U.S. colleges — often criticized for teaching subjects with little practical value — may soon impart real-world knowledge. A Charles Schwab-backed Stanford University program brings personal finance education to the college classroom.
The Initiative for Financial Decision-Making aims to develop cutting-edge personal finance education programs. Starting with Stanford students, the program plans to leverage technology to broaden access, influence policy through partnerships and campaigns, and strengthen personal finance education.
There is potential for expansion, too; instructors from state schools and community colleges are already involved in parts of the initiative, hinting at broader adoption.
The media has long bemoaned the woeful state of American financial literacy. Unlike other subjects, the student body has a keen appetite for money studies.
A recent Intuit Financial Education survey of 2,000 American high school students revealed that 85% are interested in learning about financial topics in school. While encouraging, initiating the next generation into the world of personal finance brings challenges. We turn to financial advisors for their insights.
Get Ahead
Financial know-how is a prerequisite to success in this country. Americans must know how to manage their day-to-day finances, but not all workers and consumers are up to the task.
Is it reasonable to expect most people to succeed with money matters without the required knowledge? Financial education in the classroom should be the solution. However, there are risks.
“I have seen personal finance curricula spend more time on ‘choosing the best credit card’ than the importance of saving earlier in a career,” laments Stephan Shipe, Ph.D. and Financial Advisor at Scholar Advising.
“Teaching financial literacy in schools faces several challenges, including a lack of standardized curriculum and qualified instructors, which can lead to incorrect coverage of critical topics.”
Shipe stresses that, with real-world experience and context, students may see the immediate relevance, making it easier to apply or retain that knowledge.
Some influential global institutions share this view. For instance, the Organisation for Economic Co-operation and Development (OECD) defines financial literacy as understanding financial concepts and the skills, motivation, and confidence to apply knowledge and make effective decisions. In other words, both economic knowledge and behavior.
Classrooms may not be the sole answer to teaching money management; kids also need hands-on experience in the outside world, whether managing an allowance, creating budgets, or making spending decisions.
Yet others have a different emphasis.
“Often people worry about where education happens… but I think the bigger issue is the when,” says Benjamin Simerly, Founder and Financial Advisor at Lakehouse Family Wealth. “How early financial education starts plays a key role in how the human brain develops the concepts, and working with clients and hearing their stories about what they learned growing up bears this out in reality. To me, the best time to teach finance is when children first learn about numbers.”
Keep On Compounding
Dale Hershman, CEO of SickAdvisoryServices, concurs that some ideas, such as the time value of money, are worth instilling as soon as possible. “Young people who start investing early often benefit from dramatically better outcomes than people who start in middle age,” he says. “This is because investment returns can compound over time. Young people rarely consider the possibility that they will eventually grow old. If schools can get youngsters to think over a longer time range, all of American society would benefit.”
Kids are inexperienced, but time is their weapon.
The most famous example is Warren Buffet, who began investing at 11. Now in his mid-90s, he is among the world’s wealthiest individuals. Yet his long runway has given him an invaluable time horizon, which became his force multiplier as he leveraged the magic of compounding to grow his assets exponentially.
While Buffet is a once-in-a-generation guru, every young American can benefit from recognizing the power of compounding that underscores his story and self-discipline.
“The single most significant moment of change in a client’s mindset comes when they learn the power of compound interest,” says Simerly. “Once they grasp it… you see the lightbulb turn on above their heads. It’s one of my favorite moments that I get to share with clients.”
Boon for Business
While financial advisors differ on the ideal financial education for young Americans, many agree greater financial literacy does not threaten the financial advisory profession but enhances it.
“Everyone has the right to learn how to succeed, and it’s been a joy watching clients learn the ins and outs of investing,” says Daren Blonski, Managing Principal at Sonoma Wealth Advisors.
Advisors also believe greater personal finance education will increase the demand for financial advisors.
“Many people feel intimidated and do not seek the help they need simply because they do not even understand the subject matter and how an advisor would or could be helpful. Having more consumers educated about the subject will lead more people to seek the help they need from advisors,” “I believe this type of education would increase the need for advisors,” asserts Lawrence D. Sprung, Founder and Wealth Advisor at Mitlin Financial.
Nisiar Smith, Founder of Courtside Wealth Partners, shares a similar belief.
“I find that clients who come in with a foundational understanding of financial principles are more confident and engaged in planning for their future,” says Smith. “They appreciate the value of customized strategies and guidance for more complex matters, such as tax-efficient investing, retirement planning, or building an estate plan. While a good financial literacy program can provide the basics, most people eventually need professional advice to build a comprehensive financial plan tailored to their unique circumstances and goals.”
Incorporating financial literacy into college or high school education is important for young Americans. Practical know-how, core concepts like compounding, and skills to earn a high income can empower students to make informed decisions that will benefit them throughout their lives. If done correctly, greater financial literacy will enhance individual well-being and the broader economy.
