The Problem with Financial Literacy Training for Kids

Most financial literacy courses, for kids or adults, are classist, racist, and patronizing. For kids, it is the most insidious. Hear me out, please…

You will say, what’s wrong with learning to budget or learning how money works?

The concept isn’t bad, but the way they teach it is terrible. They are teaching kids how to be poor.

There is the way poor people are told to manage money and the way rich people actually do it…and they cannot be farther apart.

There is absolute value in having savings (or access to liquid funds) when you are just getting by because it can prevent a spiral into utility cut-off notices, piling on administrative warrants from your friendly local courthouse, eviction notices, and sometimes eventual homelessness… we all get that. That is a poor person thinking. 

But, hear where I said, “access to liquid funds”. Have you ever heard a financial literacy course say that? No, they want you to have a savings account. It isn’t the same thing. 

The primary message of most of these educational courses, apps, and tools is: “Stay within your means”..which is essentially the same thing as “Stay in your lane”.

There is another message there too: “You are not responsible or smart enough to take financial risks, so don’t even think about it.”

The point of these courses is often to discourage people from borrowing to cover their needs (or dreams), in any circumstance. This is because most of the people who need to do this are at risk of not being able to pay off that debt and not being able to manage it responsibly… so they are discouraged from having debt at all or told to have a token debt in order to build up a credit score (actually a good idea when they explain it correctly and without fear but still limiting).

Rich people don’t think twice about borrowing money for investments, including more than they could reasonably pay back, and when they lose–they somehow stay rich.

What we really need is to teach how money really works. Teens should be told how it is a tool for those that have it to leverage for more of it.

We need to teach how credit is a tool and how best to use it including how to spot credit card scams (like never doing a balance transfer to a card with an existing balance). Budgeting is great, but let’s look at it as a 5-10 year plan for growth (which sometimes includes spending) instead of how to survive and save as much as you can.

We need to teach that sometimes getting a reliable appliance or car may be better than getting the cheapest thing but sometimes getting the cheapest thing is better — and making this decision requires some financial modeling skills not a gut feeling. There is no blanket answer. We need to teach critical thinking, not knee-jerk savings, and strict rules.

For kids, I think strategy games might be a better education than anything I have seen regarding financial literacy. And when they get a little older, financial math! Get me the total cost of the loan if paid off a year earlier and the lost opportunity cost Donny!

I’m teaching my kids that if inflation is at 9%, then there is no reason to pay off a loan with 5% interest. If they were smart, they would borrow more at that rate.

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