At some level, personal finance is common sense and Ben Franklin-style self-discipline. A penny saved is a penny earned, right?

Sure, but in an era of easy credit, street-corner paycheck advances, and mass-marketed financial services with cute mascots, it is easy to become confused, or overwhelmed. Members of the middle class drive by some of the most discouraging parts of the financial service economy without even noticing them. As California Governor Gavin Newsom has pointed out, "the nation has as many check-cashing and payday loan businesses as it does McDonalds and Starbucks Coffee stores combined."

These services are expensive — but for the poor, banks can be even worse.

What is financial literacy?

Financial literacy is the capacity to make informed decisions involving money, assets, or debt.

Children are not born financially literate. On the path to adulthood, they must acquire the skills they need to support themselves and those they care about.

Society has an enlightened interest in a financially literate public. Self-sufficient adults help the economy by contributing to economic growth. From a policy perspective, the main vehicle to equip people with basic financial literacy skills is the public education system. But the role that most schools play in preparing students to understand and navigate personal finance is shockingly limited.

California's financial literacy strategy has been ineffective

California's strategy for teaching financial skills has been to weave financial learning into other subjects, rather than delivering it as a separate course. The idea has been that students will internalize key principles as they encounter them in different educational contexts. For California high school teachers, this has made financial literacy a shared responsibility. The topics to be covered across multiple courses include budgeting and managing credit, student loans, consumer debt, and identity theft security.

Idealistically speaking, financial literacy education is every teacher's job. Practically speaking, it’s nobody’s job.

No one argues that this strategy has been effective. In 2022, the Nation's Report Card on Financial Literacy awarded California a grade of D for its approach to teaching students the financial skills they need to succeed.

California students generally do not have a class on financial skills. Instead, financial topics are supposed to be "woven into" the curriculum.

In other reviews of financial literacy education among the 50 states, Champlain College awarded California a failing grade. The Council for Economic Education expressed similar concerns.

The costs of financial illiteracy

Financial mistakes can have huge consequences for individuals, families and communities. Many businesses profit from consumers' bad financial decisions. The National Financial Educators Council estimates the direct annual national cost of financial literacy in 2022 was at least $436 billion. But this is figure surely understates the issue. Financial errors and financial uncertainty create massive stress and indirect costs.

Policies to improve financial literacy education

Courses taught in California's schools are expected to align with currriculum frameworks, which are periodically reviewed and updated. Curriculum frameworks help educational leaders, publishers and educators harmonize their work with California’s educational standards, which express the expectations of what students should understand and be able to do as they advance. A curriculum framework is sometimes compared to a roadmap — it helps you find your way to a destination without necessarily telling you exactly how to get there.

Financial education has not been clearly mapped in these frameworks. It is usually understood to fall in the domain of the history-social science curriculum framework, which was last updated in 2016 and is scheduled for review in 2024. But the state's mathematics framework also includes elements of financial education. A long-awaited review of this framework is expected in 2023. Neither framework update is expected to specify a separate course requirement.

It can take a long time for changes in an educational framework to be implemented in the specific course offerings or requirements at any given school. In California, textbooks and learning materials are adopted by school districts, which have a lot of power and latitude in how they respond to changes in curriculum frameworks. Changes in curriculum frameworks do not typically result in quick changes or in mandates for school districts to offer or require specific courses.

In early 2023, Tony Thurmond, the California Superintendent of Public Instruction, expressed support for teaching financial literacy through separate courses in California high schools. "Access to financial literacy is an equity issue that is directly reflected through racial wealth gaps," he said. "Only 27 percent of California high school students attend schools that offer personal finance classes."

Should financial literacy be a separate course?

To deliver an education on any subject requires an investment of student time and educator time. Some advocates argue that financial literacy is such a universally essential life skill that every student should be required to take a course on the subject.

According to the Council for Economic Education, high school classes in financial literacy make a difference. College students who come from states where there is a course required in financial literacy are:

• more likely to budget,
• more likely to be saving,
• less likely to have maxed out their credit cards in the last year, and
• more likely to be paying off their credit cards fully every month.

Most jobs are created in small businesses, where basic financial readiness is a critical survival factor. In 2014, six states required students to take a test of financial literacy. California was not among them.

A full financial literacy course might cover four general areas: Saving and Investing, Credit and Debt, Financial Responsibility and Money Management and finally understanding Insurance, Taxes and Real Estate Debt.

Does financial education work?

A course in financial literacy is meant to equip students to make wise choices and help them avoid making costly errors. Does it?

The short answer from many studies is yes, but it's important to have realistic expectations. World Bank studies of small financial education interventions have registered only modest effects, for example. A dedicated course is a bigger investment than a smaller program, and likely to have a larger impact, but the effect is likely to be uneven based on how well the curriculum matches the financial needs and context of the students involved. Financial education feels relevant if you have money. If you don't, it can feel like preaching or wishful thinking.

In 2019, a study focused specifically on the impact of financial education on African-American college students. The study, which includes a useful rubric, found that effective programs have to include practice to be effective. Equipping students with theoretical knowledge about personal finance is necessary but not sufficient.

Non-profits try to help

An important role of philanthropy is to fill gaps in the programs and services that schools, governments and businesses deliver. Some non-profit organizations have developed programs to help provide financial education.

• NextGen Personal Finance has declared an audacious mission: "All U.S. high schoolers will be guaranteed to take at least one semester-long Personal Finance course before graduation." The organization provides free curriculum and training materials for educators, and makes grants to support implementation.
• BizWorld.org is one organization taking proactive steps to recruit and prepare future entrepreneurs. BizWorld inspires children to be innovative leaders through the teaching of business, entrepreneurship and finance.
• Jumpstart is a nonprofit that advocates for national educational standards for financial education.
• CalCPA.org, a nonprofit for California Certified Public Accountants, organizes its members to volunteer their expertise in schools.
• The California Department of Education has collected a pile of links to organizations and services with an interest in financial education.
• Edutopia periodically features insights about best practices for teaching about financial literacy.
• The Money as You Grow site offers tips and activities sorted by your child’s age to help them understand money.

Next Steps

Want more financial literacy in your school? This a a good topic for a PTA meeting. Find out what is taught at your school. Do teachers have the skills and knowledge to successfully integrate financial literacy into lesson plans? Has your school board identified this as a priority?.

This lesson concludes chapter 6: "The Right Stuff." The next lesson begins our exploration of "The System." The overall structure of Ed100 is this: Education is Students and Teachers spending Time in Places for learning with the right Stuff and a System with Resources for Success. So Now What?

Updated December 2017
March 2019
May 2023