CFPB Director Richard Cordray touched on the importance of financial education in American schools on Tuesday, saying the agency recommends that financial education begin as early as kindergarten.
“Education in matters of personal finance is an essential pillar of life as we know it in America,” Cordray said. “In this [recent financial] crisis, families have lost trillions of dollars in household wealth; many have lost their homes and their live savings…But the problems experienced by many Americans were exacerbated by this plain fact: faced with the growing complexity of financial decisions around mortgages and other household credit, they were poorly equipped to deal with that complexity by making sound and sensible decisions.”
Cordray pointed to his former experience as the treasurer of Franklin County in Ohio, where he helped to arrange payment plans for individuals who had fallen behind on real estate taxes after the financial crisis.
“The reasons for their predicaments were many, but most of them had one thing in common: they lacked sufficient understanding of major decisions that confronted them in the consumer financial marketplace,” Cordray said.
Cordray said many of the challenges people face “could be mitigated by financial education” designed to alter behavior, which means starting at a young age.
“Financial education should be as fundamental as the education we are all required to receive in American history and government,” Cordray said. “We must be deliberate about pursuing financial education in our schools. Failing to do so is to condemn boys and girls to make the same mistakes others have made before them by enrolling them in the ‘school of hard knocks,’ which we all know is no school at all. It is the antithesis of education for each generation to have to learn the same lessons the hard way. It is utterly unacceptable.
Additionally, Cordray said the subject of finances and household budgets may be a touchy and potentially taboo subject among some American families.
“When we do not teach children about personal finance – about managing household budgets, saving for the future, or making informed decisions about larger investments in an education or a home – we are failing them in a very shameful and costly way,” Cordray said. “So, our first recommendation is that financial education should start early and be continuous… We also need to have integrated curricula in our schools – where the benefits of compound interest are understood in math class, where economic costs and risks are taught in social studies class, and where an essay in English class explains how we use money or how we protect our money or how we can take control of our financial lives to achieve our goals.”
Cordray also said failure to provide youth with financial education may cause them to “incur unnecessary debt, miss opportunities to save money and develop a poor credit history,” which can prevent them from accessing future economic opportunities.
He recommended that students participate in experiential learning, which may make them more likely to retain financial knowledge if they can apply it in real situations, and urged support and training for teachers interest in teaching financial management.
Cordray also pointed to the role of family in financial education, saying youth can benefit enormously when education begins in the home.
“We want parents to be engaged as their children are learning to master the concepts of personal financial management,” Cordray said. “Children form their financial identities early, and so it is important for parents to talk to their children about money at an early age.”