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Should All Schools Teach Financial Literacy?

And should students have to understand topics like budgets, consumer credit, student debt, saving and investing in order to graduate?

By Shannon Doyne

Students in U.S. high schools can get free digital access to The New York Times until Sept. 1, 2021.

How well do you think you manage money? Has anyone ever taught you any money-management skills? In general, how “financially literate” do you think you are? For instance, do you know how to budget and save? How to set up a bank account? Apply for financial aid and college loans?

Does your school teach these skills already? If not, do you wish it did? Should passing a financial-literacy class be a requirement for graduating from high school?

In “ Pandemic Helps Stir Interest in Teaching Financial Literacy ,” Ann Carrns writes about the growing interest in teaching students personal financial skills in U.S. schools:

As of early 2020, high school students in 21 states were required to take a personal finance course to graduate, according to the Council for Economic Education , which promotes economic and personal finance education for students in kindergarten through high school. That was a net gain of four states since the council’s previous count two years earlier. “We are making progress,” said Billy J. Hensley, president and chief executive of the National Endowment for Financial Education, a nonprofit group that promotes effective financial education. “I do think the pandemic is bringing more attention to the topic,” he said, noting that after the financial crisis more than a decade ago there was also a flurry of financial literacy proposals in state legislatures. An increasing number of studies support the effectiveness of financial literacy education when taught by well-trained teachers, said Nan J. Morrison, chief executive of the Council for Economic Education. And more teachers now say they feel confident teaching the material. A study released in March by researchers at the University of Wisconsin and Montana State University found significant increases in teacher participation in professional development. Still, the rigor of high school financial education varies. Just six states require high school students to complete a semester-long, stand-alone personal finance course, the council’s 2020 report found. Some states permit shorter courses or include the content as part of another class. In states that don’t require financial instruction, some schools opt to teach it and do an excellent job, but others ignore the subject completely — and they tend to be schools in less affluent districts, Mr. Hensley said.

The article also outlines the specifics on what the curriculum might look like:

Many financial literacy advocates consider a full-semester course the gold standard for personal finance instruction. Rebecca Maxcy, director of the Financial Education Initiative at the University of Chicago, said many courses focused mainly on skills, like writing a check or filing taxes. While those lessons can be helpful, she said, it’s important for courses to include discussions of how personal values and attitudes about money influence behavior, as well as an examination of the financial systems and potential barriers that students will encounter in the world of money. Questions like “Who benefits when you open a bank account?” can prompt meaningful discussions, she said. Some curriculum options, however, offer more condensed, basic instruction. Everfi, a digital instructional company, offers a free seven-session program for high school financial literacy. Students take interactive, self-guided lessons in topics like banking, budgeting and college financing. Sidney Strause, a freshman at Marshall University in West Virginia, said she had taken Everfi’s course as a junior in high school. The lessons were assigned as part of another course she was taking, and typically took 45 minutes to an hour to complete. “It taught me how to budget and save,” she said. “It’s crucial to adulthood.” Sometimes she would do the lessons at home and discuss them with her mother, she said, which led her mother to create a budget and set financial goals.

Students, read the entire article, then tell us:

What, if anything, in this article resonates with you and your experiences with learning about money?

Do you think schools should offer courses on financial literacy? Should taking them be mandatory for graduation?

What topics should financial literacy instruction in schools cover? In what grade should students start learning about it?

One of the experts quoted in this piece says that it’s important for courses to include discussions of how personal values and attitudes about money influence behavior. What are your general attitudes toward money, and where do you think you learned these attitudes? For instance, how much does making money factor into your goals for a future career?

Why do you think that some people believe the interest in teaching students skills about managing money increased during the pandemic? In this time, did you experience or witness any events that made you wish you had some knowledge of personal finances — or that made you grateful for what you know?

Earlier this year, the price of GameStop stock soared when individual traders, including some teenagers, purchased many shares as a way to both make money and retaliate against large hedge funds that forecast the stock losing value. Did you learn about this situation as it happened? Did you participate? Did any of your teachers talk about it, and if so, what did they say? If you have specific thoughts to contribute, answer our Student Opinion question, “ Should All Young People Learn How to Invest in the Stock Market? ”

About Student Opinion

• Find all of our Student Opinion questions in this column . • Have an idea for a Student Opinion question? Tell us about it . • Learn more about how to use our free daily writing prompts for remote learning .

Students 13 and older in the United States and the United Kingdom, and 16 and older elsewhere, are invited to comment. All comments are moderated by the Learning Network staff, but please keep in mind that once your comment is accepted, it will be made public.

Financial Literacy Education Could Help Millions of Americans

E ven as our country continues to move past the worst effects of the COVID-19 pandemic, supply chain issues persist, there is growing inflation, labor and wage pressure, and rising interest rates. While Americans work to make sense of all this—and plan around it—lack of financial literacy makes it difficult for many. Over the long run, this lack of knowledge puts the American Dream at risk for millions. We believe the private sector has an opportunity and a responsibility to help address this by providing employees, families, customers and communities with increased access to financial education.

There’s a big need for this kind of effort. Today, only about one-third of Americans have a working understanding of interest rates, mortgage rates and financial risk , according to the Financial Industry Regulatory Authority. And this measure of financial literacy has fallen 19 percent over the past decade. This gap is estimated to have cost Americans more than $415 billion in 2020 alone.

Lack of financial capability is impacting Americans both at home, and in the workplace. Stress over money has been linked to significant health conditions including heart disease, diabetes, sleep problems and depression. These life-threatening conditions can lead to expensive medical treatments, which in-turn creates more financial stress and worry. Financial difficulties are now the second leading cause of divorce. In the workplace, 97% of employees concede they spent time working on or worrying about finances during the workday. Stress related illnesses cost employers nearly $300 billion annually i n lost productivity, and 4 of 5 workers admit to being financially stressed .

Black America continues to be particularly impacted by these challenges. More than half (54%) of Black Americans have a credit score below 640, essentially unable to fully participate in free enterprise America. Half (54%) of Black Americans also report living paycheck-to-paycheck, as compared to 44% of Americans overall. Only 43% of Blacks own their home, compared to 72% of Whites. Blacks comprise 14% of the population, but own only 3.5% of small businesses.

These are more than just statistics. Behind the numbers are real people: tens of millions of parents, seniors and young people enduring financial stress, personal hardships and strained relationships as they struggle to save, borrow and invest in ways that provide greater financial stability, flexibility and security.

To help address these issues, we’re joining together to co-chair Financial Literacy for All , an inclusive, business-led movement aimed at helping more Americans reap the benefits that come from making more informed financial decisions. We plan to empower low- and middle-income individuals and families of every background, every walk of life and every community—from urban to rural and all points in between. We will use the creative brilliance of our partners to generate excitement and awareness around financial literacy; through our partners, grow workplace wellbeing for working adults; and support initiatives to deliver basic financial education to every school district in the country. And, given the wealth gap faced by Black and Hispanic households, we will ensure our efforts are relevant and readily available across those communities.

Since launching in May of last year, the Financial Literacy for All movement has been joined by nearly thirty other CEOs and board chairs, including the leaders of The Walt Disney Company, the National Football League, the National Basketball Association, Delta Air Lines, and several other leading financial institutions.

We believe financial literacy can be inclusive, creative, flexible and focused on results, and we think our coalition’s diversity will help us make meaningful progress to that goal. Disney, after all, specializes in engaging and entertaining people through the power of storytelling. The NFL and NBA know how to attract and inspire enthusiastic audiences. Operation HOPE is focused on equipping people with the financial tools to build a more secure future. And Walmart is deeply connected to communities, with 1.6 million associates, more than 4,700 stores, serving more than 137 million customers a week across the US. Each member organization will also do more for its employees and communities.

Our shared passion for improving financial education is rooted in our purposes and values. Almost 60 years ago, Walmart was founded on the idea of helping people save money so they could live better. Since 1992, Operation HOPE has been striving to expand economic opportunity and make free enterprise work for everyone. Each of us views this new endeavor as a natural extension of what our organizations have been doing for decades.

We know efforts like these can make a difference. As just one example, Operation HOPE has been providing no-cost, personalized financial coaching and education, helping some raise credit scores 54 points in six months, and more than 100 points over 24 months, lowering levels of debt, and helping clients create and increase their savings for emergencies and the future. And, in some cases, helping strivers go from being renters to homeowners, or from small business dreamers to small business owners.

We understand that the financial challenges facing millions of American households cannot be overcome solely through financial training. Other factors are also holding people back, including barriers to education, vocational training, financial services and job opportunities as well as discrimination of all kinds. These obstacles must also be addressed—and many in the private sector are making meaningful progress.

Even so, we believe better, more accessible financial education and higher levels of financial literacy could help millions of families. This and similar kinds of work, lifts ‘all boats’ across communities and across our nation. Raising GDP through enhanced financial intelligence, benefits the whole of society, and creates more sustainable opportunity for the nation. And the added benefit—less stressed-out citizens and workers—translates into more societal health, for all. These are big goals, but we believe they can be achieved—and that’s the challenge we’ve set for ourselves. We urge other business leaders to join this movement.

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• Published: 24 January 2019

Financial literacy and the need for financial education: evidence and implications

• Annamaria Lusardi 1  

Swiss Journal of Economics and Statistics volume  155 , Article number:  1 ( 2019 ) Cite this article

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1 Introduction

Throughout their lifetime, individuals today are more responsible for their personal finances than ever before. With life expectancies rising, pension and social welfare systems are being strained. In many countries, employer-sponsored defined benefit (DB) pension plans are swiftly giving way to private defined contribution (DC) plans, shifting the responsibility for retirement saving and investing from employers to employees. Individuals have also experienced changes in labor markets. Skills are becoming more critical, leading to divergence in wages between those with a college education, or higher, and those with lower levels of education. Simultaneously, financial markets are rapidly changing, with developments in technology and new and more complex financial products. From student loans to mortgages, credit cards, mutual funds, and annuities, the range of financial products people have to choose from is very different from what it was in the past, and decisions relating to these financial products have implications for individual well-being. Moreover, the exponential growth in financial technology (fintech) is revolutionizing the way people make payments, decide about their financial investments, and seek financial advice. In this context, it is important to understand how financially knowledgeable people are and to what extent their knowledge of finance affects their financial decision-making.

An essential indicator of people’s ability to make financial decisions is their level of financial literacy. The Organisation for Economic Co-operation and Development (OECD) aptly defines financial literacy as not only the knowledge and understanding of financial concepts and risks but also the skills, motivation, and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life. Thus, financial literacy refers to both knowledge and financial behavior, and this paper will analyze research on both topics.

As I describe in more detail below, findings around the world are sobering. Financial literacy is low even in advanced economies with well-developed financial markets. On average, about one third of the global population has familiarity with the basic concepts that underlie everyday financial decisions (Lusardi and Mitchell, 2011c ). The average hides gaping vulnerabilities of certain population subgroups and even lower knowledge of specific financial topics. Furthermore, there is evidence of a lack of confidence, particularly among women, and this has implications for how people approach and make financial decisions. In the following sections, I describe how we measure financial literacy, the levels of literacy we find around the world, the implications of those findings for financial decision-making, and how we can improve financial literacy.

2 How financially literate are people?

2.1 measuring financial literacy: the big three.

In the context of rapid changes and constant developments in the financial sector and the broader economy, it is important to understand whether people are equipped to effectively navigate the maze of financial decisions that they face every day. To provide the tools for better financial decision-making, one must assess not only what people know but also what they need to know, and then evaluate the gap between those things. There are a few fundamental concepts at the basis of most financial decision-making. These concepts are universal, applying to every context and economic environment. Three such concepts are (1) numeracy as it relates to the capacity to do interest rate calculations and understand interest compounding; (2) understanding of inflation; and (3) understanding of risk diversification. Translating these concepts into easily measured financial literacy metrics is difficult, but Lusardi and Mitchell ( 2008 , 2011b , 2011c ) have designed a standard set of questions around these concepts and implemented them in numerous surveys in the USA and around the world.

Four principles informed the design of these questions, as described in detail by Lusardi and Mitchell ( 2014 ). The first is simplicity : the questions should measure knowledge of the building blocks fundamental to decision-making in an intertemporal setting. The second is relevance : the questions should relate to concepts pertinent to peoples’ day-to-day financial decisions over the life cycle; moreover, they must capture general rather than context-specific ideas. Third is brevity : the number of questions must be few enough to secure widespread adoption; and fourth is capacity to differentiate , meaning that questions should differentiate financial knowledge in such a way as to permit comparisons across people. Each of these principles is important in the context of face-to-face, telephone, and online surveys.

Three basic questions (since dubbed the “Big Three”) to measure financial literacy have been fielded in many surveys in the USA, including the National Financial Capability Study (NFCS) and, more recently, the Survey of Consumer Finances (SCF), and in many national surveys around the world. They have also become the standard way to measure financial literacy in surveys used by the private sector. For example, the Aegon Center for Longevity and Retirement included the Big Three questions in the 2018 Aegon Retirement Readiness Survey, covering around 16,000 people in 15 countries. Both ING and Allianz, but also investment funds, and pension funds have used the Big Three to measure financial literacy. The exact wording of the questions is provided in Table  1 .

2.2 Cross-country comparison

The first examination of financial literacy using the Big Three was possible due to a special module on financial literacy and retirement planning that Lusardi and Mitchell designed for the 2004 Health and Retirement Study (HRS), which is a survey of Americans over age 50. Astonishingly, the data showed that only half of older Americans—who presumably had made many financial decisions in their lives—could answer the two basic questions measuring understanding of interest rates and inflation (Lusardi and Mitchell, 2011b ). And just one third demonstrated understanding of these two concepts and answered the third question, measuring understanding of risk diversification, correctly. It is sobering that recent US surveys, such as the 2015 NFCS, the 2016 SCF, and the 2017 Survey of Household Economics and Financial Decisionmaking (SHED), show that financial knowledge has remained stubbornly low over time.

Over time, the Big Three have been added to other national surveys across countries and Lusardi and Mitchell have coordinated a project called Financial Literacy around the World (FLat World), which is an international comparison of financial literacy (Lusardi and Mitchell, 2011c ).

Findings from the FLat World project, which so far includes data from 15 countries, including Switzerland, highlight the urgent need to improve financial literacy (see Table  2 ). Across countries, financial literacy is at a crisis level, with the average rate of financial literacy, as measured by those answering correctly all three questions, at around 30%. Moreover, only around 50% of respondents in most countries are able to correctly answer the two financial literacy questions on interest rates and inflation correctly. A noteworthy point is that most countries included in the FLat World project have well-developed financial markets, which further highlights the cause for alarm over the demonstrated lack of the financial literacy. The fact that levels of financial literacy are so similar across countries with varying levels of economic development—indicating that in terms of financial knowledge, the world is indeed flat —shows that income levels or ubiquity of complex financial products do not by themselves equate to a more financially literate population.

Other noteworthy findings emerge in Table  2 . For instance, as expected, understanding of the effects of inflation (i.e., of real versus nominal values) among survey respondents is low in countries that have experienced deflation rather than inflation: in Japan, understanding of inflation is at 59%; in other countries, such as Germany, it is at 78% and, in the Netherlands, it is at 77%. Across countries, individuals have the lowest level of knowledge around the concept of risk, and the percentage of correct answers is particularly low when looking at knowledge of risk diversification. Here, we note the prevalence of “do not know” answers. While “do not know” responses hover around 15% on the topic of interest rates and 18% for inflation, about 30% of respondents—in some countries even more—are likely to respond “do not know” to the risk diversification question. In Switzerland, 74% answered the risk diversification question correctly and 13% reported not knowing the answer (compared to 3% and 4% responding “do not know” for the interest rates and inflation questions, respectively).

These findings are supported by many other surveys. For example, the 2014 Standard & Poor’s Global Financial Literacy Survey shows that, around the world, people know the least about risk and risk diversification (Klapper, Lusardi, and Van Oudheusden, 2015 ). Similarly, results from the 2016 Allianz survey, which collected evidence from ten European countries on money, financial literacy, and risk in the digital age, show very low-risk literacy in all countries covered by the survey. In Austria, Germany, and Switzerland, which are the three top-performing nations in term of financial knowledge, less than 20% of respondents can answer three questions related to knowledge of risk and risk diversification (Allianz, 2017 ).

Other surveys show that the findings about financial literacy correlate in an expected way with other data. For example, performance on the mathematics and science sections of the OECD Program for International Student Assessment (PISA) correlates with performance on the Big Three and, specifically, on the question relating to interest rates. Similarly, respondents in Sweden, which has experienced pension privatization, performed better on the risk diversification question (at 68%), than did respondents in Russia and East Germany, where people have had less exposure to the stock market. For researchers studying financial knowledge and its effects, these findings hint to the fact that financial literacy could be the result of choice and not an exogenous variable.

To summarize, financial literacy is low across the world and higher national income levels do not equate to a more financially literate population. The design of the Big Three questions enables a global comparison and allows for a deeper understanding of financial literacy. This enhances the measure’s utility because it helps to identify general and specific vulnerabilities across countries and within population subgroups, as will be explained in the next section.

2.3 Who knows the least?

Low financial literacy on average is exacerbated by patterns of vulnerability among specific population subgroups. For instance, as reported in Lusardi and Mitchell ( 2014 ), even though educational attainment is positively correlated with financial literacy, it is not sufficient. Even well-educated people are not necessarily savvy about money. Financial literacy is also low among the young. In the USA, less than 30% of respondents can correctly answer the Big Three by age 40, even though many consequential financial decisions are made well before that age (see Fig.  1 ). Similarly, in Switzerland, only 45% of those aged 35 or younger are able to correctly answer the Big Three questions. Footnote 1 And if people may learn from making financial decisions, that learning seems limited. As shown in Fig.  1 , many older individuals, who have already made decisions, cannot answer three basic financial literacy questions.

Financial literacy across age in the USA. This figure shows the percentage of respondents who answered correctly all Big Three questions by age group (year 2015). Source: 2015 US National Financial Capability Study

A gender gap in financial literacy is also present across countries. Women are less likely than men to answer questions correctly. The gap is present not only on the overall scale but also within each topic, across countries of different income levels, and at different ages. Women are also disproportionately more likely to indicate that they do not know the answer to specific questions (Fig.  2 ), highlighting overconfidence among men and awareness of lack of knowledge among women. Even in Finland, which is a relatively equal society in terms of gender, 44% of men compared to 27% of women answer all three questions correctly and 18% of women give at least one “do not know” response versus less than 10% of men (Kalmi and Ruuskanen, 2017 ). These figures further reflect the universality of the Big Three questions. As reported in Fig.  2 , “do not know” responses among women are prevalent not only in European countries, for example, Switzerland, but also in North America (represented in the figure by the USA, though similar findings are reported in Canada) and in Asia (represented in the figure by Japan). Those interested in learning more about the differences in financial literacy across demographics and other characteristics can consult Lusardi and Mitchell ( 2011c , 2014 ).

Gender differences in the responses to the Big Three questions. Sources: USA—Lusardi and Mitchell, 2011c ; Japan—Sekita, 2011 ; Switzerland—Brown and Graf, 2013

3 Does financial literacy matter?

A growing number of financial instruments have gained importance, including alternative financial services such as payday loans, pawnshops, and rent to own stores that charge very high interest rates. Simultaneously, in the changing economic landscape, people are increasingly responsible for personal financial planning and for investing and spending their resources throughout their lifetime. We have witnessed changes not only in the asset side of household balance sheets but also in the liability side. For example, in the USA, many people arrive close to retirement carrying a lot more debt than previous generations did (Lusardi, Mitchell, and Oggero, 2018 ). Overall, individuals are making substantially more financial decisions over their lifetime, living longer, and gaining access to a range of new financial products. These trends, combined with low financial literacy levels around the world and, particularly, among vulnerable population groups, indicate that elevating financial literacy must become a priority for policy makers.

There is ample evidence of the impact of financial literacy on people’s decisions and financial behavior. For example, financial literacy has been proven to affect both saving and investment behavior and debt management and borrowing practices. Empirically, financially savvy people are more likely to accumulate wealth (Lusardi and Mitchell, 2014 ). There are several explanations for why higher financial literacy translates into greater wealth. Several studies have documented that those who have higher financial literacy are more likely to plan for retirement, probably because they are more likely to appreciate the power of interest compounding and are better able to do calculations. According to the findings of the FLat World project, answering one additional financial question correctly is associated with a 3–4 percentage point greater probability of planning for retirement; this finding is seen in Germany, the USA, Japan, and Sweden. Financial literacy is found to have the strongest impact in the Netherlands, where knowing the right answer to one additional financial literacy question is associated with a 10 percentage point higher probability of planning (Mitchell and Lusardi, 2015 ). Empirically, planning is a very strong predictor of wealth; those who plan arrive close to retirement with two to three times the amount of wealth as those who do not plan (Lusardi and Mitchell, 2011b ).

Financial literacy is also associated with higher returns on investments and investment in more complex assets, such as stocks, which normally offer higher rates of return. This finding has important consequences for wealth; according to the simulation by Lusardi, Michaud, and Mitchell ( 2017 ), in the context of a life-cycle model of saving with many sources of uncertainty, from 30 to 40% of US retirement wealth inequality can be accounted for by differences in financial knowledge. These results show that financial literacy is not a sideshow, but it plays a critical role in saving and wealth accumulation.

Financial literacy is also strongly correlated with a greater ability to cope with emergency expenses and weather income shocks. Those who are financially literate are more likely to report that they can come up with $2000 in 30 days or that they are able to cover an emergency expense of $400 with cash or savings (Hasler, Lusardi, and Oggero, 2018 ).

With regard to debt behavior, those who are more financially literate are less likely to have credit card debt and more likely to pay the full balance of their credit card each month rather than just paying the minimum due (Lusardi and Tufano, 2009 , 2015 ). Individuals with higher financial literacy levels also are more likely to refinance their mortgages when it makes sense to do so, tend not to borrow against their 401(k) plans, and are less likely to use high-cost borrowing methods, e.g., payday loans, pawn shops, auto title loans, and refund anticipation loans (Lusardi and de Bassa Scheresberg, 2013 ).

Several studies have documented poor debt behavior and its link to financial literacy. Moore ( 2003 ) reported that the least financially literate are also more likely to have costly mortgages. Lusardi and Tufano ( 2015 ) showed that the least financially savvy incurred high transaction costs, paying higher fees and using high-cost borrowing methods. In their study, the less knowledgeable also reported excessive debt loads and an inability to judge their debt positions. Similarly, Mottola ( 2013 ) found that those with low financial literacy were more likely to engage in costly credit card behavior, and Utkus and Young ( 2011 ) concluded that the least literate were more likely to borrow against their 401(k) and pension accounts.

Young people also struggle with debt, in particular with student loans. According to Lusardi, de Bassa Scheresberg, and Oggero ( 2016 ), Millennials know little about their student loans and many do not attempt to calculate the payment amounts that will later be associated with the loans they take. When asked what they would do, if given the chance to revisit their student loan borrowing decisions, about half of Millennials indicate that they would make a different decision.

Finally, a recent report on Millennials in the USA (18- to 34-year-olds) noted the impact of financial technology (fintech) on the financial behavior of young individuals. New and rapidly expanding mobile payment options have made transactions easier, quicker, and more convenient. The average user of mobile payments apps and technology in the USA is a high-income, well-educated male who works full time and is likely to belong to an ethnic minority group. Overall, users of mobile payments are busy individuals who are financially active (holding more assets and incurring more debt). However, mobile payment users display expensive financial behaviors, such as spending more than they earn, using alternative financial services, and occasionally overdrawing their checking accounts. Additionally, mobile payment users display lower levels of financial literacy (Lusardi, de Bassa Scheresberg, and Avery, 2018 ). The rapid growth in fintech around the world juxtaposed with expensive financial behavior means that more attention must be paid to the impact of mobile payment use on financial behavior. Fintech is not a substitute for financial literacy.

4 The way forward for financial literacy and what works

Overall, financial literacy affects everything from day-to-day to long-term financial decisions, and this has implications for both individuals and society. Low levels of financial literacy across countries are correlated with ineffective spending and financial planning, and expensive borrowing and debt management. These low levels of financial literacy worldwide and their widespread implications necessitate urgent efforts. Results from various surveys and research show that the Big Three questions are useful not only in assessing aggregate financial literacy but also in identifying vulnerable population subgroups and areas of financial decision-making that need improvement. Thus, these findings are relevant for policy makers and practitioners. Financial illiteracy has implications not only for the decisions that people make for themselves but also for society. The rapid spread of mobile payment technology and alternative financial services combined with lack of financial literacy can exacerbate wealth inequality.

To be effective, financial literacy initiatives need to be large and scalable. Schools, workplaces, and community platforms provide unique opportunities to deliver financial education to large and often diverse segments of the population. Furthermore, stark vulnerabilities across countries make it clear that specific subgroups, such as women and young people, are ideal targets for financial literacy programs. Given women’s awareness of their lack of financial knowledge, as indicated via their “do not know” responses to the Big Three questions, they are likely to be more receptive to financial education.

The near-crisis levels of financial illiteracy, the adverse impact that it has on financial behavior, and the vulnerabilities of certain groups speak of the need for and importance of financial education. Financial education is a crucial foundation for raising financial literacy and informing the next generations of consumers, workers, and citizens. Many countries have seen efforts in recent years to implement and provide financial education in schools, colleges, and workplaces. However, the continuously low levels of financial literacy across the world indicate that a piece of the puzzle is missing. A key lesson is that when it comes to providing financial education, one size does not fit all. In addition to the potential for large-scale implementation, the main components of any financial literacy program should be tailored content, targeted at specific audiences. An effective financial education program efficiently identifies the needs of its audience, accurately targets vulnerable groups, has clear objectives, and relies on rigorous evaluation metrics.

Using measures like the Big Three questions, it is imperative to recognize vulnerable groups and their specific needs in program designs. Upon identification, the next step is to incorporate this knowledge into financial education programs and solutions.

School-based education can be transformational by preparing young people for important financial decisions. The OECD’s Programme for International Student Assessment (PISA), in both 2012 and 2015, found that, on average, only 10% of 15-year-olds achieved maximum proficiency on a five-point financial literacy scale. As of 2015, about one in five of students did not have even basic financial skills (see OECD, 2017 ). Rigorous financial education programs, coupled with teacher training and high school financial education requirements, are found to be correlated with fewer defaults and higher credit scores among young adults in the USA (Urban, Schmeiser, Collins, and Brown, 2018 ). It is important to target students and young adults in schools and colleges to provide them with the necessary tools to make sound financial decisions as they graduate and take on responsibilities, such as buying cars and houses, or starting retirement accounts. Given the rising cost of education and student loan debt and the need of young people to start contributing as early as possible to retirement accounts, the importance of financial education in school cannot be overstated.

There are three compelling reasons for having financial education in school. First, it is important to expose young people to the basic concepts underlying financial decision-making before they make important and consequential financial decisions. As noted in Fig.  1 , financial literacy is very low among the young and it does not seem to increase a lot with age/generations. Second, school provides access to financial literacy to groups who may not be exposed to it (or may not be equally exposed to it), for example, women. Third, it is important to reduce the costs of acquiring financial literacy, if we want to promote higher financial literacy both among individuals and among society.

There are compelling reasons to have personal finance courses in college as well. In the same way in which colleges and university offer courses in corporate finance to teach how to manage the finances of firms, so today individuals need the knowledge to manage their own finances over the lifetime, which in present discounted value often amount to large values and are made larger by private pension accounts.

Financial education can also be efficiently provided in workplaces. An effective financial education program targeted to adults recognizes the socioeconomic context of employees and offers interventions tailored to their specific needs. A case study conducted in 2013 with employees of the US Federal Reserve System showed that completing a financial literacy learning module led to significant changes in retirement planning behavior and better-performing investment portfolios (Clark, Lusardi, and Mitchell, 2017 ). It is also important to note the delivery method of these programs, especially when targeted to adults. For instance, video formats have a significantly higher impact on financial behavior than simple narratives, and instruction is most effective when it is kept brief and relevant (Heinberg et al., 2014 ).

The Big Three also show that it is particularly important to make people familiar with the concepts of risk and risk diversification. Programs devoted to teaching risk via, for example, visual tools have shown great promise (Lusardi et al., 2017 ). The complexity of some of these concepts and the costs of providing education in the workplace, coupled with the fact that many older individuals may not work or work in firms that do not offer such education, provide other reasons why financial education in school is so important.

Finally, it is important to provide financial education in the community, in places where people go to learn. A recent example is the International Federation of Finance Museums, an innovative global collaboration that promotes financial knowledge through museum exhibits and the exchange of resources. Museums can be places where to provide financial literacy both among the young and the old.

There are a variety of other ways in which financial education can be offered and also targeted to specific groups. However, there are few evaluations of the effectiveness of such initiatives and this is an area where more research is urgently needed, given the statistics reported in the first part of this paper.

5 Concluding remarks

The lack of financial literacy, even in some of the world’s most well-developed financial markets, is of acute concern and needs immediate attention. The Big Three questions that were designed to measure financial literacy go a long way in identifying aggregate differences in financial knowledge and highlighting vulnerabilities within populations and across topics of interest, thereby facilitating the development of tailored programs. Many such programs to provide financial education in schools and colleges, workplaces, and the larger community have taken existing evidence into account to create rigorous solutions. It is important to continue making strides in promoting financial literacy, by achieving scale and efficiency in future programs as well.

In August 2017, I was appointed Director of the Italian Financial Education Committee, tasked with designing and implementing the national strategy for financial literacy. I will be able to apply my research to policy and program initiatives in Italy to promote financial literacy: it is an essential skill in the twenty-first century, one that individuals need if they are to thrive economically in today’s society. As the research discussed in this paper well documents, financial literacy is like a global passport that allows individuals to make the most of the plethora of financial products available in the market and to make sound financial decisions. Financial literacy should be seen as a fundamental right and universal need, rather than the privilege of the relatively few consumers who have special access to financial knowledge or financial advice. In today’s world, financial literacy should be considered as important as basic literacy, i.e., the ability to read and write. Without it, individuals and societies cannot reach their full potential.

See Brown and Graf ( 2013 ).

Abbreviations

Defined benefit (refers to pension plan)

Defined contribution (refers to pension plan)

Financial Literacy around the World

National Financial Capability Study

Organisation for Economic Co-operation and Development

Programme for International Student Assessment

Survey of Consumer Finances

Survey of Household Economics and Financial Decisionmaking

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Acknowledgements

This paper represents a summary of the keynote address I gave to the 2018 Annual Meeting of the Swiss Society of Economics and Statistics. I would like to thank Monika Butler, Rafael Lalive, anonymous reviewers, and participants of the Annual Meeting for useful discussions and comments, and Raveesha Gupta for editorial support. All errors are my responsibility.

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Financial Literacy: What College Students Need to Know

Many college students are unprepared to manage their own finances, according to some research and experts.

Financial Literacy in College

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Making financial decisions – including around budgeting, taking out loans or investing – can be daunting, and many college students feel ill-equipped to do so.

Given the rising cost of tuition , college students need to be more informed than ever about the implications of paying for higher education. But making financial decisions – including around budgeting, taking out loans or investing – can be daunting, and many college students feel ill-equipped to do so.

In a survey of about 30,000 college students from more than 440 schools across the country, only 53% said they felt prepared to manage their money, according to a 2019 report by EVERFI, sponsored by AIG Retirement Services.

"We see a lot of students who haven't had to deal with a whole lot of the complexities of the financial world" before college, says Phil Schuman, president of the Higher Education Financial Wellness Alliance and executive director of financial wellness and education at Indiana University—Bloomington . "The most experience we see students have with finances tend to be they had some sort of part-time job while they were in high school. So they come in with a little bit of understanding of their earning process, a little bit of understanding of the tax process and just how to bank."

What Is Financial Literacy?

Financial literacy, sometimes under the umbrella of financial wellness, is the understanding of financial concepts – like interest rates, student loans, credit scores and budgeting – and how your personal finances work.

Not having an understanding of some of these concepts can result in negative consequences after college, like going into unnecessary debt or student loan default, says Andrea Janssen, interim director of the University of Montana 's Financial Education Program.

Do States Require Financial Literacy in High School?

Fifteen states require or are in the process of mandating that students take a stand-alone personal financial course of at least one semester to graduate, according to Next Gen Personal Finance’s 2022 "State of Financial Education" report. Only eight of those states have fully implemented their requirements statewide.

In the 42 states that have yet to implement statewide requirements, fewer than 1 in 10 students have guaranteed access to a stand-alone personal finance course, the report found.

"I think public schools and universities have a responsibility to make sure that when students graduate and they either go off to college, start their own business, enter the workforce or decide to serve the country through the military, they should have a deep understanding of how the economy works, how money works and they are prepared to navigate a much more complex financial services system than has ever existed before," says Ray Martinez, co-founder and president of EVERFI, a Washington, D.C.-based company that provides financial education, workplace training and community education.

Financial Concepts Students Should Know

When transitioning from high school to college, students should learn to budget, track spending habits and understand loans, experts say.

One rule of thumb is "don't spend what you don't have," says Dana Kelly, vice president of professional development and institutional compliance at the National Association of Student Financial Aid Administrators. She advises students to avoid using a credit card while in college.

"That's where budgeting really comes into play because if you're sticking to your budget, then you're working with the cash that you have," she says. Students who decide to use a credit card in college should be clear on what the interest rates are, what a credit score is and how to make payments on time, Kelly adds.

If you have money left over for the month, Janssen recommends dividing it into thirds. One-third can be used for something fun as a reward. The next third is to pay off any debts while the remaining funds can be invested or saved.

Develop an early habit of saving, if possible, Kelly says.

"Even if you start putting away even small amounts, you are fostering a really good habit there," she adds. "And then as you get through college and you move into that first apartment, you then have something to put away and potentially can look at other investment options and growing that savings."

Track Spending Habits

Whether you spend money on activities, gifts or going out to eat, it's important to understand your personal habits and attitudes around finances, experts say – especially before entering a relationship.

"Statistically speaking, every single year, one of the top reasons for divorce has to do with financial stress," Schuman says. "And part of it is because people don't know how to understand their financial background or understand their partner's financial background. And when they try and have conversations, there's no positivity that comes out of it."

Understand Student Loans

Not all student loans are bad, experts say, but students need to be aware of the different types of loans, repayment obligations and interest rates.

"Student loans can be a really effective tool for helping you progress in your life," Schuman says. "Borrowing more than what you need and then using that money to potentially buy stuff that's not relevant to your college experience, that's bad."

Students and their families need to plan early and have discussions around how they're going to pay for college before enrolling, experts say. To qualify for federal loans and other sources of financial aid such as scholarships, grants or work-study, students must first fill out the Free Application for Federal Student Aid, or FAFSA .

College Efforts to Improve Student Financial Literacy

With the growing need for financial literacy efforts on college campuses, many schools have responded by opening financial wellness offices, Kelly says. These offices are designed to host informational seminars and improve students' overall financial knowledge.

The University of Montana's Financial Education Program, for instance, offers one-on-one financial counseling and workshops on topics such as budgeting, credit, savings and navigating the financial aid process to current and potential students, faculty and staff. The program recently expanded to include outreach to local high schools to discuss how to fill out the FAFSA and pay for college.

"We educate students about their personal finances and those financial options when it comes to paying and repaying for college," Janssen says. "And by going through all of that, we are setting them up for success and a solid financial future."

Similarly, Indiana University created MoneySmarts, which offers peer educators and financial literacy classes for credit. Students may take three five-week classes for one credit or a three-credit-hour class that is more comprehensive.

"On the college side of things, we want to take whatever is taught in high school, if anything, and expand upon it," Schuman says. "Really provide people a look at what post-college life could look like with what their financial situation may be based on their degree and based on how much student loan debt they may have."

Financial Resources for Students

It may be hard for students to ask their parents financial questions "because money is tough to talk about," Janssen says. However, there are other resources or tools available to students.

While on campus, students can visit their school's financial wellness office or financial aid office.

"You should never feel ashamed or embarrassed about going to talk to financial aid and asking them questions," Schuman says.

Experts also recommend students use budgeting apps like Mint or reach out to their bank, as banks often have financial planning tools or their own budgeting calculators.

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Delivering focused financial education

Virginia credit union’s data benefits financial success for women series..

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When Virginia Credit Union in Richmond teamed up with the Financial Health Network and George Fox University to conduct a series of member surveys, it learned that its female members struggled the most with financial health and confidence.

“Women actually scored all right with financial knowledge, compared to men, but their scores with financial health and confidence were lower,” says Cherry Dale, vice president of financial education. 

In response, the $4.8 billion credit union created Financial Success for Women , a month-long, virtual financial education series.

The program included four components: spend, save, borrow, and plan. Each week, participants received an email with content and recorded webinars. Every Thursday, a different expert spoke with the participants in a live virtual program.

The first live session featured The Washington Post personal finance columnist Michelle Singletary.

Virginia Credit Union measured participants’ financial health and understanding before and after the series. The goal was to determine whether or not the series could move the needle and increase members’ overall financial health.

In the initial assessment, participants designated their financial health as coping (57%), vulnerable (23%), and healthy (20%). Following the series, 17% rated themselves as vulnerable, 59% coping, and 24% healthy.

Participants who were not confident decreased from 19% to 8% while those who considered themselves somewhat confident rose from 16% to 23% and confident increased from 65% to 68%.

Participants also left with a better view of the credit union. In the post-series assessment, 80% of respondents agreed “Virginia Credit Union helps people feel more confident about their finances,” up 26% from the initial assessment. Plus, respondents who agreed “Virginia Credit Union offers good financial advice or education” jumped from 58% to 91%.

Dale will use this information to create focused financial education that will improve members’ confidence in their finances.

Using financial health surveys to segment out demographics and see who needs what kind of education is exciting to Dale. She believes the financial education space is only going to continue to be more and more focused in the future.

“We should be doing financial education and helping our members with their overall financial health. It's just the right thing to do,” Dale says. “But as we're evolving, we need to really make sure that we are targeting and providing programs that are able to move the needle. We want to be able to actually measure how programs positively impact participants.”

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Everyone needs financial literacy education

Lena Nebel and the rest of the team at BFG Financial Group saw a need to teach young people about financial literacy concepts. So they created a university to do just that.

Nebel is president and chief operating officer at BFG Financial Group, located in Timonium, Md. She said the company’s interest in providing financial literacy education stems from the company CEO Eric Brotman’s desire to teach others to free themselves from debt and have a secure retirement. Brotman is the author of three books, including Don’t Retire…Graduate!: Building a Path to Financial Freedom and Retirement at Any Age ; Retire Wealthy: The Tools You Need to Help Build Lasting Wealth – On Your Own or With Your Financial Advisor ; and Debt-Free for Life: The Tools You Need to Free Yourself from Debt .

“BFG University starts with students in their freshman year of high school and going into their senior year, starting with the basic financial topics and then getting into the more advanced topics,” Nebel said.  

She added that BFG University was born from the firm’s marketing department. “They saw there is this need among individuals who are underserved in the financial community,” she said. “With our CEO writing this book about retirement being like graduation, we started brainstorming how to present this information in a university-like program.”

Nebel and the other members of the BFG team travel to area high schools regularly to talk to students about careers in finance, how to invest and how to pick stocks. Nebel often works with investment clubs in local high schools.

BFG University and related financial literacy programs are among the ways financial professionals give of their time and expertise to help members of their communities improve their financial knowledge.

The need for financial literacy education continues to grow. Consider these statistics from zippia.com:

• 73% of teens want a more personal finance education . • Americans lose an average of $1,819 annually due to financial illiteracy. • 77% of Americans are financially anxious . • Only 25% of American teens have confidence in their personal finance knowledge.

“We do go into schools and talk about financial topics as much as we can, because unfortunately a lot of young people, even when they get into college, aren’t aware of some of these things,” Nebel said.

BFG also created a program called Financial Planning for All.

“It allows any individual, regardless of their assets, to work with a Certified Financial Planner,” Nebel said. “Many of our peers in this industry require clients to have a minimum amount of assets before they will work with them. We partner with a lot of firms and form strategic alliances. We call it ‘collaboration over competition,’ where we can meet with clients and help them because there are a lot of people who need planning advice, but they may not have any money.”

Nebel said she started an investment club at York College of Pennsylvania when she was a student there. She loves to work with Junior Achievement and high school students to teach young people about the stock market.

“There are high schools in our area that have an investment club, where they begin picking stocks on Sept. 1 and the students’ portfolio runs until the end of the school year. And I work with Junior Achievement on their stock market challenge. I’m a trader for the day, so I run back and forth to the tables where the kids are placing orders. It’s a lot of fun.”

Nebel said she believes financial literacy education should begin as early as possible. “I think the more we can talk about these issues and emphasize the importance of starting early, the better.”

Not just for kids

Financial literacy education isn’t just for students. Adults need help in understanding an array of financial topics. Protection Point Advisors in Roseville, Calif., uses everything from webinars to a network of professionals to provide financial education for clients and nonclients alike.

“We have something called 3-D Asset Care, which is a series of monthly webinars on topics that are important for our clients,” he said. The topics are not confined to financial planning matters. For example, 3-D Asset Care conducted a webinar on “Reverse Mortgages: The Good, the Bad and the Ugly.”

“To my knowledge, there’s no one in my firm who even holds a mortgage broker license, so it wasn’t about generating business,” he said. “It’s more because clients are asking about reverse mortgages as property values go up and there’s a lot of equity stored in people’s houses.”

Heck said his firm also offers financial literacy education to its clients as well as clients’ children and grandchildren.  

“We have a financial education system that’s accessible through our website,” he said. “It has hundreds of modules in 17 or 18 different categories — everything from budgeting and spending to buying a car or a house, debt management, taxes, workplace transition. We make all that available to our clients when they come on board with us, but we also encourage them to give their children and grandchildren access to that information.”  

Heck described his firm’s financial education system as “real-world topics, things that will benefit people, especially people who are just starting out, because these are things that aren’t taught in school anymore.”

The founders of Protection Point Advisors created the National Referral Network, in which they teach professionals such as accountants, insurance agents, mortgage brokers and real estate professionals how to educate and deliver value to their clients. Heck said that his company produces a weekly podcast with different professionals within the network to discuss various financial education issues. He also writes articles regularly for LinkedIn and industry publications.

When it comes to educating people about financial issues, Heck said most of those he works with want guidance more than anything else.

“They want guidance as to what they can do to empower themselves, to know more about the direction in which they want to go, because a lot of people know where they want to go but they usually don’t know how to get there. So what they are largely looking for is, ‘OK, John, this is where we’re at and how do we get from Point A to Point B?’”

Heck said his company was inspired to take on financial literacy education after its founders acknowledged that people often are uncomfortable discussing financial topics.  

“We asked ourselves, ‘How can we do this differently? How can we do it better?’ That’s where all this came from — from a place of asking ourselves how we can add more value to the client relationships we have.”  

Repairing the disconnect

When Nadia Vanderhall first started working in marketing for financial services companies, she noticed a disconnect between the information consumers needed to make financial decisions and the information that was out there. So she set out to fix it.

“I create content and educate people on different topics that are within the personal finance space,” she said.  

Vanderhall’s content appears on several platforms, including YouTube, Facebook, Instagram, LinkedIn and X.  

“People like to digest content in different ways,” she said. “And I find that I can talk about the same thing on all those platforms. But people can get a different perspective, depending on the channel.”

Vanderhall’s content covers topics around budgeting, investing and saving. “I want to give people information that will be relevant to what they are trying to do to reach their financial goals,” she said.

What consumers most need in terms of financial education, she said, is cutting through the clutter of advice that’s out there.

“They need someone to give them guidance and confirmation on how to reach their goals from where they are right now,” she said. “Do they need to make any changes to what they’re currently doing? What is that change? Will it be easy to do? People need someone to give them a concise plan and be their ally and help them make that goal a reality.”

Vanderhall’s YouTube channel is called “NV Knows” (@NVKnows). She discusses financial topics that are in the news or that she knows people are talking about.  

For example, a recent video focuses on money trends, including “girl math,” “loud budgeting,” “YOLO spending” and “doom spending.”  

“If I see a financial topic that people are talking about — for example, inflation — I give a spin to it. This connects back to what I notice people are talking about, and I use it as market research.”

One of Vanderhall’s motives in using social media channels to teach financial literacy is a desire to show consumers that they don’t have to be wealthy to access financial advice.

“When people hear the words ‘financial planning,’ they automatically feel that it’s for the affluent,” she said. “But I believe planning and education are not necessarily for the affluent but for people who need to be able to afford their lives.”

Connecting all the dots

Students need financial literacy education. The financial services industry needs new blood. Kimberley Brown is connecting the dots to fulfill both sets of needs.

As part of her work with the coalition, she works with institutions of higher learning that target Black, Hispanic and Native American students to educate those students about careers in the industry. But she also sees a need for young people to learn more about their own finances.

“I talk to them about understanding budgeting. I discuss how you can’t save and plan for retirement when you’re carrying so much student debt.”

Brown said she believes financial literacy education changes students’ lives and then has wider implications.

“I want to change that student’s life because they’re going to be educated on financial topics that perhaps they’ve never heard before,” she said. “I’m going to help students or early-career entrants understand how to save and plan for retirement. I’m going to help them understand that retirement is not about a pension — it’s about your 401(k) or any other type of retirement plan you participate in.”

Brown said that after she helps a young person understand financial concepts such as retirement planning, “I expect they will take that same information and have a conversation in their household, in their church community and then begin the transformation of their community.”

The coalition is expected to work with 20,000 students this year. Brown said the coalition operates what she calls “virtual handshake career fairs” online in which coalition members discuss careers in the wholesaling sector. But there’s a financial literacy component as well.

“We talk about LinkedIn and resume writing,” she said. “We have an internship experience where I also do presentations about saving and retirement and the financial implications of staying in college an extra year versus graduating in four years.”

There are many opportunities for students to learn about careers. And there are programs to teach students about financial literacy. But Brown said there is a need to incorporate both into a single program.

“Nobody is connecting all the dots. Nobody is explaining why you need to budget in the swipe-debit card era we live in. We need to get back to the basics and explain why these things are important. We need to explain to students that the decisions they make today will impact them 30 years later. But you have to make those conversations meaningful in order for them to be transformative.”  

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The Ultimate Guide to Financial Literacy for Adults

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What Is Financial Literacy?

Personal finance basics.

• Bank Accounts
• Credit Cards
• How to Start Investing
• Frequently Asked Questions (FAQs)

The Bottom Line

Learn the skills now that you need for a more financially secure life

Caleb has been the Editor-in-Chief of Investopedia since 2016. He is an award-winning media executive with more than 20 years of experience in business news, digital publishing, and documentaries. Caleb is the on the Board of Governors and Executive Committee of SABEW (Society for Advancing Business Editing & Writing), and his awards include a Peabody, EPPY, SABEW Best in Business, and two Emmy nominations.

We know that the earlier you learn the basics of how money works, the more confident and successful you’ll be with your finances later in life. It’s never too late to start learning, but it pays to have a head start. The first steps into the world of money start with education.

Banking, budgeting, saving, credit, debt, and investing are the pillars that support most of the financial decisions that we’ll make in our lives. At Investopedia, we have more than 30,000 articles, terms, Frequently Asked Questions (FAQs), and videos that explore these topics. We’ve spent more than 20 years building and improving our resources to help you make smart financial and investing decisions.

This guide is a great place to start, and today is a great day to do it. Let’s begin with financial literacy —what it is and how it can improve your life.

Key Takeaways

• Financial literacy is the ability to understand and make use of a variety of financial skills.
• Those with higher levels of financial literacy are more likely to spend less income, create an emergency fund, and open a retirement account than those with lower levels.
• Some of the basics of financial literacy and its practical application in everyday life include banking, budgeting, handling debt and credit, and investing.

Financial literacy is the ability to understand and make use of a variety of financial skills, including personal financial management, budgeting, and investing. It also means comprehending certain financial principles and concepts, such as the time value of money , compound interest , managing debt, and financial planning.

Achieving financial literacy can help individuals to avoid making poor financial decisions. It can help them become self-sufficient and achieve financial stability. Key steps to attaining financial literacy include learning how to create a budget, track spending, pay off debt, and plan for retirement.

Educating yourself on these topics also involves learning how money works, setting and achieving financial goals, becoming aware of unethical/discriminatory financial practices, and managing financial challenges that life throws your way.

The Importance of Financial Literacy

In its National Financial Capability Study the Financial Industry Regulatory Authority (FINRA) found that Americans’ with higher levels of financial literacy were more likely to make ends meet, spend less of their income, create a three-month emergency fund, and open a retirement account than those with lower financial literacy.

Making informed financial decisions is more important than ever. Take retirement planning. Many workers once relied on pension plans to fund their retirement lives, with the financial burden and decision-making for pension funds borne by the companies or governments that sponsored them.

Today, few workers get pensions; instead some are offered the option of participating in a 401(k) plan . This involves decisions that employees themselves have to make about contribution levels and investment choices. Those without employer options need to actively seek out and open individual retirement accounts (IRAs) and other tax-advantaged retirement accounts .

Add to this people’s increasing life spans (leading to longer retirements), Social Security benefits that barely support basic survival, complicated health and other insurance options, more complex savings and investment instruments to select from—and a plethora of choices from banks, credit unions, brokerage firms, credit card companies, and more.

It’s clear that financial literacy is a must for making thoughtful and informed decisions, avoiding unnecessary levels of debt, helping family members through these complex decisions, and having adequate income in retirement.

Personal finance is where financial literacy translates into individual financial decision-making. How do you manage your money? Which savings and investment vehicles are you using? Personal finance is about making and meeting your financial goals, whether you want to own a home, help other members of your family, save for your children’s college education, support causes that you care about, plan for retirement, or anything else.

Among other topics, it encompasses banking, budgeting, handling debt and credit, and investing. Let’s take a look at these basics to get you started.

Introduction to Bank Accounts

A bank account is typically the first financial account that you’ll open. Bank accounts can hold and build the money you'll need for major purchases and life events. Here’s some background on bank accounts and why they are step one in creating a stable financial future.

Why Do I Need a Bank Account?

Though the majority of Americans do have bank accounts, 6% of households in the United States still don’t have one. Why is it so important to open a bank account? Because it’s safer than holding cash. Assets held in a bank are harder to steal, and in the U.S., they’re generally insured by the Federal Deposit Insurance Corporation (FDIC) . That means you should always have access to your cash, even if every customer decided to withdraw their money at the same time.

Many financial transactions require you to have a bank account to:

• Use a debit or credit card
• Use payment apps like Venmo or PayPal
• Write a check
• Buy or rent a home
• Receive your paycheck from your employer
• Earn interest on your money

Online vs. Brick-and-Mortar Banks

When you think of a bank, you probably picture a building. This is called a brick-and-mortar bank. Many brick-and-mortar banks also allow you to open accounts and manage your money online.

Some banks are only online and have no physical buildings. These banks typically offer the same services as brick-and-mortar banks, aside from the ability to visit them in person.

Which Type of Bank Can I Use?

Retail banks : This is the most common type of bank at which people have accounts. Retail banks are for-profit companies that offer checking and savings accounts, loans, credit cards, and insurance. Retail banks can have physical, in-person buildings that you can visit or they can be online only. Most offer both options. Banks’ online technology tends to be advanced, and they often have more locations and ATMs nationwide than credit unions do.

Credit unions : Credit unions provide savings and checking accounts, issue loans, and offer other financial products, just like banks do. However, they are not-for-profit organizations owned by their members. Credit unions tend to have lower fees and better interest rates on savings accounts and loans. Credit unions are sometimes known for providing more personalized customer service, though they usually have far fewer branches and ATMs.

Assets held in a credit union are insured by the National Credit Union Administration (NCUA) , which is equivalent to the FDIC for banks.

What Types of Bank Accounts Can I Open?

There are three main types of bank accounts that the average person may want to open:

1. Savings account : A savings account is an interest-bearing deposit account held at a bank or other financial institution. Savings accounts typically pay a low interest rate, but their safety and reliability make them a sensible option for saving available cash for short-term needs.

They usually have some legal limitations on how often you can withdraw money . However, they’re generally very flexible so they’re ideal for building an emergency fund, saving for a short-term goal like buying a car or going on vacation, or simply storing extra cash that you don’t need in your checking account.

2. Checking account : A checking account is also a deposit account at a bank or other financial institution that allows you to make deposits and withdrawals. Checking accounts are very liquid, meaning that they allow numerous withdrawals per month (as opposed to less liquid savings or investment accounts) though they earn little to no interest.

Money can be deposited at banks and ATMs, through direct deposit, or through another type of electronic transfer. Account holders can withdraw funds via banks and ATMs, by writing checks, or using debit cards linked to their accounts.

You may be able to find a checking account with no fees. Others have monthly and other charges (such as for overdrafts or using an out-of-network ATM) based on, for example, how much you keep in the account or whether there’s a direct deposit paycheck or automatic-withdrawal mortgage payment connected to the account.

Lifeline and  second-chance accounts , available at some banks, can help those who have difficulty qualifying for a traditional checking account.

3. High-yield savings account : A high-yield savings account usually pays a much higher rate of interest than a standard savings account. The tradeoff for earning more interest on your money is that high-yield accounts tend to require bigger initial deposits, larger minimum balances, and higher fees.

You might be able to open a high-yield savings account at your current bank, but online banks tend to have the highest interest rates.

What’s An Emergency Fund?

An emergency fund is not a specific type of bank account but can be any source of cash that you’ve saved to help you handle financial hardships like job losses, medical bills, or car repairs. Here's how they work:

• Most people use a separate savings account for their emergency savings.
• The account should eventually total enough to cover at least three to six months’ worth of expenses.
• Emergency fund money should be off-limits for paying regular expenses.

Introduction to Credit Cards

You know them as the plastic cards that (almost) everyone carries in their wallets. Credit cards are accounts that let you borrow money from the credit card issuer and pay it back over time. For every month that you don’t pay back the money in full, you’ll be charged interest on your remaining balance . Note that some credit cards, called charge cards , require you to pay your balance in full each month. However, these are less common.

What’s the Difference Between Credit and Debit Cards?

Here is the difference :

Debit cards take money directly out of your checking account. You can’t borrow money with debit cards, which means that you can’t spend more cash than you have in the bank. And debit cards don’t help you to build a credit history and credit rating .

Credit cards allow you to borrow money and do not pull cash from your bank account. This can be helpful for large, unexpected purchases. But carrying a balance every month—not paying back in full the money that you borrowed—means that you’ll owe interest to the credit card issuer. In fact, as of Q4 2022, Americans owed $986 billion in credit card debt. So be very careful about spending more money than you have, because debt can build up quickly and become difficult to pay off.

On the other hand, using a credit card judiciously and paying your credit card bills on time helps you establish a credit history and a good credit rating. It’s important to build a good credit rating not only to qualify for the best credit cards but also because you will get more favorable interest rates on car loans, personal loans, and mortgages.

What Is APR?

APR stands for annual percentage rate. This is the amount of interest that you’ll owe the credit card issuer on any unpaid balance. You’ll want to pay close attention to this number when you apply for a credit card. A higher number can cost you hundreds or even thousands of dollars if you carry a large balance over time. The median APR today is about 24% , but your rate may be higher if you have bad credit . Interest rates also tend to vary by the type of credit card.

Which Credit Card Should I Choose?

Credit scores have a big impact on your odds of getting approved for a credit card. Understanding what range your score falls into can help you narrow the options as you decide on the cards for which you may apply. Beyond your credit score, you’ll also need to decide which perks best suit your lifestyle and spending habits.

If you’ve never had a credit card before, or if you have bad credit, you’ll likely need to apply for either a secured credit card or a subprime credit card . By using one of these and paying back on time, you can raise your credit score and earn the right to credit at better rates.

If you have a fair to good credit score, you can choose from a variety of credit card types, such as:

• Travel rewards cards. These credit cards offer points redeemable for travel—including flights, hotels, and rental cars—with each dollar you spend.
• Cash-back cards . If you don’t travel often—or don’t want to deal with converting points into real-life perks—a cash-back card might be the best fit for you. Every month, you’ll receive a small portion of your spending back, in cash or as a credit to your statement.
• Balance transfer cards. If you have balances on other cards with high interest rates, transferring your balance to a lower-rate credit card could save you money, help you pay off balances, and help improve your credit score.
• Low- or No-APR cards. If you routinely carry a balance from month to month, switching to a credit card with a low or no APR could save you hundreds of dollars per year in interest payments.

Be aware of your protections under the Equal Credit Opportunity Act . Research credit opportunities and available interest rates, and be sure that you are offered the best rates for your particular credit history and financial situation.

How to Create a Budget

Creating a budget is one of the simplest and most effective ways to control your spending, saving, and investing. You can’t begin to improve your financial health if you don’t know where your money is going, so start tracking your expenses against your income. Then set clear goals.

One budget template that helps individuals reach their goals, manage their money, and save for emergencies and retirement is the 50/20/30 budget rule : spending 50% on needs, 20% on savings, and 30% on wants.

How Do I Create a Budget?

Budgeting starts with tracking how much money you receive and spend every month. You can do this in an Excel sheet, on paper, or with a budgeting app . It’s up to you. However you decide to track, clearly lay out the following:

• Income: List all sources of money that you receive in a month, with the dollar amount. This can include paychecks, investment income, alimony, settlements, and money that you make from side jobs or other projects, such as selling crafts.
• Expenses: List every purchase that you make in a month, split into two categories: fixed expenses and discretionary spending . Review your bank statements, credit card statements, and brokerage account statements to be sure to capture them all. Fixed expenses are the purchases that you must make every month. Their amounts don’t change (or change very little) and are considered essential. They include rent/mortgage payments, loan payments, and utilities. Discretionary spending is nonessential spending or varying purchases for things like restaurant meals, shopping, clothes, and travel. Consider them wants rather than needs.
• Savings : Record the amount of money that you’re able to save each month, whether it’s in cash, cash deposited into a bank account, or money that you add to an investment account or retirement account like an IRA or 401(k) (if your employer offers one).

Subtract your total expenses from your total income to get the amount of money you have left at the end of the month. Now that you have a clear picture of money coming in, money going out, and money saved, you can identify which expenses you can cut back on, if necessary.

If you don’t already have one, put your extra money into an emergency fund until you’ve saved at least three to six months’ worth of expenses (in case of a job loss or other emergency). Don’t use this money for discretionary spending. The key is to keep it safe and grow it for times when your income decreases or stops.

How to Start Investing 

Once you have enough savings to start investing, you’ll want to learn the basics of where and how to invest your money. Decide what to invest in and how much to invest by understanding the risks (and potential rewards) of different types of investments.

What Is the Stock Market?

The stock market refers to the collection of markets and exchanges where stock buying and selling takes place. The terms “stock market” and “stock exchange” can be used interchangeably. And even though it’s called a stock market, other financial securities , such as exchange-traded funds (ETFs) , corporate bonds , and derivatives based on stocks, commodities, currencies, and bonds, are also traded there. There are multiple stock trading venues. The leading stock exchanges in the U.S. include the New York Stock Exchange (NYSE) , Nasdaq , and the Cboe Options Exchange .

How Do I Invest?

To buy stocks , you need to use a broker . This is a professional person or digital platform whose job it is to handle the transaction for you. For new investors, there are three basic categories of brokers:

• A full-service broker who manages your investment transactions and provides advice for a fee.
• An online/discount broker that executes your transactions and provides advice depending on how much you have invested. Examples include Fidelity, TD Ameritrade, and Charles Schwab.
• A robo-advisor that executes your trades and can pick investments for you with little human assistance. Examples include Betterment, Wealthfront, and Schwab Intelligent Portfolios.

What Should I Invest in?

There’s no right answer for everyone. Which securities you buy, and how much you buy, will depend on the amount of money that you have available for investing and how much risk you’re willing to take to try to earn a higher return. Here are the most common securities to invest in, listed in descending order of risk:

Stocks: A stock (also known as “shares” or “equity”) is a type of investment that signifies partial ownership in the issuing company. This entitles the stockholder to a proportion of the corporation’s assets and earnings.

Owning stock gives you the right to vote in shareholder meetings, receive dividends (which come from the company’s profits) if and when they are distributed, and sell your shares to somebody else.

The price of a stock fluctuates throughout the day and can depend on many factors, including the company’s performance, the domestic economy, the global economy, the day’s news, and more. Stocks can rise in value, fall in value, or even become worthless, making them more volatile and potentially riskier than many other types of investments.

ETFs: An exchange-traded fund, or ETF, consists of a collection of securities, such as stocks. It often tracks an underlying index . ETFs can invest in any number of industry sectors or use various strategies.

Think of an ETF as a pie containing many different securities. When you buy shares of an ETF, you’re buying a slice of the pie, which contains slivers of the securities inside. This lets you purchase a variety of many stocks at once, with the ease and convenience of only one purchase—the ETF.

In many ways, ETFs are similar to mutual funds. For instance, they both offer instant diversification and are professionally managed. However, ETFs are listed on exchanges and ETF shares trade throughout the day just like ordinary stocks.

Investing in ETFs is considered less risky than investing in individual stocks because there are many securities inside the ETF. If some of those securities fall in value, others may stay steady or rise in value.

Mutual funds: A mutual fund is a type of investment consisting of a portfolio of stocks, bonds, or other securities. Mutual funds give small or individual investors access to diversified, professionally managed portfolios at a low price.

There are many categories of mutual funds, representing the kinds of securities in which they invest, their investment objectives, and the type of returns that they seek. Most employer-sponsored retirement plans invest in mutual funds.

Investing in shares of a mutual fund is different from investing in individual shares of stock because a mutual fund owns many different stocks (or other securities). Unlike stocks or ETFs that trade at varying prices throughout the day, mutual fund purchases and redemptions​ take place only at the end of each trading day and at a fund's net asset value (NAV) . Similar to ETFs, mutual funds are considered less risky than stocks because of their diversification .

Mutual funds charge annual fees, called expense ratios , and in some cases, commissions.

Bonds: Bonds are issued by companies, municipalities, states, and sovereign governments to finance projects and operations. When an investor buys a bond, they’re effectively lending their money to the bond issuer, with the promise of repayment plus interest. A bond’s coupon rate is the interest rate that the investor will earn.

A bond is referred to as a fixed-income instrument because bonds traditionally have paid a fixed interest rate to investors, although some bonds pay variable interest rates . Bond prices inversely correlate with interest rates. When rates go up, bond prices fall, and vice versa. Bonds have maturity dates, which are the point in time when the principal amount must be paid back to the investor in full or the issuer will risk default.

Bonds are rated by how likely the issuer is to pay you back. Higher-rated bonds, known as investment grade bonds, are viewed as safer and more stable. Such offerings are tied to publicly traded corporations and government entities that boast positive outlooks.

Investment grade bonds receive “AAA” to “BBB-” ratings from Standard and Poor’s and “Aaa” to “Baa3” ratings from Moody’s. Bonds with higher ratings will usually pay lower rates of interest than those with lower ratings. U.S. Treasury bonds are the most common AAA-rated bond securities.

Are Banks Safe?

Most bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to certain limits, currently defined as “up to at least $250,000 per depositor, per FDIC-insured bank, per ownership category.” If you have a great deal of money to put in the bank, you can make sure that it’s all covered by opening multiple accounts.

Is It Safe to Invest in the Stock Market?

Stocks are inherently risky—some more than others—and you can lose money if their share prices fall. Brokerage accounts are insured by the Securities Investor Protection Corporation for up to $500,000 in securities and cash. However, that applies only if the brokerage firm fails and is unable to repay its customers. It does not cover normal investor losses.

What Is the Safest Investment?

U.S. Treasury securities, including bonds, bills, and notes, are backed by the U.S. government and generally are considered the safest investments in the world. However, these kinds of investments tend to pay low rates of interest, so investors do face a risk that inflation may erode the purchasing power of their money over time.

The topics in this article are just the beginning of a financial education, but they cover the most important and frequently used products, tools, and tips for getting started. If you’re ready to learn more, check out these additional resources from Investopedia:

• Investopedia Academy
• Investopedia YouTube Channel
• Investopedia Dictionary
• Investopedia Stock Market Simulator

FINRA. " National Study by FINRA Foundation Finds U.S. Adults’ Financial Capability Has Generally Grown Despite Pandemic Disruption. "

Federal Reserve System. " Report on the Economic Well-Being of U.S. Households in 2022 - May 2023 ."

Federal Deposit Insurance Corporation. “ What’s Covered: Are My Deposit Accounts Insured by the FDIC? ”

National Credit Union Administration (NCUA). " Mission and Values ."

Federal Reserve System. " Regulation D1 Reserve Requirements ."

Federal Reserve Bank of New York. “ Total Household Debt Reaches $16.90 trillion in Q4 2022; Mortgage and Auto Loan Growth Slows. "

Federal Trade Commission. " Equal Credit Opportunity Act ."

S&P Global. " S&P Global Ratings Definitions. "

Moody's. " Rating Scale and Definitions ."

Federal Deposit Insurance Corporation. “ Deposit Insurance FAQs .”

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U.S. Securities and Exchange Commission. " Treasury Securities ."

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Championing Global Financial Education in Schools

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This month on Future of the Business World, Wharton Global Youth talks with Sam Purcell, a high school student from Vancouver, Ontario, Canada, who founded MyFLY to build and implement a financial-education curriculum in schools worldwide. Sam’s vision is to empower school investment and finance clubs, educators, and school districts with stronger and deeper financial knowledge to prepare students in all ways for making wiser and better-informed decisions about their money.

a reminder of the importance of nurturing our financial well-being is timely as we head into Financial Wellness Month in the U.S. in January. “I feel learning about finance is a necessity to living a successful life where you can live comfortably and not experience times of financial hardship,” says Sam. How will you begin to make smarter money decisions in 2023? A youth financial-education organization created for students, by students may provide the inspiration you need.

An edited transcript of our conversation appears below. Be sure to click on the arrow above to listen to the podcast.  

Wharton Global Youth Program : Hello and welcome to Future of the Business World , the podcast featuring teenage entrepreneurs from across the globe. I’m Diana Drake, managing editor of the Wharton Global Youth Program at the Wharton School, University of Pennsylvania.

Today’s conversation puts an exclamation point on 2022, wrapping up a year of our monthly innovation -rich interviews with some interesting teens. We’ve talked about everything from educational equity and migrant workers in Singapore, to sandals fashioned from old tires in India and sustainable farming that uses machine learning to grow healthier crops. Behind every project and product ? Entrepreneurial high school students.

Be sure to check out the Future of the Business World podcast archives at globalyouth.wharton.upenn.edu to listen to them all.

Today, we welcome Sam Purcell to the show to talk about a much-loved and sometimes overwhelming topic — money.

Sam, welcome to Future of the Business World.

Sam Purcell : Thank you, Diana. It’s great to be here.

Wharton Global Youth : You attended our Leadership in the Business World program this summer, and it’s there that we learned about your organization, MyFlyGlobal . You are operating in the world of financial literacy, which basically means empowering people with the skills to understand, manage, and grow their finances. School helps us to become more literate in things like reading, writing, and math, and many believe it should also help us understand money from a younger age. I was just reading today how a rapper from L.A. is launching a financial literacy program in 2023 to teach kids from underserved communities all about saving, investing, and even spending their money more wisely.

So, tell us how MyFLY fits into this crowded financial-education market?

Sam : Yeah. So right now, I feel that school curriculums are very limited, and especially in different countries, the topics that they teach may not be very practical, and they also may not meet the needs of students today, which is why we’re trying to directly implement financial-education curriculum in school classes and also clubs in eight countries.

Our goal in MyFLY is to target schools by creating chapters of financial literacy curriculum that teachers will be able to take and teach within existing business courses that they offer. So right now, there are many different third-party organizations, such as Junior Achievement, FBLA and DECA. However, one thing as a student talking with other individuals across multiple countries, we’ve all found that these organizations do not tend to directly target the school curriculum. And I’ve also found that typically, only interested students will be the ones participating. So, to throw in an example — my investment club. We took part in Junior Achievement’s programs, but in a school of roughly 1,500 students, we only had about 100 students with actual access to the programs. By creating an actual course that’s taught for credit , we’re essentially having a larger impact on students by providing them with a thorough curriculum that covers really all the fundamental concepts needed to gain financial freedom.

One of the ways that I think we are unique is we’re attempting to create change on an international level. And through meeting students at different summer programs at Columbia, Georgetown, and also Leadership in the Business World, I’ve connected with students and I really came to realize that a lot of the different initiatives, especially towards financial literacy, are targeted to one specific city or one specific community. But what we’re doing at MyFLY is we’re really trying to collaborate with students on an international level and through some of our full year courses that are going to be taught for credit in semester two in Vancouver and New York, collaborating with different students. It’s really a great thing, because we essentially get the best of the best when it comes to ideas. And this also helps us when pursuing different strategies depending on the country or school that we’re targeting. So that’s kind of how I find that we really stand out and where we fit in. It’s about students teaching students and directly impacting school curriculum.

Wharton Global Youth : How did you get interested in this area of finance?

Sam : My real interest in finance started at the beginning of the pandemic when I had a little bit of extra time on my hands and I started reading books about finance and investing, like many other students. But where the real spark happened for me was volunteering at a homeless shelter in Vancouver and here, it was a really great experience for me because I met individuals from all walks of life. Over the weeks and months, I got to know every guest there.  It was a great experience because it really showed me that it wasn’t the stereotypical person that you would think would be at a homeless shelter. And after talking with my supervisor, we really came to realize that the individuals at the shelter once had like great jobs, and in fact, some were even lawyers. And it was just due to unfortunate circumstances, especially with the pandemic, that caused them to lose their jobs, which would then kind of go into that spiral of not being able to pay rent or getting evicted from your home.

This made me realize that I wanted to do everything that I could to ensure that students in high school were getting that proper knowledge that they can use to help mitigate the chances of ending up in one of those unfortunate circumstances. And once school started again after the pandemic, I went to work right away starting an investment club at my high school, since we didn’t have one. And over the months we grew. I remember I had 12 members on the list once I spoke to the sponsor teacher, and then I think it was within like roughly four months, we grew to 200 members. From there, I did presentations at multiple elementary schools and also high schools within our district. And this was the impact that I was having locally.

This all changed when I attended a summer program at Columbia in 2021 where I connected with students from all parts of the world. I believe it was Singapore, India, the U.S. and Indonesia. I especially connected with the student from Indonesia. We found that we both shared the values of really wanting to increase equity in education and our passion for teaching. One thing that I found while at this program was that we all had our investment clubs or our business clubs or our cryptocurrency clubs, but there was no real way to essentially scale that effort and teach multiple classes in multiple schools. One thing that I realized in three weeks I was there was that it would be best to collaborate with all these students to find solutions to the lack of financial education in school. This is where I started the organization, MyFLY. Ever since last year, we’ve been working towards increasing financial education classes in schools.

Wharton Global Youth : I’ve heard you talk about investing and even cryptocurrency. What financial concepts top your list of priorities in the curriculum? Are you talking everything from saving to investing to retirement?

Sam : Yes. Over the course of the summer, we went to work on developing a solid curriculum that now can be taught for roughly a year and a half or two years. The first course that we created was the curriculum that would provide all students with that base knowledge needed towards financial success or financial freedom. The first chapter has everything about personal finance , [including] everything from credit cards, all the different accounts, saving, budgeting, and this is something that generally every person will need to know once they graduate university, get their first credit card, or want to buy a house or a car. Then the next two chapters specifically talk about investing. My dad’s a financial advisor, so he’ll tell me all the stories of clients and from other leaders in the investing world. And to me, the most important part is understanding what investing is. Because I’ve realized, especially with social media , there’s always those get-rich-quick videos that you’ll see on TikTok or Instagram. And for students who are especially not as educated in investing, it’s something to be careful with.

What we’ve done in our course is outline the specific concepts that are needed, such as learning to invest in stocks, ETFs, mutual funds, bonds, all the basics. And then once we cover that, we then will go into the actual applications. One of the things that I found is you can go on Investopedia’s website and search up what a stock is, what an ETF is, what a mutual fund is. But what’s not there, what’s not on the website is how to apply that knowledge. That’s one of the things that I connect back with school, is really providing education where students can apply the knowledge they learn to their futures, to university, to their jobs.

In the third chapter of our course, we dive into the applications of investing. Now that you understand, okay, a stock is ownership equity in a company . Now, what can I do with that knowledge to help grow my wealth in the future? So, we discuss the best ways to valuate a company for investors, all the different metrics. When you look on a Yahoo Finance chart, what does the market cap mean? What does the PE ratio mean, and what does that entail for the company? What information is on there that I can use to make an educated investment decision? It’s really about giving the definitions and then giving the applications to what you’re learning, so students can use it.

Wharton Global Youth : Well, I have to put in a little bit of a plug for the Wharton Global High School Investment Competition , because I know that you have wanted to talk with us more about that, and it fits very nicely into your discussion of having a practical application of these skills. We have thousands of students competing, and they’ve just now submitted their final reports. We’re excited to see who the top 50 teams are in January.

I’m curious about your curriculum primarily because I know that there are a lot of decision makers involved in curriculum selection at the school level. And I’m guessing that you probably meet with some resistance. How do you confront and address that resistance?

Sam : I’ve noticed that there’s a lot of politics involved with education. And I like to think that schools are always there to give the best for what the student wants. But there’s also some restrictions with that because through being the founder of this organization, talking with principals, talking with teachers, I realize that it’s not as easy as it seems. One of the things that I’ve learned to overcome was forming those compromises with educators. One thing that we’re working on right now is in Vancouver, especially, instead of creating a whole new course that will mess up timetables and draw students out of certain courses, we’re instead creating select chapters that we can bring into business courses specifically. So, one of the things that I realized in most countries [is that] they have courses such as ecommerce, marketing , entrepreneurship. And instead of creating a whole new course on financial education or investing, we can instead take a few select chapters and stick them in at the beginning of a marketing course. So, students will still get that financial literacy education and teachers will not essentially have other students being drawn out of their classes to take a [separate] course.

On a side note, I’ve become the president of the North Vancouver School District, which is essentially student council for 31 schools and 16,000 students. In this position, I had the opportunity to speak directly with all the trustees, all the higher ups and the superintendent that are making all these big decisions for our school. And it was about two weeks ago, I spoke at the annual board meeting on financial literacy and I was impressed to see the strong interest in increasing financial education in schools. So it’s really [about] gaining a good network of teachers who are passionate about it, because the more individuals you have who are willing to put their efforts towards an initiative, the better chance you’re going to have at making some change and making some impact.

Wharton Global Youth : You’ve mentioned a few times the global nature of your relationships and how you have looked globally in developing MyFLY. I’m wondering, how do you adapt to the financial-education needs in different countries?

Sam : We have roughly 1,000 students in school clubs across the world with access to our curriculum. What we’ve done as an organization, all the individuals that are on our team, they are most likely part of an investment club or a business club at their school. One of the things that we’re doing for all schools is trying to put our course into that club for students to teach. But in terms of the curriculum for schools, we’ve realized that each area or each part of the world will have different protocols for their education system. So, for example, in Arizona, California, and Florida, they have financial-literacy courses and personal finance courses. So, in this case, this wouldn’t be something where we would be dedicating our efforts to because they’ve already made initiatives there to increase financial-literacy education.

I remember talking to a student in Florida who managed to pass a bill making it mandatory for financial-education classes. And in other countries, such as countries in Africa right now, we have a few students who are trying to increase our involvement there in Zimbabwe, Botswana, and South Africa. Since they do not have adequate financial education, we’re directly targeting principals of schools to implement our curriculum for teachers to teach. And then also in Vancouver and Canada, for example, we haven’t made the step to make mandatory financial literacy education. So, this is where we directly target schools.

However, there are school districts that have a very inflexible curriculum, and I’ve noticed this particularly [in] India, where a majority of the international schools have an IB [International Baccalaureate] curriculum. After talking with principals and teachers, it’s very difficult to change the curriculum for students since they’re following IB. So, this is where we need to focus our efforts on clubs, specifically where we would have students teaching our curriculum that we offer.

Wharton Global Youth : I know there are some skeptics out there, right? For instance, we tell students, you must learn about math because it’s important, so we’re going to teach it to you in school. And they say, okay, we’ll take it. Right, because we need to know math. And I’m sure they have the same kind of approach to financial education. Why should high school students care about finance, Sam?

Sam : I think high school students should care about finance because it’s something that everyone will need to understand in their future. No matter what your major is, once you become old enough to graduate high school or if you want to go to post-secondary university, once you have an income or need to purchase a home, you’ll need to understand personal finance and ways to grow your wealth.

I feel like there’s a strong misconception that people in finance and business are just greedy or out there to get rich. And I feel learning about finance is a necessity to living a successful life where you can live comfortably and not experience times of financial hardship. And especially with the pandemic, we’re seeing this right now where interest rates are going up. One of the things that I always think about is, okay, in 10 years from now, in 20 years from now, are students being prepared to make financial decisions that our parents are making right now? And with my dad being a financial advisor, he’ll tell me stories of clients who will try to do it themselves without any previous background and speculate on investments that they [think] they can make quick money off of, and how most times these speculative strategies will not end up playing in their favor.

Wharton Global Youth : One question I like to ask all my guests on Future of the Business World is if you could change one thing in the world, what would it be?

Sam : It would probably be to bring more socioeconomic equality to all parts of the world, because especially through volunteering at the homeless shelter, I realized the impact that financial hardships can have on individuals.

Wharton Global Youth : Let’s wrap up with our lightning round. Give me quick answers to these questions.

Wharton’s Leadership in the Business World changed the way you think about?

Sam : The way I think about working with students internationally. Before attending the summer program, I really thought of working locally. And by attending this program, I connected with students of diverse backgrounds, and I embraced a lot of different perspectives. And it helped me as a future entrepreneur to understand the importance of working globally, especially in business.

Wharton Global Youth : What is one thing you’re excited to learn about that you don’t already know?

Sam : I’m excited to learn about marketing and reaching scale with something that I’m passionate about. And I’ve put my foot in the water with this a little bit with MyFly, reaching a few countries internationally. As I enter university, it’s to study entrepreneurship and studying how to grow something that you’re passionate about.

Wharton Global Youth : Where do you hope to be in 10 years?

Sam : In 10 years, I hope to have my master’s degree either in education or an MBA . After attending LBW, I spoke to the gentleman in Penn Residence, John Gamba , and he’s entrepreneur in residence and also an ed-tech entrepreneur. So, [I’d like to be] focusing on education, technology, and creating initiatives that students can directly benefit from.

Wharton Global Youth : You’re starting a business-themed talk show. Who is your first guest and why?

Sam : The first guest that I would do would be a local businessman in Canada named Frank Giustra . And he’s actually the cousin of a close family friend of mine. One thing that really inspires me about Frank is that he’s a great leader and someone who’s motivated and very hardworking. He came to Canada from Italy with next to nothing in his pocket, and it’s really been his hard work and motivation that’s got him to become one of the most successful businessmen in Canada today.

Wharton Global Youth : Sam, I wish you luck with MyFly. Thank you for joining us on Future of the Business World .

Sam : Thank you so much. It was great to talk to you.

Conversation Starters

Do you have financial education in your high school? What does it cover? Has it helped you to feel more empowered financially? Share your story in the comment section of this article.

Sam Purcell says, “I feel learning about finance is a necessity to living a successful life where you can live comfortably and not experience times of financial hardship.” Do you agree? Why do you think financial education is important?

How would you make Sam’s finance project more innovative?

6 comments on “ Championing Global Financial Education in Schools ”

I totally agree with Sam. At my school, and schools around my area, there are no financial literacy classes. I agree that there needs to be a change since we deal with finance daily as an adult, why don’t we learn about it in school? Wouldn’t our futures be more secure if we were educated in our financial decisions? I recognize that there are clubs and organizations such as DECA that provide a means to entrepreneurial teenagers, however I think its important to go a level deeper and bring mandatory courses to schools throughout the globe.

I absolutely agree with your assessment of DECA. Although there are clubs and organizations related to business, few of them handle finance in depth. I also believe organizations such as Sam’s are on to something here. Rather than pursuing the typical route of having individuals learn from their mistakes as they get older, why not teach them from the mistakes of others while they are young? Or, even when they are old for that matter? The best time to plant a tree was 20 years ago, the second best time is today. I believe that having a financially educated youth is vital for a prosperous future. But if someone over the age of 18 wants to learn about finances they should pursue it as education should never end. If anything it should only begin earlier and teenagers should be able to learn about finance and become financially literate.

There are 7.9 billion people on earth and only 33% of the population are financially literate. This means only a third of the population is exposed to and investigates some sort of financial knowledge: whether it’s something basic like supply and demand or something more complicated like types of investments. Although, financial literacy might not seem as important to some because not everyone is going to work in a field related to finance or money, even the most basic financial knowledge can make someone’s life so much easier.

Students in High School that can and do take finance or business class will thank their schools when they graduate and walk into the real world. After taking personal finance in school, I realized that the real world was so much more complicated and we all should start to carefully plan out the earnings and the payments that we make. I used to think that once we step into the real world outside of schools, we would simply be able to pay for everything and not have to worry about whether it’s necessary to restrict our spending. I believe that many students that don’t have prior knowledge of what to expect in the future dealing with money would’ve thought the same.

I later found out that it wasn’t as easy as it seemed. We would have to budget the money that we have earned or saved carefully to make sure that we can support our daily living and also pay the required payments like any debts or dues. When I was younger, I believed there was no need to budget and simply just spend less. But who would’ve known? Stepping into the real world with no support from parents means that you have to be responsible for the money to pay rent, mortgages, and different types of bills, and even have some extra for entertainment. Just as English, Math, and other core subjects are important for students, financial literacy is just as important. After I took personal finance, I learned that there were many types of insurance and tax forms offered by employers. This knowledge may not seem so important for high schoolers but it will help a lot in the future knowing these things.

With the help of financial classes offered by schools, I was able to learn some of the different ways of investing. As mentioned in the article, Stocks, ETFs, mutual funds, and bonds are the basics of investing, and having classes that teach you how to apply this knowledge to real-life can greatly decrease the difficulty of investing. taking these classes helped me improve my skills in finance like reading a stock or how to read and fill out tax forms. These skills are necessary for the future and it’s inevitable. We would have to learn it either way so why not earlier than later? My personal experience from taking these classes has me agreeing that financial literacy classes should be included in curriculums in schools to help prepare students and not just have them stick with the traditional learning of the main 5 courses: English, Math, Science, History, languages, and/or computer skills, etc.

Making finance a core course in schools also helps those who want to step into the finance field for career choice. It will make college courses that students take in the future somewhat easier to comprehend. With the help of prior knowledge in finance, students would be able to make better choices financially and be able to earn and spend money to budget accordingly. After becoming 18, most students will choose to step out of their comfort zones and be independent. That usually means they are on their own for all financial aspects of living. I learned that there are multiple ways of budgeting and that every financial decision you make should be based on how much you earn. If we take a look into spending like rents and things like water and electricity payments we would find that most people live paycheck to paycheck. Perhaps having learned basic financial knowledge may change that for some people. Even more, we are able to pick plans that are suitable for us like insurance or cellular plans. Although for now as minors we aren’t able to invest, we can always utilize what we learned to help our parents make better decisions. I use this knowledge to plan out my money that I have to spend and save to make my life easier. Also, I plan on investing in the future when I am 18 and being in finance classes gives me a jump start to this.

The first day I started my Investment Portfolio Management class, the professor asked us to number our financial knowledge as 1, 2, or 3, where 3 was well-versed in finance and 1 was not at all. As she went down the attendance list, I heard a string of ‘2’s and the occasional ‘3’, each person proclaiming they had at least something to bring to the table. Then she got to my name and asked me to number how much I knew about finance.

“With confidence,” I said, smiling, “a 1.” I was lying. That was not with any confidence.

She nodded, wrote down the innocuous number, and continued down the list, as though I didn’t feel like my insides were burning for how embarrassed I was at my lack of knowledge. As though just because I didn’t know what ETFs were, I was somehow stupider than my peers and somehow worth less.

I had tied my financial literacy (or lack thereof) with my self-worth, but in reality, it’s more related to my net worth.

In a capitalist society such as the U.S., knowledge about finance and investing is especially important. It’s not enough to simply work a 9-5 for 40 or so years of your life and then retire. Many people have to worry about student debt, various bills, taxes, and more. Getting any sort of financial aid tends to be a long, tedious, and selective process. Inflation continues to decrease the value of any money that someone saves. Retirement seems further and further out of reach.

More than anything, as I’ve learned trying to build an investment portfolio, finance is confusing. It is filled with fancy new terms, complicated interfaces, a truly ridiculous amount of math, and connections to so many other fields such as politics — all so you can try and earn a decent living without getting the IRS after you. There’s a reason people pay others to do their finances rather than learning it themselves or asking questions. I was embarrassed to admit I didn’t know things in a class where I was there to learn; how do you think a working adult feels?

I agree wholeheartedly with everything Sam Purcell said in the interview. From a financial curriculum in schools to adapting financial literacy in other countries to the importance of financial literacy, these are the kind of things that can only help people take better and more responsible care of their money.

Is finance important enough to be considered a core subject? I say, why not. There’s a lot of skills I’ve practiced and lessons I’ve needed to hear while learning about finance and investing. My professor for the class I mentioned before once sat me aside and told me that I’m often too under confident about my own capabilities, which tends to sabotage any projects I do and connections I make. This is a weakness of mine that isn’t limited to finance, but one that never truly got revealed until this class.

It’s like the complaints surrounding math classes: perhaps you don’t really need to know trigonometric identities or construct a triangle given two altitudes and an angle, but it’s not the content that’s most important — it’s the skills you gain by doing these problems. Math forces you to take the pieces and assemble them together; finance forces you to take the tools given to you and make something new.

My friends hate math and detest finance. They likely wouldn’t enjoy classes if and/or when they become mandatory in schools. I won’t say learning to invest is always easy sailing. I encourage Sam’s goals anyway, because I fully believe in the foundation finance helps to build, the skills and tools it offers to people, and the opportunities it opens up to everyone. We don’t need to be trillionaires or billionaires or high up CEOs, but we need the resources – and money – to have the space to be who we want, live how we want, which I believe finance offers.

Who knows — maybe if I’d been required to learn about finance in school, I could’ve said ‘2’ or ‘3’ instead in class and been truthful when I said “with confidence.”

I am proud to be in this school.

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• PERSONAL FINANCIAL PLANNING

Planning for education expenses amid change

This q&a with an expert addresses student loans, saving for college, and making plans in a changing environment..

• Personal Financial Planning

Education Planning

A parent of a new college graduate recently lamented good - naturedly that just when the steady stream of tuition bills had finally stopped coming, " now there is going to be free college." While higher education may not become tuitionless anytime soon, the fact that the topic is being seriously discussed is notable. As of this writing, much remains to be seen about the prospects for various reform proposals.

On college campuses everywhere, this past year and a half has been among the most unusual ever. But even before COVID - 19 , higher education was undergoing significant changes that require individuals and families to rethink how they plan for education expenses. Choices about paying for college can be difficult and stressful, and wise guidance from an adviser can make a world of difference.

Education planning expert Ross Riskin, CPA/PFS, DBA, CCFC, M.S. Tax, in a written Q&A with the JofA , offers thoughts about recent developments affecting education planning and how advisers can best answer certain common client questions. Riskin is an associate professor of taxation at the American College of Financial Services.

With online - only classes, campus shutdowns, and so forth, students and their families have faced many challenges recently. Has the COVID - 19 pandemic created many education planning issues?

Riskin: Rethinking gap - year planning, reevaluating distribution planning strategies to maximize tax efficiency, measuring the ROI of attending certain schools or pursuing certain majors — these are a few things that I am thinking about as a result of the pandemic. But from my perspective, the pandemic acted as both an accelerant of changes in higher ed and also brought about unique challenges that affected so many different constituents in an almost uniform manner.

Even before the pandemic happened, addressing the rising costs of college was a popular topic among policymakers, researchers, and, most importantly, families. While most schools universally shifted in some way to an online or hybrid learning environment in 2020, there was no standardization in how revenue models were affected. Some schools offered partial refunds in cases where students were sent home, some schools increased costs to account for expenditures that were incurred to transition to this new learning environment, some schools reduced fees — and many schools made no changes at all.

In response to this shift, we saw a lot of students and parents demanding some form of cost reduction or refund, which is very revealing of something I believe we have all thought about but haven't spent too much time thinking about in quantitative terms. It revealed the fact that at minimum, there are two distinct things being provided yet combined into a single tuition cost from the perspective of students and parents: the education element and the experience element. And given that the average cost of an online three - credit - hour undergraduate course falls between $800 and $1,200, is it any wonder why families are having trouble justifying paying $2,000 to $3,000 for an online undergraduate course in English?

The increased prevalence of families fighting for refunds and discounts is more evidence that many, if not most, value the experience element more than the education piece — at almost two - thirds to one - third , respectively. So, what's the takeaway? As CPA advisers, we need to be more focused on understanding which element our clients value most when engaging in the planning process, instead of making assumptions or relying on our own beliefs. We may encounter clients who say, "I just want my son/daughter to get in and out of school with the skills necessary so they can start working and get a steady job." We have others who say, "I want to pay as little as possible and will just be happy if they graduate with a degree." Then we have those who say, "I want my son/daughter to have the same great experience I had where I met my spouse, made lifelong friends, and expanded my network." Or we may encounter some combination of all three.

The important thing to remember is that our job is not to judge our clients based on their viewpoints on higher education. Instead, we are there to provide guidance, and part of that process is not simply helping our clients save for future goals but to ensure they understand what sort of "return" they can and should expect from this type of investment.

Many borrowers are burdened by enormous student loan debt. Is it generally a wise decision to enroll in a federal repayment plan that adjusts the monthly payment based on the borrower's income?

Riskin: Student loan repayment advising — one of my favorite topics to discuss! Unfortunately, most advisers still know very little about student loans and effective student loan repayment strategies. The relatively small number of advisers who are educated on the topic tend to dive right into the quantitative side of things by going straight to comparing interest rates. And, hey, why not? Isn't that what advisers are trained to do? Strategize to get rid of, consolidate, or refinance high - interest - rate debt and pay it off as quickly as possible.

Well, when it comes to student loans, the same debt management principles may not apply. Before diving into loan balances, loan types, and interest rates, I find it beneficial to take a step back to better understand a few things. First, what are the borrower's thoughts and feelings about debt? Second, what other personal and financial goals is the borrower looking to accomplish? Third, what profession is the borrower in and for how long do they plan on being in that profession? Fourth, how easily are we able to predict income fluctuations, given the borrower's chosen/desired profession? Obtaining answers to these questions helps me as an adviser create a deeper connection with the client, develop a client profile for use in analyzing which strategies will work best, and understand how the strategies I propose should take into account the impact on planning for other financial goals as well.

For federal education loan borrowers, it is always best to consider enrolling in an income - driven repayment (IDR) plan, such as Pay as You Earn (PAYE), Revised Pay as You Earn (REPAYE), Income - Based Repayment (IBR), or Income - Contingent Repayment (ICR). But this doesn't necessarily mean that borrowers should plan to make payments over the preset 20 - or 25 - year period.

While IDR plans are by no means perfect, in theory they represent a logical way to approach the repayment of debt that is connected to an investment in human capital, as opposed to structuring repayment terms like a mortgage - style loan. Generally speaking, the borrower's monthly repayment responsibility is tied to their "ability to pay," which in the U.S. is primarily associated with the borrower's income.

In addition to providing flexibility should a borrower experience a drastic change in work circumstances or reduction in salary, these plans provide the opportunity for future loan forgiveness should any balance be remaining at the end of either the 20 - or 25 - year repayment term, depending on the repayment plan chosen (and assuming we are ignoring the ability to qualify for forgiveness under the Public Service Loan Forgiveness program).

Some form of IDR plan is used as the default loan repayment system in most other countries and is part of several newly proposed student loan reform policies. Advisers should encourage clients who have federal loans, regardless of whether they plan on pursuing loan forgiveness in the future or not, to consider enrolling in one of these plans. IDR plans provide benefits that borrowers could have still utilized even if the Department of Education had never enacted the temporary pandemic - related interest waiver and payment suspension provisions back in March of 2020.

How should borrowers choose among the available income - driven repayment plans? What are some factors to consider in making the decision?

Riskin: When it comes to evaluating the different repayment program options, this is where we start to go down the rabbit hole. We could easily spend a few hours on this topic, but the primary factors that should be considered are: Which plans is the borrower eligible to enroll in? What are the repayment terms? How is the monthly repayment amount calculated? And how does tax - filing status impact the monthly payment calculation?

Since there are so many factors to consider, taking a comprehensive approach at the beginning can help us narrow down which repayment plans will work best for our clients and their needs. Additionally, things can get even more complicated depending on who we are working with — younger clients who only have undergraduate loans, clients who have large PLUS loans that were taken out to finance graduate studies, or parents who borrowed via the PLUS loan system.

My takeaways are that CPA advisers should focus on becoming more educated on the ins and outs of the different repayment options available or partner with another adviser who specializes in this area. It is likely that future legislation will introduce additional repayment plan options or revamp the existing plans on a prospective basis, which will just add to the complexity of things, especially if you plan on advising existing borrowers with older loans, existing borrowers with newer loans, and prospective borrowers in the future.

[For more information about IDR plans, visit studentaid.gov .]

Is now a good time to refinance student loans, given the low interest rates? Should borrowers avoid refinancing if they are hoping to eventually obtain loan forgiveness?

Riskin: When it comes to determining if it makes sense to refinance, especially given the environment we are currently in, we need to first segment out our client types and determine the obvious candidates who should or shouldn't refinance. Generally speaking, existing borrowers with high - interest private loans are the prime candidates to consider refinancing, so as to reduce the overall interest paid over the life of the loans, which is how we would traditionally approach debt management. On the other hand, existing borrowers with federal loans who are on track to receive forgiveness under the Public Service Loan Forgiveness program should not consider refinancing, as they would lose out on the ability to receive the golden goose: tax - free loan forgiveness after 10 years of qualifying payments.

Where things become more unclear is when we are dealing with federal loan borrowers with higher - interest - rate loans who may or may not be on track for forgiveness under one of the previously described IDR plans sometime in the next 20—25 years. This is why it is so important to really understand who your client is and what their ultimate goals are, as solely relying on the numbers may not always provide the best strategy for a client.

For example, while private lenders are focused on attracting borrowers by "framing the conversation" to be solely about lower interest rates, they often can't compete with how the federal government can respond to an economic crisis and provide relief in a widespread fashion — the pandemic was the perfect example of this. As a result of the pandemic and interest rates' racing to the bottom, many borrowers refinanced federal loans to lock in the low rates in the private market, while the government responded to the pandemic by temporarily instituting a full interest rate waiver and payment suspension that has been extended several times since its original enactment in March 2020 for federal loan borrowers.

Even if someone were to argue, "Well, those benefits are temporary and the taxpayer will still benefit by refinancing to a low - interest - rate private loan and will save interest over time," the passage of the American Rescue Plan Act [P.L. 117 - 2 ] introduced another game - changing provision — the exclusion of federal and private loan discharges from taxable income. While this technically applies to all types of student loans, this signals something I have been expecting for some time that will primarily benefit federal loan borrowers: tax - free loan forgiveness for those on IDR plans. Even though this provision is set to expire at the end of 2025, I expect this to be made permanent, or at least extended, since most borrowers pursuing forgiveness under an IDR plan won't be eligible until after 2025. Factoring in the nuances of these other benefits that may be available is just another reason why interest rates can't be the only thing to consider when developing strategies for both existing and prospective borrowers.

Should parents consider modifying how they save for their children's education, given the changes that are underway or expected to happen in higher education in the next five or 10 years?

Riskin: Yes and no. I could probably best sum it up by providing my thoughts on what should and shouldn't change. What shouldn't change is the idea to keep saving for college! With proposals and talk of college becoming "free" in the future, some may be thinking, "Well, if it's going to be free, then I don't need to save anymore, right?" I am in the camp of people who like to have options. Implementing a savings plan early allows your money to work for you and can ultimately provide the financial resources necessary to have options in the future.

What should change is how parents decide where to save for college. As much as I love 529 plans — and it is clear from recently passed legislation (the Tax Cuts and Jobs Act, the SECURE Act, the CARES Act) that this savings vehicle is becoming more flexible in its uses — I am not a fan of only considering 529 plans. I am not an advocate of a "one size fits all" approach, which harkens back to my previous point once again — I like having options! I am a big fan of using a multiple savings vehicle approach. So, I would consider utilizing a combination of 529 plans, taxable accounts, and Roth IRAs when developing a comprehensive education savings strategy for ultimate flexibility from operational, investment, tax, and financial aid perspectives.

Related to this is the idea that parents need to make sure they are doing a proper assessment of what their target savings goals are, as I have found that, in practice, many parents anchor their savings targets to benchmarks or IRS limits. One example would be a taxpayer saving $4,000 annually in a 529 plan because that is the maximum amount of state income tax deduction they can receive, when they should be saving $10,000 to be in a position to realistically meet their goal.

So, at the end of the day, the higher education landscape is changing at an accelerated pace, and it is necessary for CPAs to get "creative" in how they work with clients to develop and provide comprehensive education planning services. As famously said by Liam Neeson in the film Schindler's List , "My father was fond of saying you need three things in life: a good doctor, a forgiving priest, and a clever accountant. The first two, I've never had much use for. But the third ... "

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Dave Strausfeld, J.D., is a JofA senior editor. To comment on this article or to suggest an idea for another article, contact him at [email protected] .

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As colleges receive FAFSA records, some ask: ‘How do we trust this data?’

Institutions are reporting technical errors in tax information automatically populated in the financial aid form.

After months of vexing delays, Brenda Buzynski was eager to see the data from federal financial aid forms start coming in. Finally, the University of Iowa administrator thought, she could begin creating aid officers for thousands of students.

But as the files began flowing in two weeks ago, the university’s director of financial aid was alarmed. Some fields in the processed forms were blank or had the wrong codes. Others had imported incorrect or partial tax data from the IRS. And some had incorrectly calculated students’ eligibility for federal grants.

“The errors just keep accumulating,” Buzynski said. “We need to start packaging awards, but how do we trust this data?”

Colleges and universities are contending with a growing list of technical problems in the Free Application for Federal Student Aid, which determines a student’s eligibility for grants and loans to pay for school. The errors will probably require the Education Department to reprocess numerous applications, which could further delay when some students receive aid offers. Already, the agency has said it miscalculated about 200,000 records it had processed before March 21. Now, college leaders worry that is only the tip of the iceberg.

It is the latest snag in the tumultuous rollout of the new financial aid form , known as the FAFSA, that has upended the college admissions season. Students are anxious to know how much college will cost them, but the federal government is making it increasingly difficult for schools to give accurate answers.

In interviews with a dozen college financial aid officers and university presidents, administrators identified at least nine errors in records from the processed aid applications the Education Department has sent them since mid-March. The department has publicly acknowledged some errors but has been quieter about others, frustrating some college leaders.

It is not clear how many students are affected by the errors.

A chief concern among schools is faulty tax data appearing in the records. A 2019 law passed by Congress makes it easier for the IRS and the Education Department to share taxpayer data with parental consent, a transfer that cuts the number of questions that parents have to answer on the FAFSA.

But colleges that use another financial aid form produced by the College Board say they’ve compared tax returns from previous years and found that the new FAFSA is not properly retrieving some tax information. When a family has an amended tax return, the form incorrectly uses the original return. The total amount of education tax credits students have received is also inaccurate in some records, as is information about total federal taxes paid.

Buzynski spotted the tax mistakes among the 15,000 records she has received so far from the Education Department. “I don’t know whether the problem is at the IRS or the department, but clearly they haven’t gotten it right yet.”

The Education Department and the IRS said they are aware of the data retrieval issues. In an initial analysis, the department found fewer than 20 percent of the 6.5 million applications that have been processed are affected by the tax data problems, it said in a notice to financial aid professionals on Saturday.

“The Department and IRS are working quickly to assess the reports and determine if this would affect a subset of applications and if there are system issues in need of resolution,” Undersecretary of Education James Kvaal told The Washington Post in a statement. “We will keep students, families, and schools informed of the status related to these reports and provide additional information as quickly as possible.”

Karen McCarthy, vice president of public policy and federal relations at the National Association of Student Financial Aid Administrators, said the trade group alerted the Education Department last week after learning about the tax errors and is waiting for more answers.

“It’s like radio silence from the department, other than ‘we received the complaints and are looking into them,’” McCarthy said, though she understands that the agency needs time to do more research and come up with a plan.

Still, McCarthy worries that, without more communication from the Education Department, colleges that lack the resources or capacity to closely analyze FAFSA records may just assume that what they have received from the agency is accurate.

However, skepticism is growing in some corners, especially after the department recently revealed another error in hundreds of thousands of records.

“On the one hand, you want to take at face value that if we receive [records,] they’re accurate,” said Marc M. Camille, president of Albertus Magnus College. “But the ones we’ve received to date have had errors.” The private Roman Catholic college in Connecticut traditionally attracts students with significant financial need — half of its 1,300 enrollees receive the federal Pell Grant — and its pool of admitted applicants fits the same profile. Few would-be freshmen have committed so far this spring, which Camille suspects is because they are still awaiting aid awards.

“The delays of getting information to students and the inaccuracy of the information that’s coming through is getting scary for us,” he said.

This month, the Education Department said that of the 1.5 million records it sent out before March 21, 200,000 were miscalculated. The agency had neglected to include students’ reported savings and investments, which could have led colleges to offer more money than students were entitled to receive.

The problem has been fixed, but the department must recalculate the affected records and has yet to provide a definitive timeline. In the interim, it said, colleges can manually recalculate the faulty data to create tentative aid packages.

At Samford University in Alabama, Lane Smith, director of student financial services, said his team is combing through some 500 financial records of incoming freshmen it received before March 21 and will manually recalculate those affected by the error. It means far more work than Smith anticipated, but it will help the private university stay on track to get aid offers out in early April.

“It’s not work we necessarily want to do, right? You want to trust that what you’ve received from the department is correct,” Smith said. “We have a great team, and we want our students who need aid to get an offer as soon as possible, so we’re doing our best to make that happen.”

Rachelle Feldman, vice provost for enrollment at the University of North Carolina at Chapel Hill, said “it doesn’t make any sense” for the department to think an institution of her size could recalculate the nearly 40,000 records her team received before March 21.

In addition to the asset error, Feldman and other college leaders worry that a high percentage of the records they’ve received must be returned to applicants for correction. The Education Department routinely rejects FAFSA records because of misspelled names, incomplete addresses or missing signatures, but institutions are reporting rejection rates that are two or three times higher than usual this year.

About 20 percent of the records at UNC have been flagged so far. In previous cycles, the rejection rate was in the single digits.

At the University of New Hampshire, 18 percent of the 14,800 records received must be corrected — about double the share from the prior year, said Kim DeRego, the institution’s head of enrollment. Meanwhile, Aaron Geist, associate director of financial aid at George Fox University in Oregon, said the 17 percent rejection rate for the records he’s gotten is about 10 percent higher than last year.

College administrators suspect that some high error rates result from technical glitches students encountered in completing the new financial aid form. They say the mistakes are easy to fix, but the Education Department isn’t letting students do that yet.

On Monday, the department said students will have to wait until the first half of April to make changes to their financial aid form, nearly a month later than the agency originally promised . In a normal year, applicants can correct errors as quickly as they are discovered, but this year is anything but normal as the department rolls out functions of the FAFSA process piece by piece.

Given the high rate of rejections, colleges fear that some students won’t have a financial aid offer in hand until May. Many colleges have pushed back their usual May 1 enrollment deadline by two weeks or a month. But given the ongoing problems, that still might not be enough time for some students.

“We’re trying to be optimistic that these problems are going to work themselves out,” said Feldman at UNC. Still, she said the public flagship will be flexible with its enrollment deadline for students whose offers are severely delayed. “We’re not going to ask any student to decide on coming to Carolina without knowing their financial situation.”

At this point, most colleges are still testing and reviewing the FAFSA records they receive from the Education Department. On Friday, the federal agency said it has now processed 6.5 million applications and processing timelines have returned to normal, meaning colleges and institutions will receive records within one to three days after students submit the form. Earlier in the week, some schools said they had seen only a trickle of data.

As of Tuesday, Nikki Chun, vice provost for enrollment management at the University of Hawaii at Manoa, said her institution had received three records. The flagship campus has more than 19,000 undergraduate and graduate students enrolled and has offered admission to 16,000 this year.

“We thought we’d be packaging offers by now,” Chun said. “But here we are almost in April still without information. For our population of students, it just increases the chance they will choose not to go to college.”

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Ed Department error may delay student financial aid further

Sequoia Carrillo

There is yet another delay for prospective and current college students awaiting financial aid award letters. On Friday, the Education Department announced an error in its calculations for federal student aid that will result in delays for as many as 200,000 applicants.

The financial aid process for students is already about three months behind schedule. It was initially delayed due to a slow rollout of the new, simplified Free Application for Federal Student Aid released this year. It was further delayed when the department's calculations failed to take inflation into account.

Exclusive: The Education Department says it will fix its $1.8 billion FAFSA mistake

Any student who receives financial aid has to fill out the form every year. Colleges use financial data from the FAFSA to determine how much to award a student in scholarships and grants. They run the numbers on their students every year, so it's not only prospective students who are playing the waiting game.

But some students are waiting longer than others – the recent error impacts dependent students with assets. The department says their forms will be re-processed and sent back to colleges at a later date.

Yet another FAFSA problem: Many noncitizens can't fill it out

This latest error comes about two weeks after colleges finally started to receive financial data from the Education Department. Although many schools were receiving exceedingly low numbers of FAFSA applications, the offices were able to start looking at the data. In their announcement the department urged financial aid offices to continue to process all other applications, so schools can get aid packages to students as soon as possible

Edited by: Lauren Migaki

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Hundreds of thousands of financial aid applications need to be fixed after latest calculation error

FILE - Education Secretary Miguel Cardona speaks during an interview, Sept. 20, 2023, in Washington. The U.S. Education Department says it discovered a calculation error in hundreds of thousands of student financial aid applications sent to colleges this month and will need to reprocess them, a blunder that follows a series of others and threatens further delays to this year’s college applications. Senate Republicans are requesting a hearing with Cardona to discuss their “serious concerns” about the FAFSA rollout. (AP Photo/Mark Schiefelbein, File)

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WASHINGTON (AP) — The U.S. Education Department said it has discovered a calculation error in hundreds of thousands of student financial aid applications sent to colleges this month and will need to reprocess them — a blunder that follows a series of others and threatens further delays to this year’s college applications .

A vendor working for the federal government incorrectly calculated a financial aid formula for more than 200,000 students, the department said Friday. The information was sent to colleges to help them prepare financial aid packages but now needs to be recalculated — even as the department works through a backlog of more than 4 million other financial aid applications.

A statement from the Education Department says the problem won’t affect 1.3 million applications that were processed correctly and distributed to colleges this month. Officials said they have fixed the error and it “will not affect future records.”

It’s unlikely that many students, if any, received financial aid offers based on the incorrect information since the department only began sending records in the last two weeks. Once colleges receive that information, it usually takes several weeks to assemble financial aid packages.

Students applying for college have been left in limbo this year as they await the Education Department’s overhaul of the Free Application for Federal Student Aid. The form, known as FAFSA, is used to determine eligibility for federal Pell Grants, and colleges and states use it to award their own financial aid to students.

The update was meant to simplify the form but took months longer than expected. It gives colleges less time to make financial aid offers to students, and it gives students less time to decide where to enroll.

“This is another unforced error that will likely cause more processing delays for students,” said Justin Draeger, president and CEO of the National Association of Student Financial Aid Administrators.

After so many delays, he added, “Every error adds up and will be felt acutely by every student who is counting on need-based financial aid to make their postsecondary dreams a reality.”

The latest misstep has to do with the Student Aid Index, a new formula used to determine students’ level of financial need after they submit the FAFSA application. For some students, the department forgot to factor in certain financial assets including investments, savings and total cash, according to an agency memo sent to colleges on Friday.

It resulted in a lower Student Aid Index for those students — indicating they have more financial need than they do in reality.

While the department fixes those students’ records, it’s encouraging colleges to make their own calculations and craft “a tentative aid package.”

Draeger pushed against that idea, saying colleges can only work with “valid and correct data.”

“It is not feasible or realistic to send out incorrect FAFSA data and ask thousands of schools to make real-time calculations and adjustments to the federal formula,” he said.

Advocates fear that the chaos of this year’s process could deter students from going to college at all, especially those for whom finances are a key part of the decision.

Senate Republicans are requesting a hearing with Education Secretary Miguel Cardona to discuss their “serious concerns” about the FAFSA rollout.

In a video message on Friday, Republican Sen. Bill Cassidy of Louisiana said it’s “not right” to ask colleges to fix the department’s mistake.

“You were supposed to get it done right the first time, and you were supposed to get it done right three months ago,” said Cassidy, the ranking Republican on the Senate Committee on Health, Education, Labor and Pensions. “We need more accountability, more responsibility, more confidence from the Department of Education.”

The notoriously time-consuming FAFSA form was targeted for an overhaul in 2020 through bipartisan legislation in Congress. The bill promised to simplify the form, going from 100 questions to fewer than 40, and it also changed the underlying formula for student aid, promising to expand it to more low-income students.

But the update has been marred by delays and technical glitches.

The form is typically available to fill out in October, but the Education Department didn’t have it ready until late December. Even then, the agency wasn’t ready to begin processing the forms and sending them to states and colleges, which only started this month.

Along the way, the department has scrambled to fix numerous bugs. Early on, the process failed to account for inflation properly. Another glitch blocked parents from filling out the form if they did not have a Social Security number. That meant many students who are U.S. citizens or permanent residents but whose parents are not could not apply.

The department says those problems have been fixed, and it’s now rushing to process millions of student applications and send them to colleges and states. The agency says it has processed 1.5 million applications out of about 6 million received so far.

The department “will continue delivering large volumes” of records in the coming weeks, its statement said. “We remain focused on helping students and families through this process and supporting colleges produce aid offers as quickly as possible.”

The Associated Press’ education coverage receives financial support from multiple private foundations. AP is solely responsible for all content. Find AP’s standards for working with philanthropies, a list of supporters and funded coverage areas at AP.org .

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