Spending and Saving

Experiential Learning is the Key to Financial Literacy for Kids

Teaching financial literacy to children is essential to future success, and current research shows that this training should start early.

The teaching of financial capability in schools has shifted in the last decade, with children being taught about finances earlier than ever before.  Teaching financial literacy to children is essential to future success, and current research shows that this training should start early. Children’s financial habits are formed by age seven, which means that creating financially stable adults should begin before the second grade.

Today, finances are more complex than ever before. Investing has become the norm for many, and multiple new options for saving or making money are popping up each day. Even for adults with financial experience, learning about all the possibilities can be overwhelming. Unfortunately, this knowledge is a basic requirement essential to future survival. With life expectancies continually rising and adding strain on the already drained social welfare system, having a secure long-term plan can make all the difference.

Many people have very little understanding of the current financial climate or personal finances. According to the Financial Industry Regulatory Authority (FINRA), which issues a five-question test as part of its Financial Capability Study, only 34% of those who took the quiz got four out of five questions correct. These findings suggest that the basic economic principles that underpin everyday life are inadequate. What does this say about an ever-evolving field for the future?

Financial literacy is the education and understanding of various economic areas, including managing personal finance, money, borrowing, and investing. Trends show that in the United States, financial literacy among individuals is declining. Yet financial literacy is more important than it has ever been.

Approximately 35 states have some form of K-12 personal finance education in place within their school system. The National Association of State Boards of Education’s Commission on Financial and Investor Literacy suggested that all schools implement this education throughout the K-12 system, and not just in older grades. A ‘Starting Early for Financial Success’ initiative began across the US to promote financial literacy among school-aged children. Research into children’s cognitive abilities showed that they can understand financial concepts at younger ages and that by the age of 12, their understanding is well developed. However, the process through which young people gain financial knowledge on their youth is also an important factor in their future economic success.   

School Should be the Pilar.

 Providing financial education within elementary schools, instead of merely supplying this knowledge through specialized high school classes, may help counteract students’ lack of financial socialization outside of school. In a world where it is common for both parents to work full-time, there is an increased need for schools to provide children with valuable skills that they will use later. By teaching financial literacy through experiential learning models, the school essentially sets children up for success down the line. Often viewed as a pillar of the community, the system should be providing this information to children as young as kindergarten to prevent the formation of bad habits.

Projects like the ‘bank at school’ program allow for this learning type by enabling children to manage their own money with their own account. While these programs show great promise in financial literacy, they rely on a partnership between school districts and financial institutions.

Creating an Experiential Environment for Learning.

A small 2017 study done with classrooms of K-12 children found that even the use of a simulated economic system appeared to increase students’ financial literacy. While this study may not be statistically valid on its own, it raises questions about using technology and hands-on learning techniques to promote economic understanding. More recently, studies have shown that the utilization of experiential learning to teach children about finances has proven successful. However, finding ways to implement this type of learning in the classroom proves to be more difficult.   

Studies like these allow the student to experience a variety of financial situations. The implementation of fines and bonuses, coupled with a classroom currency, teaches responsibility and control in ways that books can’t. The creators of this study have posited that the use of programs such as these will carry over into real life, and the youth involved may begin to seek out real-life ways of earning. In the study stated above, students showed statistically significant changes in financial literacy after only ten-weeks. There is excellent potential for experiential-type learning related to financial literacy, and further opportunities are being explored across the United States in various school districts.

Experiential learning provides youth with the opportunity to learn about finances in a hands-on way that encourages critical thinking and goal setting. There is a significant opportunity to develop programs like the one discussed in this article, and the potential for benefits is endless. Creating financially stable adults requires us to begin teaching the basics of financial literacy at a young age when minds are eager to learn and habits are quickly formed.  


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