Notes from Financial Literacy Summit 2011

On Monday, I attended the Money Smart Week Kickoff and Financial Literacy & Education Summit 2011 at the Federal Reserve Bank of Chicago. The program featured leading financial literacy experts who talked about improving financial literacy levels for people of all ages.

As an author, mother and journalist, I expected to leave with the answers to the “who, what, where, why, when, and how” of financial literacy. Here’s what I learned (and didn’t).

Who needs to know how to manage money? Everyone. No surprise there.

What is financial literacy? The speakers emphasized knowing various types of financial information. In the case of students, what type of information are we expecting them to know?

Here’s an example from the 2008 Survey of Personal Financial Literacy Among High School Students. FYI: the mean score was 47.5%, meaning that more than half of the students failed.

Barbara has just applied for a credit card. She is an 18-year-old high school graduate with few valuable possessions and no credit history. If Barbara is granted a credit cards, which of the following is the most likely way that the credit card company will reduce ITS risk? Read complete survey

Where should financial education take place? Schools continue as the preferred place for kids to learn financial literacy. Workplaces are being recognized as a good vehicle to deliver financial information to employees. Financial institutions provide details, but they are in the business of selling their products so their information may not include other options for the consumer. People also learn from each other through casual conversation about financial matters.

Why is financial literacy important? This quote is from the Financial Literacy Summit website.

Financial education allows individuals and families to accumulate assets and achieve their financial goals.

The above statement assumes that learning about financial matters will translate into skill in money management. Consider driver’s education. Does taking the classroom course mean that a teen is ready to get behind the wheel of a car?

When is financial education best received? Studies and anecdotal information show that people retain information best when it is closely related to something happening in their lives at that time. For example, learning about mortgage rates is more important to a first-time home buyer than to a high school junior.

How should we learn financial literacy? From my viewpoint as an author of a how-to book on teaching kids how to manage money, I was disappointed that there was not more specific information about “how.” There was emphasis on saving money and talking with your family about money, and encouraging kids to play interactive money games.

If you’re interested, you can listen to the entire 3 1/2 hour webinar.  Or save hours of time with my quick-read 100 word response (below) to the “who, what, why, where, when and how” questions.

Kids can learn money management skills at home. They will develop a skill I define as financial competency, being the ability to manage one’s financial resources to pay bills on time, make reasoned use of credit, and plan for future expenditures, as well as use money for fun and recreation.

Financial competency requires practice, something that cannot and does not happen in the classroom, simply because schools can’t provide real money in the classroom. Only parents can do that. To become competent in managing money a child has to practice with real money, make mistakes, and learn from the experience.

This is a simple strategy that any parent can adapt to provide a financial education at home. If parents get the ball rolling using the information in The No-Cash Allowance their children will have the opportunity to become confident and capable when it comes to managing their own money.

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