Financial literacy should be taught early, often

OVERCONFIDENT? URI assistant professor of marketing Stephen Atlas, left, is conducting a study of how college students retain financial-planning lessons. / PBN PHOTO/MICHAEL SALERNO
OVERCONFIDENT? URI assistant professor of marketing Stephen Atlas, left, is conducting a study of how college students retain financial-planning lessons. / PBN PHOTO/MICHAEL SALERNO

From money from the tooth fairy and weekly allowance to regular paychecks, financial literacy should be emphasized throughout life, argue educators and career planners.

“These are important skills and you can’t just expect someone to understand them at age 18 or 20, it needs to be part of education at an early level,” said Margaret Brooks, president of Rhode Island JumpStart Coalition and director of Bridgewater State University’s Center for Economic Education.

She explained middle schoolers are making decisions about college and potential career paths, both of which are determined by financial stability and expected earnings.

Yet, she noted many of the college-age students she works with cannot complete basic mathematical calculations. Teaching financial literacy to students at a young age can translate into better financial practices later in life, including retirement and estate planning, she says.

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A 2015 PricewaterhouseCoopers report showed less than one-quarter of the 23- to 35-year-olds queried “demonstrated basic financial knowledge.” And 27 percent of the same age group expressed concern paying long-term debts such as student loans and sought professional financial advice.

Closer to home, Financial Industry Regulatory Authority’s 2016 National Financial Capability Study found 60 percent of Rhode Island respondents could not correctly answer three out of five economic- or finance-based questions. In addition, 56 percent of state residents did not have savings to cover three months’ expenses.

In November 2014 Brooks and students from East Greenwich High School successfully lobbied the Rhode Island Council on Elementary and Secondary Education to adopt national financial literacy standards in state schools from kindergarten to grade 12. The standards cover earning income, buying goods and services, using credit, saving, financial investing and protecting and insuring, as well as benchmark knowledge requirements of fourth, eighth and 12th graders.

Rhode Island was the fourth state in the nation, after Florida, Oklahoma and Alabama, to adopt the standards, yet they remain voluntary. The reason why the retention rate of financial literacy needs to be studied, said Brooks, is because inclusion and prioritization of this subject in the curriculum varies across Rhode Island and throughout the nation.

“If it’s not embedded in the curriculum” it may not be included by teachers who do not understand the importance of financial literacy, she said.

Brooks, who believes her work empowers participants, was named 2016 Educator of the Year by the Institute for Financial Literacy. But as important as it is to learn early, studies also suggest the knowledge can fade without reinforcement in adulthood.

Stephen Atlas, University of Rhode Island assistant professor of marketing, sees varying degrees of success in the application of financial literacy among the college students he interacts with on a daily basis.

Nationally, he said, many workers are unprepared, financially, for retirement and this is due to poor financial knowledge and planning at a younger age.

“Our economy places a large portion of the burden on individual workers to prepare for eventual retirement. So, how knowledgeable people are about their finances effects how prepared they will be later on,” he said.

Citing a January 2014 study by Daniel Fernandes, John G. Lynch, Jr. and Richard G. Netemeyer, Atlas said, “the impact of financial-literacy education, like all education, fades over time.”

The study found one hour of financial-education intervention, teaching financial literacy to adults or leading them through a financial-planning process, loses effect after five months and 24 hours of intervention loses effect after 18 months.

Atlas was flummoxed by what he called a paradox: “[Financial-education intervention] effects behaviors in the short-run, but in the long-run there is a much weaker impact on financial choices,” he said.

Subjects who have experienced financial-education intervention often feel confident, but as that study shows, said Atlas, they may be experiencing false confidence. The perception of being financially knowledgeable, he said, is just as harmful as being financially illiterate.

It is imperative this trend end, he said, because millennials should be saving for retirement now.

“There is a direct link between what you do early in your career and how difficult it is to prepare later for retirement,” he said.

This conundrum led Atlas to launch an 18-month study at URI, starting in September, tracking students’ financial-literacy retention rate by measuring the link between their habits and expressed knowledge level. He received a $176,522 National Endowment for Financial Education grant to fund the research.

Over the next year, some of a group of 300 college students will be exposed to financial-literacy information and their purchases tracked, taking into account family financial and education history. He expects early results to be published in 2017 and hopes the findings will help future generations avoid financial issues hindering young people today. •