effective, practitioners say.
“We have to change spending behaviors, and that starts with looking at how we view money and talking about it,” Alderete says. It’s important to understand how people feel about money and get them to recognize sometimes deep-seated emotions the subject can stir. She says it’s a big win to get a client to see the root cause of a negative behavior and change it.
Make it a game
Some researchers believe that using video game concepts and motifs can help young people gain lasting financial skills. Doorways to Dreams, a Boston nonprofit group that helped design prize-linked savings programs, has experimented with games to help children learn personal-finance skills in a fun way. But any lasting results haven’t been determined.
Video games have potential to help people learn better math and money management skills, Sherry says, particularly among those whose lack of math skills may impede smart financial decision making. She’s not alone.
“Video games have proven to be surprisingly effective at teaching many skills, including math and strategy,” Alt says. Others look to the burgeoning array of online and mobile apps designed to help users manage their money and finances. Millennials wedded to their smartphones can keep their bank and credit accounts literally at their fingertips, night and day.
“I think it’s a big miss if we don’t leverage technology,” Alderete says. ClearPoint uses online games offering prizes and savings matches to teach basic skills like budgeting.
People rarely seek to gain financial expertise until it’s actually needed, a tendency exploited by financial services providers that deliver quick answers to consumer questions. But a lasting solution may rely on a slower pace with lots of repetition.
Moms and dads may shy from talking about money, but that can confuse kids.
Don’t be afraid to talk about money at the dinner table and let your kids see a snapshot of the household budget, Alderete suggests. If your child complains about not being able to buy something for $20, instead of just saying no, explain what other things $20 can be used for, and ask the kid to prioritize those items. Alderete says it’s vital to seize teachable moments with kids.
“The younger we teach children financial skills, the more second-nature it will become for them as they make important decisions throughout their lives,” says Alt in Monterey. Alderete agrees that it’s vital to seize teachable moments with kids.
While a disturbing number of Americans lack money smarts, the tide may turn as financial literacy programs adopt more effective methods.
Image via iStock.