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The importance of teaching financial literacy 

Did you know that more than 60% of Americans live paycheck to paycheck? When this is the case, how do people set themselves up for long-term financial security? Or, taking the shorter view, how do they put aside the money they might need for an emergency expense or even a vacation? The answer is, they can’t and don’t. Or they put themselves into debt out of necessity. Amazingly enough, this problem isn’t limited to lower-income families or individuals. A staggering 41% of Americans living paycheck to paycheck earn between $150,000 to $200,000 annually! All of this on top of the fact that we’ve never seen more credit card and student loan debt. So, how did we get here? Likely because of a lack of financial literacy. 

What is financial literacy? 

Financial literacy, as defined by Investopedia, is “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing. When you are financially literate, you have the foundation of a relationship with money, and it is a lifelong journey of learning. The earlier you start, the better off you will be, because education is the key to success when it comes to money.” 

One explanation for the current lack of financial security among the majority of Americans is the fact that they simply aren’t financially literate. And they’re not necessarily to blame—they just never learned the important financial skills needed to set themselves up for long-term prosperity. But with so many people in a financially precarious position, it’s become clear that learning financial literacy is just as critical as learning math or world history. Perhaps even more so. 

Why is financial literacy important? 

Money management isn’t an innate skill; rather, it’s something that must be taught and learned over time. The first step is understanding the value of money. Once that is established, people can then learn how to best manage it. That’s where financial literacy comes in. 

While it’s never too late to learn how to be financially literate, it’s a major advantage if teenagers and young adults already have those skills before they join the workforce. That way, from their first paycheck, they know how to properly save and spend their money, and from there they develop good financial habits before adulthood. This sets them up for success once it’s time to start budgeting, saving, taking on debt, and managing credit. 

With money being the biggest source of stress in people’s lives, having the skills to successfully manage finances can also reduce one’s physical and mental stress levels. Life throws us many curveballs, but having the ability to foul off those curveballs—if not hit them out of the park—gives people the tools to handle financial issues and even prevent them from happening in the first place. For example, if you know to put aside money from each paycheck into a savings account, an unexpected repair bill or medical expense is much easier to deal with. If you have a child and immediately start setting aside some money for college—and keep building upon it each year—the sticker shock of a four-year college education won’t be quite as jarring. 

Perhaps most importantly, being financially literate can make post-work life much more pleasurable. By knowing how to save for retirement, one can live comfortably in their golden years—and perhaps even get a head start on retirement. 

How is financial literacy taught? 

Interestingly, the nation’s overall financial illiteracy has forced action to be taken at a legislative level. As of August 2023, nearly half the states in the country require students to take a financial literacy course before graduating from high school. Oregon recently became the 23rd state, and among the remaining 27 states, only Alaska, California, Wyoming, and Washington, DC have no financial literacy requirements. 

How each state—as well as each school district within each state—teaches financial literacy is up to them. However, the National Council for Economic Education has identified six critical topic areas in their personal finance standards: 

  • Earning income: This topic focuses on income earned or received and the taxes assessed on income, the different ways that people earn income, methods of payment, how income is taxed by government to pay for community services, costs of investments in education and skills, taxes on earnings, benefits and costs of entrepreneurship, making career decisions by better understanding career paths, wage and salary compensation, employee benefits, and more. 
  • Spending: This topic looks at the concepts of scarcity, preferences, and trade-offs that people make in their spending decisions; behavioral factors that influence spending, such as peer pressure and advertising; budgeting and planning; the factors involved in making informed consumer decisions; making spending decisions within a budget; and more. 
  • Saving: This focuses on how people save money, where they save it, and why they save it; emergency funds; short-term investment choices; interest and compound interest; saving decisions related to personal goals; the role of financial institutions in saving and borrowing; federal deposit insurance; how inflation impacts savings; how markets determine interest rates; types of savings accounts; financial regulation; tax incentives for saving; and more. 
  • Investing: This topic looks at rate of return, compound interest, long-term/riskier investment choices, types of income earned from investments, compound interest, factors influencing market prices of financial assets, portfolio diversification, regulation of financial markets, and the benefits of financial technology. 
  • Managing credit: This topic covers borrowing money, the cost of credit, the possible effects on a person’s finances, previous history of debt repayment, interest rates, market conditions, borrower risk, credit reports, the difference between borrowing for consumer purchases and borrowing to invest in education or homes, how to develop credit management skills, what contributes to strong credit reports and scores, consumer credit protections, and resources available to people who need assistance with debts. 
  • Managing risk: This focuses on the ways wealth, property, and income can be lost due to unexpected events; how to manage these risks; the basics of insurance, including common terminology and how behavior can affect premiums; personal decision making; the costs and benefits of common types of insurance, including health, auto, homeowners/renters, disability, and life insurance; identity theft; and more. 

When students are armed with this knowledge prior to high school graduation, they are better equipped to manage their finances and avoid falling into the paycheck-to-paycheck trap that has ensnared so many adults. 

How Catapult Learning can help? 

Starting in the summer of 2023, Catapult Learning began including Financial Literacy enrichment courses in our Summer Journey program. Available for students in grade 3 and up, our Financial Literacy course is designed to provide engaging, hands-on experiences to improve students’ financial literacy through problem-solving and decision-making skills related to finance. This includes managing and making decisions about personal finances, budgeting, and investing. Each course covers the six critical topic areas discussed previously, with six units that dive into earning, spending and saving, investing, and managing credit and risk. 

Additionally, Catapult offers fun Financial Literacy Reading Bags for students of all ages to ensure they are adequately equipped to manage their finances throughout their lives. The texts in this collection help launch students toward financial success, teaching them about money management and offering tips for spending wisely and saving money. 

For more information on Catapult Learning’s financial literacy courses and programs, please visit https://catapultlearning.com/learning-bags/.