We Must Teach High School Students About Money

(This piece was originally published on Medium). 

Reading. Writing. ‘Rithmetic. The Three R’s. Sir William Curtis of London coined this phrase back in 1795, and it quickly spread to the United States. The ability of students to read, write, and perform basic mathematical tasks, is at the core of that knowledge which our society believes students ought to possess by the completion of their primary education.

Judging by recent test results, American students haven’t come close to achieving mastery in these three areas. The United States ranked below 29 other nations in 10th grade math scores, while a 2012 national assessment found that three quarters of eight and twelfth graders don’t write proficiently. The causes of these dismal results have been debated at length, with commentators and researchers exploring causes ranging from poverty and economic inequality to ineffective teaching.

Yet, English and math aren’t the only topics where improved knowledge is critical for future prosperity and success. It is vital for high schools to teach the basics of financial literacy and money management, so that each graduate can make informed, prudent decisions around managing his or her money, as he or she moves into adulthood.

In 2012, the Financial Industry Regulatory Authority (FINRA), a private regulatory body dedicated to supervision of the American financial sector, conducted a national survey, exploring the financial literacy of the American public, and delving into spending and saving habits, as well as overall monetary health.

This study offered some troubling results. In one part, respondents were asked a series of five basic questions, to test their knowledge of core economic issues and concepts. These questions explored several topics, ranging from interest rates to investment risk to inflation, which will impact every Americans over the course of their lives.

Just 14% of those surveyed were able to answer all five of these questions correctly, and 39% answered 4 of the five questions correctly (the average number of questions answered correctly was a dismal 2.88). Success in this quiz varied considerably among different demographic groups, with males, older individuals, those with college educations, as well as whites and Asian-Americans, performing significantly better than others.

FINRA’s findings were released in the same year as a study from the Organization for Economic Co-Operation and Development (OECD), which examined the financial knowledge of teenagers. Here, researchers measured the financial knowledge of tenth grade students, in 18 nations (or parts of a nation), including the United States, Australia, Russia, France, and the city of Shanghai, China. American teenagers put on a rather average showing, ranking 9th of those nations surveyed, between Latvia and the Russian Federation. Nearly 18% of American teenagers failed to meet a baseline level of financial proficiency, as compared to an average of just over 15% for other nations in the survey.

What is even more problematic about the test results for American students, is the extent to which a youth’s financial literacy is determined by his or her household’s income. Of all the nations surveyed, the US ranked third in terms of how much a student’s knowledge of basic financial matters, is determined by his or her socioeconomic status, and second in the degree to which family wealth affects a teenager’s financial literacy. Only Colombia fared worse in both categories.

American teenagers also face a massive wealth-based gap in access to basic financial services. 70% of teenagers in the top socioeconomic quartile (the wealthiest 25% of households) held bank accounts, compared to just 32% of those in the bottom quartile. This disparity in banking access was the widest in any of the countries which the OECD studied.

These findings suggests a sort of perpetual downwards cycle, where one’s familiarity with matters of finance is in large part determined by birth and family circumstances, while, at the same time, it can rather difficult to build wealth and advance economically, without this sort of knowledge.

Additionally, far too many Americans engage in harmful financial behaviors, which ultimately cost them more money in the long run. According to the FINRA study, less than half of those surveyed pay their monthly credit card bills in full (with over one third paying just the minimum monthly payment), causing them to go deeper in to debt, while incurring additional charges and fees.

Meanwhile, nearly one third of respondents have engaged in some form of non-bank borrowing, such as obtaining payday loans, auto title loans, or making purchases from a “rent to own” store. These financial instruments often carry exorbitantly high interest rates, which greatly elevates overall borrowing costs. Those who are younger, less educated, have lower incomes, and are from minority groups, once again are more likely to engage in these sorts of behaviors.

Americans also exhibit poor savings habits. 44% of households in this nation are either in debt, have no savings at all, or have less than 3 months of savings, if they were to lose their jobs, or face another financial emergency. Of particular concern is the widespread lack of sufficient retirement funds.Nearly one-third of American workers have no retirement savings at all, while the median retirement savings for those aged 55–64 is a meager $14,500. While those in retirement savings plans based through an employer have fared much better (almost half of Americans in these plans saved $50,000 or more), less than one third of workers in small companies, and under 20% of low wage workers, actually work for employers who offer such plans.

Recent policy proposals have focused heavily on ways to improve retirement options for those whose employers don’t provide such assistance. Without such reforms, a very large portion of retirees will be heavily dependent on Social Security to cover their daily living expenses (which often isn’t nearly enough to live comfortably on). Today, Social Security comprises more than half of the yearly income for over 50% of retired married couples, as well as nearly three quarters of single retirees.

Those at the younger end of the age spectrum face another major challenge:student loan debt. 71% of today’s college graduates borrowed money to pay for their education (compared with under 50% of graduates two decades ago), with the average debt load for those who completed school in 2015 hitting a record $35,000 (making them the most indebted college graduating class of all time). A spike in borrowing by graduate students, and the extensive use of post-graduate government loan forgiveness programs, is also a source of recent concern.

As with so many other social issues, education is a vital part of altering many of these trends. High school is the ideal place to begin this process. During and immediately after those four years, students will face important choices around obtaining student loans to pay for college, entering the workforce, and thus having some income to spend, save, or invest, opening a bank account, and, upon reaching the age of 18, signing up for a credit card with the help of a cosigner.

These decisions are relevant both in terms of their actual financial impact (as seen with college debt) as well as the habits one forms (patterns of spending and saving of earnings). What high school students learn about money will be carried with them throughout their lives.

What should a complete high school financial education look like? It ought to provide students with a practical understanding of the most important “money questions” which they will face soon after turning 18, and just as crucially, offer a core framework for making these decisions throughout one’s life.

This curriculum should also offer a practical look at the basics of debt and borrowing, both for consumer credit instruments like credit cards, as well as loans to pay for one’s education. In particular, the math behind repayment of students loans ought to be explained in more detail, since it is simple to sign a paper promising to make a monthly payment to Sallie Mae, but somewhat harder to envision the long-term impact of such borrowing, particularly in the increasingly uncertain economic climate of this era.

Students must also learn the basics of budgeting, saving and investing their money (including how tools like savings accounts, 401(k) plans, index funds and other investment vehicles work), and gain an understanding of how setting aside and investing money impacts one’s long term financial future.

As a part of this coursework, it is useful to provide a brief snapshot of the way in which macroeconomic trends, such as inflation and interest rates, can affect one’s finances. All of this knowledge plays an important role in building a strong reserve of savings for retirement, or that inevitable rainy day.

Some might argue that this curriculum is too complex for high school students to effectively digest. Yet, as noted earlier, for much of the American public, matters of money and finance are seemingly challenging to grasp, often with detrimental consequences. Thus, it is crucial to break this cycle, and provide people with a head start, familiarizing them with these issues as early as possible.

If it is reasonable to expect high school students to graduate with working knowledge of core concepts in math, reading and writing, all of which are important for a student’s future, there is no reason to shy away from similarly rigorous expectations in a subject which carries lifelong implications for virtually everyone.

It is important to remember that not all poor financial behavior is caused by a lack of knowledge, or an irresponsible, spendthrift attitude. For many Americans, financial insecurity is a fact of life, a product of earnings that are sometimes insufficient to meet basic living expenses, let alone to withstand an unexpected event like illness, or the loss of a job. Real wage growth (that is, earnings increases after taking inflation into account) for the middle class and working poor has been weak to nonexistent for the past several decades, while housing costs remain as high as ever.

Given this situation, it isn’t surprising that outstanding credit card debt remains at near-record levels , or that many Americans make use of payday loans to meet basic expenses, borrow tens of thousands of dollars to meet ever-rising college and graduate school tuition costs, and save little to nothing for retirement or other contingencies. When meeting the costs of everyday living becomes tougher, use of debt grows more common, and long-term financial planning appears to be a distant, unlikely undertaking.

Until we see sustained middle-class income growth, an improvement in retirement savings options, and creative solutions to reduce educational costs and thus student debt, this situation is unlikely to fully change. Real policy reforms are required.

Yet, teaching responsible financial behavior early on, will allow more people to at least partially avoid the dire consequences of inadequate fiscal discipline, and poor money management skills. We can help the many Americans who face a range of economic challenges, make their situation somewhat more manageable. This isn’t a complete solution, but it is certainly a part of any real steps towards greater economic empowerment, and a better overall standard of living.

Reading, Writing, and ‘Rithmetic? All are important skills to have. But, it’s also far past time to add financial literacy to that list. Such knowledge is undeniably crucial for a productive and stable existence.

Let's Fall Down

No child ever rode a bike, hoping to fall down and scrape a knee. Few of us ever answer a question in the classroom, or attempt to solve a challenge at work, thinking it would be nice to end up with the wrong answer, or stumble upon a series of initially unworkable solutions. Yet, from a willingness to experiment, struggle, and face setbacks and failures which we learn from, we can ultimately develop deeper knowledge of a subject. In the workplace, such an approach allows people and organizations to create and innovate, which will increase the odds of a business surviving and thriving well into the future. Lastly, developing a deep familiarity with this learning and work approach will help employees ensure greater career success in their workplaces.

A recent learning experiment, led in Singapore by Manu Kapur of the National Institution of Education of Singapore, found that “productive failure” may be the most effective approach to learning math. In this study, teachers worked with two groups of students, one of which was taught a concept through a traditional lecture method, while the other group was provided with no instructions or guidance, and instructed to work through the same problem in small groups, failing, and ultimately learning, as they went along. In the end, the teacher for this latter group held a “consolidation lecture” to rehash and review concepts gleaned from the students’ work. These pupils struggled quite a bit early on, but ultimately displayed greater mastery of topics covered, than those who learned through the traditional methods of lecture followed by practice.

In a similar experiment, Kapur found that students who learned through an approach of struggle and experimentation (with minimal initial instruction from their teachers), formed a deeper understanding of concepts they had learned, and a stronger ability to solve unique or challenging problems of the same subject type, than those who were merely taught, and subsequently tested for their mastery. Kapur and his colleagues hypothesized that the process of struggling towards an answer activated those parts of the brain which are geared towards more in-depth learning, forcing students to ultimately form a more meaningful understanding of topics they were presented with.

Other studies have shed further light on how mistakes and failure can improve educational outcomes. John Hattie of the University of Melbourne, Australia, conducted groundbreaking research into what makes schools succeed, and learned that one very effective ingredient for academic success is when “Errors and trust are welcomed as opportunities to learn.” Psychologists Nate Kornell, Matthew Hays and Robert Bjork of UCLA, discovered that if students were presented with challenging, unfamiliar questions on a test, which they attempted to work through (but were unable to complete successfully), and were then presented with immediate feedback as to the correct answer, they were more likely to retain the information studied, than if they were lectured in the topic beforehand, and followed by completing an exam. The authors summarized these findings as demonstrating that “Incorrect responses..with well-timed feedback…can actually provide the opportunity for more powerful learning.” . Scientific American further described these findings as showing that “learning becomes better if conditions are arranged so that students make errors.”

Learning through experimentation, challenges, mistakes, and eventual success, is also vital for long-term success in life, because it imbues a student with the persistence and resilience needed to fight through the challenges and setbacks which they will inevitably face in their personal journey.

Pioneering research from Angela Lee Duckworth at the University of Pennsylvania has found that grit, along with self-control, is a major predictor of long-term success. In Duckworth’s understanding, grit is defined as “being able to sustain your passions, and also work really hard at them, over really disappointingly long periods of time…really pursuing something against all odds.” If students are pushed, from an early age, to understand that struggle, challenge, and initial failure are a part of both learning and life, they can grow more resilient and determined, both as students and human beings. Creating such a learning environment, which doesn’t offer easy answers, but rather, demands critical thinking, is a key means of ensuring that this happens.

Aspects of Duckworth’s findings have been put into practice by prominent educators like Dominic Randolph of the prestigious Riverdale Country School in New York, who argues that “The idea of building grit and building self-control is that you get that through failure…and in most highly academic environments in the United States, no one fails anything.” Meanwhile, David Levin of the KIPP charter school network found that persistence was among the key traits in determining whether former KIPP students finished college, and has found ways to cultivate these traits in KIPP’s curriculum.

By developing a school culture which makes use of the findings of Manu Kapur, or Nate Kornell and his colleagues, we can mold not just better students, but stronger, more resilient people, who see that life will present them with stumbles and struggles, which can be surmounted, as long as they keep discovering and trying. That’s vital for eventual triumph well beyond the classroom, and is a far more useful approach than simply giving students direct instructions, and expecting linear progress (something adult life is strangely reluctant to permit).

A mindset of experimentation, and a willingness to fail (and learn from it) can also have a significant impact in the world of business, allowing companies to progress and grow. Amazon offers an instructive case study in how this happens. In discussing how he built his company, founder and CEO Jeff Bezos argued that “If you double the number of experiments you do per year, you’re going to double your inventiveness.” Towards this end, Amazon has tested projects ranging from television advertising to the service which eventually became Amazon Prime.

Some of these undertakings were failures. Amazon attempted a web search service called A9 as well as sales auctions, and found that neither gained long-term traction. Bezos said he was fine with not having these experiments succeed, noting that “If you decide that you’re going to do only the things you know are going to work, you’re going to leave a lot of opportunity on the table.” Bezos expounded further on this philosophy by arguing that a company which conducts a variety of experiments (and measures their results, thus ensuring learning), is more likely to succeed, despite some failures: “Now there are a couple of other things that are essential for innovation and invention that are not as fun. One of them is you have to have a willingness to fail…if you have a willingness to fail, then what you can do is you can ramp up your rate of experimentation.” Clearly, Amazon’s remarkable growth has been driven in major part by this mindset.

Google offers yet another fascinating example of experimentation and failure in action. An analysis by tech blog The Next Web found that 36% of all the products which Google tested or launched (usually through an experimental, beta approach) between 1998 to 2010 were subsequently shuttered. The Next Web praised this experimental approach, arguing that Google’s success “is partially due to throwing a fist full of darts, and seeing what sticks.” Former Apple executive Michael Mace expands on this discussion. Mace believes that Google’s experimental approach is a product of it’s leadership consisting largely of engineers, who hold a deep belief in the power of the scientific method’s ideals of hypotheses, controlled experimentation, and decisions based on data, In a sense, Mace believes, Google functions as “a big bundle of short-term science experiments.”

Perhaps the most well-known example of Google’s exploration-driven culture, discussed in the firm’s 2004 IPO letter, was the concept of having Google employees spend 20% of their time working on projects that “they think will most benefit Google.” Google admitted that “most risky projects fizzle”, but they saw value in such failure, noting that it was often “teaching us something.” Some of those projects, including Gmail, AdSense, and Google News, ended up being major wins for the company.

In the workplace, a culture which allows for innovation through experimentation isn’t merely useful to future growth, but actually, critical for survival. Professor Mark Perry of the University of Michigan — Flint noted that just 12.2% of the corporate giants which appeared on the Fortune 500 in 1955 remained on the list in 2014. Research from Tom Steiner of Baldwin Bell Green and John Davis of Harvard Business School drew even more stark conclusions. A successful American company started in the 1950’s could expect to live for 53 years, while a similarly promising firm, formed in the 1970’s, would last for a much shorter 32 years. For a strong company started in 2010, it’s projected lifespan was a meager 17 years. As Steiner and Davis see it, corporate life cycles will become “shorter and more brutish.”

In this cutthroat environment, businesses must always have new products, services, and strategies in the pipeline, and figure out which of these fresh sparks will best advance their long-term position. Otherwise, they’ll find they’ve been rendered irrelevant, which is a sure sign of impending doom.

Being immersed in this culture of experimentation and learning is crucial to the well-being of the workforce as a whole. The Great Recession decimated millions of jobs, and caused trillions of dollars in aggregate wealth loss for American households. With mergers and acquisitions activity near an all-time peak, employees across many industries face the possibility of being eased out, as a part of efforts to cut costs and improve efficiency. The rise of artificial intelligence , machine learning and robotics may well promise numerous benefits for mankind as a whole, but it also puts a multitude of jobs at greater risk of elimination over the next several years.

Given these circumstances,, there are several strategies which employees ought to master, in order to up their odds of being gainfully employed in the future. One is the ability to quickly master new skills, whether it be a software program or management approach. If, from an early stage in their educational lives, employees learn through the methods discussed earlier, they’ll be more capable of forming deep, lasting mastery of a topic, and will internalize a view that learning something new requires determination, persistence, and falling down a few times.

What’s more, employees who have been immersed in experimental environments at work, will bring to their jobs a mindset of exploration, curiosity, and intelligent risk-taking. With that outlook, these employees can add tremendous value for their employers (just as some Google employees did with their 20% time), and perhaps even start their own businesses in the future, and not depend on the paycheck and whims of their bosses.

The choice is clear. If we wish to grow, as students seeking to become masters of a particular domain, or in our careers, whether working for a big company or launching own startups, we must embrace a mindset of experimentation, persistence, and the life lessons which are derived mainly from mistakes, stumbles and failures. Perhaps Mark Zuckerberg said it best: “The biggest risk is not taking any risk… In a world that changing really quickly, the only strategy that is guaranteed to fail is not taking risks.” So, let’s get to it. Scrape a knee or hang up an elbow. Try to solve a problem you aren’t totally familiar with. Make a mistake, and learn from it. Get up, and dust yourself off. It only makes us better.