Money lessons without money: The financial literacy fallacy

The other point the article makes is that most of the children literally can't understand it because they are completely innumerate.

Proposing the teaching of financial literacy when the children are baffled by arithmetic is absurd.

Why should I learn this?

This is the question most kids ask when offered education. If you answer that first, everything else follows.

Start with why. (Thank you Simon Sinek.) Are there meaningful, ongoing benefits to learning how to make specific decisions with your money? Should you care enough to learn the more mundane details like reviewing expenses or filing your own taxes?

I know there are attempts, like showing those log graphs that try to impress upon young minds the long-term value of compound interest. I'm sure those help a few people, but I do wonder if there might be other more impactful concepts.

Personally, I get a great deal of satisfaction out of things like efficiency, self-reliance, and so on, but I don't know if valuing those things can be taught, or just develops organically. Regardless, I think you always need to impress upon students the motivations for their decision-making and try to help them care. The rest can come later.

i think your examples are actually fantastic. a home ec class where kids actually cook something is much better than just reading a bunch of recipes. a CPR class where you practice on a dummy is better than just watching a video on it.

fwiw i had the same experience with money that the article talks about. my parents tried to impart alot of wisdom on me but it hits different when you have actual money in the market and see it go down.

In home economics though, you are cooking real food, right?

The thing I think you’re missing is that financial literacy is not like most subjects taught in schools. Schools teach math so that students can do sums; they teach reading so that students can read. But financial literacy, sex education and civics are not about knowledge; they are about *character: they are less about what students can do and much more about what they ought to do.

The methods used to inculcate character are, I think, different from the ones used to build knowledge.

> teaching CPR doesn't make sense unless there's someone choking right in front of you; etc

This would actually be amazing if possible.

“Operator, I need CPR lessons, now”

Like Neo in the Matrix - “I know Kung-Fu”

You grossly misrepresent the points of the article!

I usually hate such one-liner responses, but in this case, really, it is the article that needs to be read, not my reply. I could not say nothing and let this stand though, the contrast between the comment and what is actually in the article is too large.

I mean ... once you put it that way, yes, I'm actually willing to bite that bullet! (Or at least a cleaned-up, steelmanned version of it.)

It's vanishingly unlikely that any student who learns "personal finance", with no practical application, is going to retain it for the 5+ years until they'll actually need to use it. Learning doesn't work that way -- with, as you note, a few exceptions for unusually motivated students ... who would probably be able to learn it on their own when the time comes.

Ditto for the famous meme about "why don't schools teach something useful, like doing my taxes?" Because it would come across as an ungrounded, garbled mess that you'd forget by the time it was actually relevant.

So yes, I'd say that generally, education should work by grounding lessons in some kind of practical application. And indeed, like the other comments note, that's how it works for some of your other examples, like actually cooking something for home ec, or doing CPR on a dummy (which mimics most of the dynamics of the real thing, even if imperfectly).

I think there's a real human need being expressed by the common complaint, "When are we ever gonna use this stuff?" I'd phrase it as, "You're not grounding this material in a way that allows me to reason about it, and what's important vs isn't."

So, to the extent that we want to prepare students for "the real world" -- in particular, things like "doing your taxes" and "evaluating a car loan" -- I'd say the best way to address it would be by teaching the (meta-)skill of "learning an unknown domain". (Yes, "learning how to learn" ... but as an explicit skill, not one applied to material that is itself too artificial.) That's something you could apply to practical problems, even if they're not the same ones students will be solving later.

Applying this insight to the teaching of literary analysis: frame it as refuting an internet comment that doesn't understand that a song is a metaphor.

In fact, one thing that frustrates me about how the teach estimation in math is that they teach a useless version of it: you do something that takes about as long as calculating the exact value, except you add some rounding steps because you're told you can't give an exact answer. What you should instead do is give a timed test, which much more problems that usual, and only require approximate answers. Then you're forced to save time by rounding.

Late edit:

>Using the logic underpinning this article, the only things taught in school should be how to play video games, how to find the best parties and how to get laid; since those are the only things actually relevant to students at that stage of their life.

Yes, it does annoy me when the education system neglects the teaching of some skills that don't come naturally to some students, but not other skills.

I have kids, there's no need for simulation. We have Roblox.

Which has been a surprisingly useful [1]real-world/low-stakes financial literacy course for them.

- They have been scammed.

- They have blown money on stupid useless stuff and cried with regret.

- They've applied for jobs (seriously, there was an application process and interview).

- They've made hundreds if not thousands of decisions balancing entertainment, commerce, utility, and budgeting.

It's all of the true feel-it-in-your-bones financial literacy that the article advocates for being delivered to them in the guise of blocky figures and them playing with friends.

1 - You buy Robux (the in-game currency) with real money, and for years, it's been the number one thing they've asked for as a gift.

Financial video games, where the player never sees "finance!" in any of the media marketing of the serious educational product sold as a toy. Seriously, the "rules" of finance pale in complexity when compared to how much intricacy and never-actually-pointless complexity put into simulation games. I expect there are already finance/stock/economic simulation games of a serious nature; make and promote watered down versions and market them in cooperation with serious money paid to the people that actually successfully sell pop culture game software. Yes, a hard sell, I know, I came from those industries, but it can be done.

The article also references a low capital required list of business ideas for high school children. No one is arguing for million dollar projects. The argument is for hundred/thousand dollar projects.

When I was at primary school - specifically, around year 5 when I was about 9 - our class did a "small businesses" unit. We had to create business plans including a marketing plan, and yes a financial plan. What were we doing, how much were the inputs, how much are the outputs, how much time, what do we make per hour?

We did it in groups although some did it individually. One group did a carwash that also made you a coffee while you waited. My team was three of us and we put on a school disco (actually two, senior and junior). We had to organise lighting, music, equipment. We had to sell tickets. It was so profitable it paid for the entire school camp for our whole class, and the next year's too.

I don't know how much we actually learnt and I am sure our parents helped but I doubt it was entirely ineffectual. Probably more useful than many of the other activities we did.

Point being: there is no reason kids can't experiment with business as children, whether it is a lemonade stand, a carwash or a school disco.

I also have to point out for the record that if ever there was a win for capitalism over top down social planning, it was that the disco organised mainly by three 9 year olds was not only by far the most popular and enjoyable social event of my entire time at school (including high school) but it was also as far as I know the most profitable.

> using a workforce that hasn't (yet) graduated high school.

Later, in court:

- Your Honor, honestly, I thought "small" businesses could only use child labor.

A lot of people were conditioned to rely on food delivery when it was cheap. Pre-pandemic, restaurant food was much less expensive, delivery apps had low or no fees, and the options for tipping were much lower.

Now, of course, restaurant prices have skyrocketed, apps all charge significant fees and the tip expectation is around 20% (and don’t even get me started on how ridiculous it is to base tipping on food cost when none of the tip goes to anyone involved preparing the food and a 10lb bag of mashed potatoes is cheaper than a 1/2 oz container of caviar).

But people now expect their meals to be brought to their door and have a lot of resistance to going out to get it or, god forbid, preparing it for themselves.

I looked up the average cost of living in Alabama. It says it is 54k for a family. Do you think that is realistic? The reason why I ask is that US incomes always confuse me. Incomes seem quite high and I understand that taxes are much lower than here (Finland). As an uninformed outsider with these costs of living 100k for a couple seems quite nice and a gross income 130k appears absolutely rich. Am I missing something? IlJust very curious always as some of the income programmers with my experience get in the US seem absolutely unachievable here.

Growing up poor or with money problems, seeing that struggle. One does come out different. One can potentially be more understanding when people are just continuing the lifestyle they grew up with. In this case, 2 working adults, one white collar, used to be enough to rent an apartment and eat out/ have deliveries regularly, no? That’s just a story of middle class erosion and financialization of the economy.

What makes very little sense to me is seeing people go from having very little to making a lot, and the increases in lifestyle to match income. Aka lifestyle creep. Things that 2 years ago were not even a wish are now taken for granted. And it’s all the same as everyone else.

My wife’s parents come from poverty (they attained middle class around when she was 8-10) and she always says there’s “people who are good at being poor and people who aren’t.” We are fortunate to make a lot of money, but even then I order delivery maybe a few times a year. I had back to back meetings the other day and was feeling sorry for myself and ordered some kabobs on Grubhub and she flipped out, lol.

it's a pretty brutal version of "financial literacy" but it sounds like you had it. Not sure how you broke the cycle though; what made you aware of an alternative?

We have an entire generation of NOT poor western young adults who grew up during essentially zero % interest rates. Their parents financed lifestyles well beyond their means; that was their financial literacy education. None of your neighbours actually "bought" a $50K+ automobile. They are all paying bi-weekly (or weekly!) finance payments. Combine with our focus on immediate gratification and society is pretty messed.

And it wasn't just consumers! Nobody runnning a small business has had to figure out to make the math with double-digit business loans work for some time. Massive fiscal spending growth has also made many businesses viable on government borrowing.

Middle class poverty traps look like what you describe. I don't understand the compulsion to spend all of what you make every month, and sometimes more, either.

I got that $50k automobile. And it’s absolutely worth it. It has warranty and I don’t need to spent few hours every month fixing things, that shouldn’t break. Land Cruiser is bad example because of very good build quality and excellent durability. I don’t know how it’s in US, but pretty much everywhere else Land Cruiser is luxury. I personally pay gladly additional 200€ in a month to not to do 4-6 hours chores.

But yeah, the food delivery is expensive. Never do this. Try to teach the young guys in the office, that cooking is not rocket science. 3 smallish pieces of okayish meat cost 5€, add some rice. Grab paprika, tomato or cucumber and you have super healthy 3€ meal. Instead of 7-10€ microwave crap from supermarket.

Financial literacy should be a topic in school. Repeated every couple years going from simple budget planning to mortgages, stock market and exotic derivatives. Plus a course about all the scams and basic computer security. Heck we even modeled back then strategies of fake company before graduation. But that was special school.

I had a health class in high school that taught things like sex ed, first aid, we even learned CPR (the teacher was also an EMT). I remember one class where we had to bring in newspapers and we drew scenarios like "you are divorced and have sole custody of your child, you make $X/hr" and we had to basically find an apartment in the paper and see if we could make it work, adding in things like food, utilities, etc. IIRC I wasn't able to get my monthly expenses below what I was hypothetically making...

I don't think that is really the source of the issues for most people that are bad with money.

They spend more than they earn. They don't earn enough and they spend too much.

It is like blaming Cocacola for people being fat. Yeah they probably have some diffuse structural blame for the situation at a societal level but nobody is forcing anyone to drink a litre of coke a day or to fritter away their money on takeaways instead of investing it sensibly.

Could you blame advertisers for people spending money. Maybe? Do ads even work? They don't seem to work at all in politics so I doubt they do much anywhere else.

Hell, you might want to visit communities and give adults hope and emotional well being tips and they might vote for you now. It's not just kids who need this and frankly adults probably realize they need it more than kids.

I think the biggest fallacies is 100% seperation of "there is school, then there is work".

It's stupid to think that after school no more teaching is needed. I hate that after leaving university it is difficult to find out what is taught current students, what are the new theories and tools that have been introduced in the last 10 years.

It would be much better to start working alongside being in school, so you can learn about taxes and compound interest while earning money.

People also have much better ability to learn math when they can use it for solving problems outside of the classroom: https://www.reddit.com/r/TheWire/comments/1it269l

Sure, you don’t need to know the exact details. But you should absolutely leave high school knowing that you need to think about retirement savings sooner rather than later, or you won’t have shit. I remember seeing a chart in high school related to compound interest and how much more someone who started saving earlier had by retirement. That chart was easy to grasp.

And for mortgages, you should definitely learn that renting savings you money compared to owning in a lot of situations (even after accounting for selling the house), especially if you don’t know you’ll live there more than a few years.

Like… where the fuck else is someone going to learn this if they don’t have parent smart enough to teach them that. It’s not like college covers this.

Exposure early doesn’t mean you’re an expert at managing finances when you hit adulthood. That won’t happen. But it can do enough to make you broadly aware of what you should be thinking about — which then means you can look it up more later.

But if you go by comparing yourself to others, you might think it’s normal and good to rack up credit card debt to have nicer clothes or something. You should be aware at how costly credit card debt is, and how easy it is to avoid that.

Like we’re not talking about small optimizations. There are a lot of things that can be extremely expensive and stressful for you if you don’t even know to think about those things.

My 11 year old knows about mortgages. The longer you understand something, the better use you can make of it. Just in time delivery of mortgage math learning is borderline predatory.

Idk, I can't help but conclude lots of the things I learned in school were actually quite helpful. As a child for example I learned about insurance theory and that stuck with me. I didn't actually insure anything myself for at least another decade, but the theory stuck. Which is that an insurance company just smooths over the costs of a rare event that happens to one individual, by spreading it out over many individuals, none of whom know whether they will or won't be confronted with said event. And that the average cost of insurance (in a competitive market) is therefore tracking closely the average cost of the event, plus some profit and admin fees of the insurance company. Which means for most people it's not worth insuring events that you can easily cover yourself (e.g. losing your phone).

I learned these things at age 15 or so. Sure I could've learned them later, but there's something about knowledge is that it builds on earlier building blocks and compounds. When certain things 'click' in your head, they open the door to new knowledge and areas of learning. There is power in learning early, because knowledge is cumulative and compounding to some extent. It's the reason why a 40yo is a more valuable employee than a 20yo, on average.

That's not to say that every topic must come as early as possible, or that education is perfect. There's certainly better and worse ways and timing to teach personal finance for example. But I am quite happy I was introduced to some concepts sooner than later. Even just to prime myself such that, when I am reintroduced to the topic later, I feel somewhat familiar and confident to dive into it again.

Certain topics don't really connect with everyone. Virtually everything I learned as a child in Chemistry was useless because it didn't resonate with me. While my gf went on to study biochemistry, and is clueless about finance. But neither of us know whether chemistry or finance would resonate with us, before being taught the subjects. Schooling for children also has a discovery function in that sense. It's not just about teaching what sticks, it's about discovering what sticks, and what is interesting. That's why a wide breadth of subjects can be a good idea, even if a significant portion doesn't end up being meaningful to someone at that age.