What’s the Key to Money Success: Behavior or ‘Mechanics’?

An Ohio school teacher sounds off on blogger's assertion that personal finance is a waste of time unless it focuses on the psychology of spending.

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In the service of a broader discussion as to what works when it comes to teaching kids about money, I often tweet the published views of those who I believe know a thing or two about the subject. Not long ago, I tweeted a post by a fellow blogger here at Time.com, J.D. Roth, who also founded the Get Rich Slowly website and now blogs about More Than Money at jdroth.com. It seems that Roth riled some teachers in the field with his headline: Why Financial Literacy Fails.

The teachers take issue with Roth’s assertion that “a constant push for more financial education is a waste of time if it’s only going to focus on mechanics.” I agree with the teachers. Mechanics are important. Facts and figures matter. Understanding the long-term miracle of compound growth is a key step toward convincing young people to put it to use.

I tweeted Roth’s link because I thought he was spot on in his primary message: that a big part of the personal finance puzzle has to do with behavior—controlling impulses and tuning out media messages urging irresponsible spending. We are all in control of our financial destiny if we can just control that part of us that wants to spend unnecessarily. It’s a point worth making, and Roth did a nice job.

(MORE: Why We’re So Irrational When It Comes to Tax Refunds)

What follows is a thoughtful response by one teacher in the trenches, Brian Page, and Roth’s own response to Page’s comments.

Brian Page teaches personal finance in Reading, Ohio. He is a member of the Working Committee for the President’s Advisory Council on Financial Capability. He is a Money Magazine Money Hero and blogs about financial education. This is what he has to say:

Ardent supporters of financial education in our schools raised eyebrows after reading J.D. Roth’s headline Why Financial Literacy Fails. First, most of Roth’s suggestions are similar to current best practices in our classrooms. We get it. But I am also a strong supporter of content standards that include “mechanics” such as credit cards and rates of return.

Three of Roth’s suggestions are widely in force in the few states committed to financial education, and in the classrooms of passionate educators in states that have yet to commit to a financial education program:

  • Pay attention to behavioral finance.
  • Capitalize on game-based learning techniques.
  • Appeal to students’ self-interest.

Roth observed that behavioral finance is most applicable in the area of consumerism, which is a key unit in most personal finance courses. In Ohio, consumerism is a stand-alone state topic and consumerism is also a part of Jump$tart’s national standards. Best practices incorporate behavioral finance tips in every lesson, not just consumerism. You can find specific examples from the lessons I post in my online classroom. Educators across the country are doing similar things in their own way.

Game-based learning in our financial education curriculum has become common practice. There are a number of terrific game-based and scenario-based activities available for educators. This Edutopia article highlights my three favorites and provides information about 27 others.

Educators also are trained to make content relevant to students’ lives, and we have many resources to nudge students toward self-discovery. For example, NEFE’s LifeValues Quiz is based on rigorous academic research and references numerous works in social psychology, economics, family and consumer sciences, and marketing.

Our financial literacy efforts aren’t misguided; they are systemically flawed. A new wave of high-stakes monitoring about to go into effect will likely lead educators to “teach to the test,” which is counterproductive in developing critical thinking skills. This can be particularly damaging in the area of personal finance, where critical thinking is necessary to understand complicated financial contracts.

It is unfair to diagnose the problem of how Personal Finance is being taught, when in most states it is not being taught at all. The Council for Economic Education found that just 13 states require a course with Personal Finance standards and JumpStart points out that only 4 states require at least a one-semester course devoted to personal finance. This is despite the fact that 93% of Americans believe all high school students should be required to take a class in financial education.

Roth and I agree that schools are failing to provide our students with an adequate financial education. But we disagree as to why that is the case. Many of us are up to the task and already teaching personal finance. Roth seems to believe our coursework is ineffective. I believe it’s making a difference and that the bigger problem is that few states have committed to teacher training, K-12 integration of these lessons and a required stand-alone course in high school. How can we say it isn’t working when it’s barely being tried?

And here’s what Roth has to say after reading what Page has to say:

I don’t disagree with anything in this response. My article was based solely on my experience, and based on the conversations I’ve had in the past with reporters. I don’t have a wide range of experience with actual financial literacy educators (though I have exchanged email with them in the past). But after writing about personal finance for seven years — and reading about it for a decade — I believe strongly that too much of the available information (for adults and children) focuses on the mechanics. There’s no doubt the mechanics are important, but knowing the mechanics isn’t enough. Not even close.
I’m a smart guy. I had a personal finance course in high school. I understood the power of compounding, and I knew the dangers of credit cards and the dangers of consumerism. It didn’t matter. Because I didn’t have any psychological training, I allowed myself to dive deep into debt. It took me years to teach myself how to save and invest properly. I believe strongly that the primary focus of any financial literacy education must be smart behavior. This smart behavior is applicable not only to money, but to other aspects of life, including health and fitness. There are broad applications. Once this behavioral base is established, then yes, it’s essential to be educated in the nuts and bolts of how things work.
I guess this is the crux of my argument: 1) With proper behavioral training, a person can still achieve financial success even if they don’t understand compounding or how to write a check; and 2) without psychological preparation, it doesn’t make a difference if you know what two-cycle billing is or how to keep a budget.
One thing is for certain: We DO need more financial education in this country. I’m not sure how to implement it. There are all sorts of demands on our schools already: More art! more music! more physical education! Whatever the method, it’s important to give people the tools they need to achieve financial success.