Just last Monday, millions of American adults took to the tables and pens to complete the most dreaded day of the year. Tax Day. But show of hands, how many of you actually know how taxes work, and how to file and complete them? This shows a massive issue in the U.S, besides everything else. How has one of the largest financial powers in the world failed to teach its students financial literacy? A study run by the National Center for Education Statistics in 2015 noted that only 1 in 5 American 15 year olds could understand basic financial concepts. So what’s happened? In order to understand that, we must first identify the cause of this financial illiteracy, stemming from the failure to educate teenagers in both the school and the home, and the long lasting effects resulting from those faults. From that, 2 potential solutions will be identified.
But how do you learn how to file your taxes? Well you must be taught, whether that be at the school or at home, and the U.S’s failure to educate stems from both of those areas.
But let’s start with schools. Simply put, most schools provide either very minimal financial literacy courses, or outright none at all. Rather, they teach things that are far less applicable to an adulting society, like uh-not debate. But also, if there are classes, they are often very poor in quality. A 2016 study run by the Bank Of America and USA Today found that only 31% of Americans between the ages of 18-26 believed they were taught good financial skills by their high schools. That means that over two thirds of young adults left high school and entered college with poor financial literacy schools.
However, this is more than just a schooling issue. Most teenagers also aren’t taught finance in their homes. Parents aren’t teaching their children basic things, like managing money or keeping track of expenses. In 2017, a study run by T.Rowe Price found that only 23% of kids admitted to having consistent conversations about money, and that 69% of parents were hesitant to discuss financial topics with their children. This means that pare talking about money.
This failure to educate in both the school and the home results in massive negative long term consequences, such as the poor financial standing of most young adults, and growing financial inequality.
When you enter financial independence, good financial literacy skills should be essential. However, as I have stated earlier, most Americans now entering financial independence simply lack that. In turn, they will be put under more pressure from financial independence and will more often than not, struggle. This has only been exacerbated by the pandemic leading an almost epidemic in the U.S, with one study from Principal, an insurance company, reporting that more than 50% of Americans under the age of 30 have hit financial “rock bottom,” and 1 in 4 young Americans state their debt is “overwhelming.” The lack of financial literacy clearly is a factor, as a 2011 study proved that high school students who took some form of financial course were more likely to save and pay off credit cards rather than maxing them out.
Lack of financial literacy and financial literacy courses is also contributing to further financial inequality, as students from low income families disproportionately suffer compared to those who/ are are not. The CEE’s Study of the State reported that only 3.9% of schools that qualify for Free and Reduced Lunch have some form of required financial literacy course, and only 52.4% had any class at all. This means that those from lower income families will be disproportionately affected, and will in turn, have difficulties in escaping their financial situation. This leads to the poor only staying poor, while the rich only get richer.
The U.S’s failure to educate children financial literacy clearly leads to long term consequences. However, there are some potential solutions.
Firstly, parents should be more willing to discuss money with their children. This is because it’s proven that students will often listen more to their parents rather than their teachers. This is because most students will often have a closer relationship with their parents rather than their teachers. In 2012, a study conducted by 3 universities found that family involvement has more value to academic achievement than the school’s quality.
But the solution also comes from the schools, as it’s proven that if schools orient themselves towards financial literacy, it will be beneficial. Because if U.S schools provided financial courses to their students, the students would be able to establish interest and knowledge in personal finance earlier. The state of Utah of one 7 states that have either implemented or are implementing some form of required standalone financial literacy course. Because of that, most Utahns are financially smart, with only 29% having some form of debt in collection, in comparison to Texas, which has 44.7% This proves that financial literacy classes do work, and can actually improve financial skills and abilities.
You see how valuable financial literacy is to high schoolers.
We have analyzed the failure to teach it to us, how it produces long term consequences, and an institutional and personal way to solve it. Now, you may not know how to file your taxes now, but if these changes are applied, that may change.
Sources:
https://about.bankofamerica.com/assets/pdf/BOA_BMH_2016-REPORT-v5.pdf
2017-parents--kids---money-survey-results
More States Require Students to Learn About Money Matters - The New York Times
Lack of Financial Literacy in Young Adults Has Lasting Effect | Evaluation Toolkit
Study: Parenting More Important Than Schools to Academic Achievement | NC State News