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What is Financial Education?

What is Financial Education?

When we discuss financial education, we are talking about teaching people the principles of managing their money throughout their lives. What is financial education? It is showing people the skills and giving them the knowledge to effectively deal with their money. These principles change depending on the stage of life the person is in and many other factors. Effective financial education addresses different options to work within different sets of variables. It also shows people how to maximize savings while minimizing risks and expenses. It gives people the principles of how to make money work for you and frees you from being a lifelong slave to money.

Introduction to Financial Education

Knowing the benefits of being financially literate, it would be natural to pursue more insight on the subject. That being said, what is financial education and what is its role in facilitating the growth of an individual’s’ financial knowledge base? Financial education programs involves education put together by curriculum directors with considerable expertise in financial matters. Financial education also includes programs crafted by government agencies in the hopes of achieving a more financially able and educated populace. Financial education covers the basics of personal finance – budgeting, saving, investing – along with a host of other financial information that people will find useful in their lives.

Experts Vocalize the Importance of Financial Education

“Financial literacy is not an end in itself, but a step-by-step process. It begins in childhood and continues throughout a person’s life all the way to retirement. Instilling the financial-literacy message in children is especially important, because they will carry it for the rest of their lives.” – George Karl, former NBA coach

“Many entrepreneurs struggle to understand payroll taxes, health care and other thorny issues… In other words, they don’t have the financial literacy to scale their businesses and attract investors.” – Daymond John, CEO of FUBU and Sharktank host

“A combination of awareness, knowledge, skill, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing” (Organization for Economic Cooperation and Development). https://www.oecd.org

“Financial literacy is the education and understanding of knowing how money is made, spent, and saved, as well as the skills and ability to use financial resources to make decisions. These decisions include how to generate, invest, spend, and save money” (My Accounting Course). https://www.myaccountingcourse.com

“The ability to make informed judgments and to take effective decisions regarding the use and management of money” (Australian Securities and Investment Commission).
http://www.financialliteracy.gov.au

Effective Financial Education Focuses on Knowledge and Behavior

If financial education is to be effective, it must focus on behavior molding and modification rather than simply depositing information into the minds of students. Knowledge by itself is insufficient in producing behavioral change. Rather, the financial education program must emphasize the application of newly found expertise in order to make a noticeable difference in the financial situation of participants. Financial literacy done correctly has been found to significantly improve financial habits in terms of debt reduction, higher savings rates and more.

New Zealand’s Commission for Financial Literacy and Retirement Income necessitates partnerships with industry and business and partnerships with underserved communities (Center for Financial Capability). https://www.cffc.org.nz

The U.S. GAO suggests that content be relevant and timely with the intended audience in mind. College students may be more engaged learning about managing finances with a job, while retirees may appreciate advice on managing retirement funds (US Government Accountability Office). https://digital.library.unt.edu

Financial Education is Mostly from Parental Modeling and Personal Experience

A research study analyzing the effects of parents’ values on children found a statistically significant positive association between parent’s savings rates and children’s savings rates (Journal of Economic Psychology). https://home.uia.no

46% of those with low financial literacy index scores reported learning from personal experience, while 73% of those with high literacy scores claimed to learn from personal experience (Federal Reserve). https://www.federalreserve.gov

85% claimed they were ‘somewhat’ or ‘very’ unlikely to discuss their amount of credit card debt with strangers, more than the percentage of respondents who would avoid divulging details about their love life (CreditCards.com). https://www.creditcards.com

Two in five U.S. adults report keeping a budget and tracking their spending (National Foundation for Credit Counseling). https://www.nfcc.org

58% of 18-26 year olds set aside a portion of their income as savings (Bank of America). https://about.bankofamerica.com

Financial Education is Fundamentally Important and Tragically Overlooked

When we ask, “What is financial education and its importance for youth to gain essential financial expertise?” a helpful course of action is to single out one of the many research studies documenting the ability of financial education to precipitate real behavioral change. This encompasses more than defined by financial literacy and includes behavior and sentiment to produce real outcomes.

So what is financial education? It is a way of imbuing within students the most necessary skills they will need to handle the tough financial situations of life. Financial education, perplexingly not highly valued in the public education system, is often facilitated through the efforts of financial literacy initiatives and sometimes government agencies.  Read more about financial education certification here.

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