The Importance of Financial Literacy

October 2nd, 2011, by

Q: Why isn’t the basic knowledge about money management taught throughout grade school and at the college level? There’s an old book entitled The Richest Man in Babylon that suggests society would be better off if folks knew more basic principles about money.Richmond

A: One of my favorite personal finance books is The Richest Man in Babylon by George S. Clason. When I launched my Color of Money Book Club for The Washington Post in 2002, Clason’s book was my first selection.

The Richest Man in Babylon started out in 1926 as a series of pamphlets on thriftiness and financial planning, using parables set in ancient Babylon. Through fictional characters, Clason tells stories about acquiring wealth and avoiding unnecessary debt. For example, there’s a parable about a man deep in debt, which could easily translate to the many people today overwhelmed with credit card debt. As one character says: “He who spends more than he earns is sowing the winds of needless self-indulgence from which he is sure to reap the whirlwinds of trouble and humiliation.”

As for personal finance education in schools, there are a number of groups advocating the addition of such courses to the high school and college curricula. For example, there is The Jumpstart Coalition, which is a national coalition of organizations dedicated to improving the financial literacy in pre-kindergarten through college.

Clearly, with so many financial decisions to make, it’s important that children learn how to handle their money before making huge money mistakes. The number of states that now mandate that students take an economics course as a high school graduation requirement increased from 17 in 2007 to 21 in 2009, according to the most recent report from the Council for Economic Education. Only 19 states require the testing of student knowledge in economics.

You may be happy to know that there has been significant movement in the number of states that now require students to take a personal finance course (or that personal finance be included in an economics course), according to the council’s report.

The number of schools requiring some personal finance course as a high school graduation requirement increased from seven in 2007 to 13 in 2009. But these 13 states make up only 31% of the entire U.S. population, which means almost 70% of American K-12 students are not receiving the needed education in this important area, the council said in releasing its data.

Here’s my take. Financial literacy really ought to start in the home. There is where your children will learn the financial values that will carry them through adulthood. Even If personal finance is required in my kid’s school, it’s not likely she will be encouraged to tithe. She may not be taught that charity comes first. She may be taught that there is good debt and bad debt. I’m teaching my children that there is no such thing as good debt, only debt.

Still, it’s important to get schools to teach personal finance, because the reality is many students won’t learn it at home.

Last modified: October 2, 2011 at 11:53 pm