Everything
You Know About Kids and Money is Wrong
by Stephen Gandel
August 2006
[Continued,
page 2]
Finding No.
1
Money classes don't make kids smarter
So you think one nationwide test about personal
finance doesn't prove anything? Try five, given to more than 15,000
high school students over the past decade. Each time, the results
were the same: Seniors who had taken a course in money management
scored no better on the 30-question exam than students who hadn't
taken a course. And the same held true even when the literacy
program was topnotch. In a study this year of high school graduates
from a midwestern town with a highly regarded finance program,
Mandell found that students who took the course scored 69% vs.
70% for grads who hadn't taken it.
Part
of the problem may be that high school is too late to start teaching
finance. Before they even get to kindergarten, kids receive thousands
of indirect lessons about money by observing their parents at
the bank, at the supermarket, at the mall and at home. So their
understanding of money matters -- even if what they know is wrong
-- may be too ingrained by the time they go to high school for
financial classes to effect much change. Earlier research suggests
children may be more receptive to learning financial concepts
from eight to 12. And Mandell's work supports this notion: In
a study of Chicago middle school students, Mandell found that
a financial education program was much more likely to change sixth
graders' attitudes about money than those of seventh or eighth
graders.
Solution: Start financial education sooner,
at home and at school.
If most personal finance courses are given in
high school, but kids learn better about money before the teen
years, it's up to Mom and Dad to bridge the gap. Look for everyday
opportunities to slip in money lessons. If you pay with a credit
card, explain to your child that the bill will be mailed to you
and that if you don't pay in full, you'll be charged more. Introduce
the concept of taxes when garbage collectors pick up your trash,
by explaining that you have to give money to the government to
pay for those kinds of services. Be sure to keep your comments
short; otherwise, your kid will just tune out the message.
A few innovative schools are trying to introduce
financial lessons at an earlier age as well. Students at Chicago's
Ariel Capital Academy, which is named after the local mutual fund
firm that helped create it, get at least one lesson a week in
managing money starting in kindergarten. The approach works, at
least for recent graduate Mario Gage, 14. "I save 40% of
the money I get," says Gage. "My friends from other
schools spend everything. They come to me to borrow."
failing
grade
High school graduates who have taken a personal-finance
course were less likely to make smart choices with money
than peers who have had no formal training.
NOTE:
Study looked at students who had graduated from high schools
in one midwestern city since 2001; half had taken financial
classes, half had not. SOURCE: Lewis Mandell, SUNY-Buffalo. |
|
|
PAYS
CREDIT
CARD IN FULL |
HAS
ADEQUATE SAVINGS AND INVESTMENTS |
| TOOK
COURSE |
> |
54% |
44% |
| DIDN'T
TAKE COURSE |
> |
60% |
55% |
Finding No. 2
Money classes don't change behavior
Most
of us know that fatty foods are bad for our health. But that doesn't
stop us from eating fried chicken and ice cream. By the same token,
even children who have mastered the magic of compound interest
and understand the evils of high-rate credit cards don't necessarily
become better savers and spenders as a result.
In
a 2005 study, Mandell found that kids with higher personal-finance
scores were more likely to describe themselves as big spenders
and bad savers than most kids with lower scores. And those midwestern
students who took the well-regarded money-management class were
just as likely (and in some cases more likely) to carry a credit-card
balance, miss payments and bounce checks as students who didn't.
"When it comes to actual behavior, financial education doesn't
seem to make a difference," says Mandell.
>A
leading proponent of financial education now questions its
value: It's as if Freud had renounced the ID.<
The
reason may have less to do with the curriculum than with the cerebrum.
New research into the brain suggests it is not likely that just
knowing the benefits of saving would cause anyone, let alone kids,
to take their money to the bank instead of the mall. The problem
is that there are two parts of the brain that are often in conflict,
notes David Laibson, an economics professor at Harvard who has
studied neurology and savings. The first part acts principally
on habit and loves instant gratification. The second part likes
to weigh choices and look for the best solution. But that part
is the weaker half.
Solution:
Make saving a habit.
In
a study of college students, economics professor Angela Lyons
of the University of Illinois at Urbana-Champaign found one striking
similarity among those who had good financial skills: Nearly all
said their parents had gotten them into the habit of saving as
young children, suggesting saving is a behavior that comes from
experience, not knowledge. Her advice? Make your kids put part
of any money they get or earn in a savings account. Then provide
further encouragement by matching the amount they put in.
Giving
kids hands-on experience with everyday money decisions is the
idea behind Junior Achievement's Financial Park, an education
program for eighth graders. Each "park" is set up as
a mock village with a car dealership, a home builder, a bank and
so on. Students come for the day and are assigned an imaginary
profession, salary and family, then have to construct a household
budget. At each store they try to balance what they want against
what they can afford -- a big house vs. a small one, for example,
or a new car vs. a used vehicle. They quickly learn the essential
lesson: They can't afford it all. "Kids learn by doing,"
says Junior Achievement CEO David Chernow. "By getting them
out of the classroom, we are able to change attitudes and behaviors."
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