Financial literacy classes are not going to prepare your teens to manage money responsibly as an adult. To start with, such classes are not available in all states and may not even be required for graduation. More importantly, financial literacy classes are late to the game in teaching kids how to manage their own money.

Instead of aiming for financial literacy, I encourage parents to help their kids achieve financial competency, which includes knowledge (financial literacy), learning money skills with opportunity for practice while developing behaviors and habits learned at home that allow an individual to make informed decisions regarding money.

Schools only provide knowledge, but not the opportunity for skills and practice that develop behaviors and habits necessary to responsibly manage one’s finances for a lifetime.

Take the example of driver’s education. Teens have to pass the classroom exam (knowledge) to get a permit to practice driving (skill). Drivers then develop habits (behaviors) that can adversely affect their experience—speeding, not signaling, using mobile devices, not being insured. Likewise, bad money behaviors can lead to a lifetime of financial struggles. 

Unfortunately, kids develop financial habits before they even start school, years before sitting in a high school financial literacy classroom. Researchers at the University of Wisconsin–Madison report that by the age of three most kids are able to understand the basic concepts of value and exchange that are central to economics.

Sometimes parents wait until their kids are in their teens before they start talking about managing money–when they could be starting when their kids are in preschool. ~ Warren Buffet

Financial literacy classes provide knowledge of facts and figures, math and statistics that very young kids can’t be expected to comprehend. Your child does not need to know about investing, compound interest, saving, credit, loans, or saving for retirement to decide what toy to buy.

Why financial literacy classes fail

Financial literacy is critically important to making healthier financial decisions, but financial literacy alone will fail because it’s only one piece of a much bigger puzzle that’s part psychology, part life and part money. Why Financial Literacy Alone Will Always Fail

As the author of a book teaching kids to manage money as a number, I believe financial education in schools is missing the mark for several reasons:

• Too late. Kids can start managing their money before they start school.
• No skin in the game. Teens are more interested in what to do on the weekend than learning about planning for retirement.
• Easily forgotten. A young adult can’t invest if the bills aren’t getting paid on time, late fees are being charged, and credit card interest are increasing the balance due.
• Uses knowledge (passive) terms: describe, critique, recognize, research. Kids manage their allowance by seeing–no research needed.

Not only do I believe financial literacy classes are overemphasized as a solution, our results as a nation are not encouraging. With the recent passage of a Louisiana law requiring a financial literacy course for high school graduation, only 22 states have similar requirements on the books as of June 2023. That’s not even half our our states.

Find out how your state stands: Which States Require Financial Literacy for High School Students?

Financial literacy classes not making the grade

Given that not all states require classes, it’s even more disappointing to find 53% of those students in a T. Rowe Price survey report: “Despite taking a financial literacy course, I don’t feel prepared for the financial responsibility that comes with adulthood.”

What’s missing in financial literacy classes?

So, what’s missing in financial literacy classes? Skills, practice, and behavior. Schools can’t provide money for practice. Only parents can do that. Without money, kids can’t practice and develop habits and behaviors.

The No-Cash Allowance is a guidebook for parents to help their kids learn to manage money as a number.  Read an overview of the book.

Understanding what financial literacy is (and is not) a subject worth more than one blog. You are reading the first of a three-part series. Check back weekly to read the rest of the series.

• Part 1: How financial literacy classes place cart before horse in two important ways
• Part 2: How to help your kids develop money skills to last a life time
• Part 3: How to help your kids develop financial competency as they review their money behavior

Allowance anecdote: When I asked my teenage grandson what he learned in his financial literacy class, he said, “Oh, they talked a lot about credit cards.”

Financial literacy classes are the knowledge part, but by the time kids are in the classroom they have developed behaviors that can make their adult financial life difficult. As parents you can provide the skills and practice to help them develop better habits for their future.

Give your kids money with responsibility and the control to manage it all by themselves.

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