For our ancestors, even as recently as the 19th Century in many places, survival skills were hands-on. If you didn’t know how to build a house, farm, hunt, butcher animals, sew, and cook, you couldn’t provide well for your family. Money skills were largely worthless.
It’s completely different today. Providing for yourself and your family requires knowing how to earn enough money, spend wisely, save for future needs, protect your assets, maintain good credit, and build an emergency fund. More importantly, you need to be able to apply these skills.
As critical as money skills are, if actions are more important than words, then it is clear that we don’t really value those skills.
While requirements to graduate from high school differ from state to state, it’s common that courses in English, math, science, social studies, the arts, and a foreign language are necessary to graduate. A course in personal finance is rarely required. A young adult who graduates with good English and math skills, a knowledge of history, a grounding in science, and some fluency in French is still not equipped with the money skills needed to survive in our modern society
Some states, including South Dakota, do require a half-year course in either personal finance or economics to graduate from high school, but there is no requirement they choose personal finance. There is a laughable difference between personal finance and economics. Economics isn’t something that is understood by economists. A course in economics may be good for philosophical late-night discussions at your favorite pub, but it doesn’t come close to equipping you with essential financial life skills.
Ironically, there is one instance where a course on personal finance is required: after a person files for bankruptcy and before it is discharged. “While the requirement has good intentions, the education is far too late,” says Bonnie Spain, executive director of the Rushmore Consumer Credit Resource Center, Rapid City, SD.
Despite the importance of knowledge in personal finance, it is only half of the equation when it comes to developing money skills. The other half is the ability to apply the knowledge. If personal financial knowledge isn’t put into action, it is essentially worthless.
In my experience, one of the most common reasons a person doesn’t apply financial knowledge is because of emotional obstacles. Some of these include familial and cultural beliefs around money. These can actually thwart a person’s ability to apply even the best training in money skills.
Helping students increase their financial knowledge is a start, but it isn’t enough. This was confirmed for me when I heard a talk by Louis Barajas, CFP®, a financial planner and author focused on helping people get out of poverty. He said, “All the financial literacy in the world is not going to help the poor.”
He described some of the unconscious cultural beliefs—which I would call money scripts—that can keep people from breaking out of poverty. A few of them are:
- A sense of fatalism, that “this is just how things will be.”
- A group dynamic where anyone who reaches for too much success is pulled back down into the community’s financial comfort zone.
- A victim mentality of blaming and feeling powerless to change.
- An assumption that working for someone else is the only option.
- Relying for financial advice on the wealthiest or most successful person in the neighborhood, without the knowledge to evaluate the validity of that advice.
It’s easier to teach personal financial knowledge than to address a person’s emotional and cultural money scripts. If we are to equip people with 21st Century money skills, it’s crucial that we address both.