Personal finance education is important. We all agree that managing personal finances is an important life skill, and when used properly, it can lead to a happier life and avoid much grief. There has been a national effort to mandate personal financial education in states. According to the “Survey of the States (PDF)” report, in 1998 only 14 states required individual financial standards to be included in school curricula. As of 2022, that number has increased to 40, according to a biennial survey by the Economic Education Council.
But these obligations come with risks. With a limited number of school hours and many subjects to teach, administrators, teachers, and curriculum directors must make sacrifices in allocating limited educational resources (classroom time). As a result, managers too often see the economy and personal finances as substitutes, spending less time saving. In other words, mandating personal finance pushes out an economics education.
In fact, the subject matter is not a substitute, and economics should not be sacrificed for personal finances. Economic reasoning can be used to make decisions in all areas of life, but especially personal It can be used when making financial decisions. In fact, personal finance can be viewed as applying economic thinking to everyday decision-making. If anything, economics and personal finance are complementary, not substitutes.
Economics is a core subject in social studies
Economics is one of the main areas of social studies. Economic criteria are part of the College, Career, and Civic Life (C3) Framework developed by 20 states (5 states are part of the Federal Reserve Bank of St. Louis) and published by the National Council for the Social Studies is. (NCSS). NCSS and its members believe that social studies, including economics, prepares students for their post-secondary future. This includes, according to a revised NCSS position statement published in 2016, “disciplinary practices and literacy required for college-level work in social studies academic courses, and the critical thinking, problem-solving skills required for the workplace. , and collaboration skills.
“The National Council of Social Studies reaffirms that good social studies education is essential to the competence of citizens and to the maintenance and strengthening of free and democratic societies,” the statement said.
Economic thinking – applying informed decision-making and cost-benefit analysis and recognizing opportunity costs – is central to economic criteria. This content applies to the decisions students make as consumers, employees, employers, savers, investors and citizens.
Economics shows the big picture beyond personal finance
While it can be difficult to find space for both personal finances and economics within the academic year, both contribute to a student’s education in important ways. There are advantages to studying economics. A student’s understanding extends beyond personal shopping and spending to the issues we face in the global economy. As the economy goes through periods of growth and recession, having a knowledge of economics helps people understand what’s going on around them and how it fits into the big picture. .
The Federal Reserve Bank of St. Louis (like other Reserve Banks) offers a variety of practical, free lessons and resources for teachers to incorporate economics, including personal finance, into classroom instruction.
Here are some examples of important economics content and some resources to help students learn about those concepts.
“Once Upon a Decision” is part of St. Louis Fed Ella’s adventure series.
Decision making
Developing strong decision-making skills is important in all aspects of life. Poorly informed decisions and policies can have unintended consequences. By applying cost-benefit analysis, people can make more informed decisions.
learning tools
The Art of Decision Making online module offers five steps to making thoughtful decisions.
The online module “Once Upon a Decision” for elementary school students introduces a five-step decision-making process.
investment in yourself
Investing in human capital generally leads to higher incomes and helps people to some extent protect against unemployment. The decisions young people make about staying in school and receiving post-secondary training and education have profound implications for the rest of their lives.
This does not mean that everyone should go to college. That means post-secondary education and training are essential. Education on investing in human capital is related to economics, personal finance, career and technical education.
learning tools
Invest in Yourself is an online module for upper elementary school students.
“It’s Your Paycheck—Lesson 1: Invest in Yourself” is an online module for high school students.
Both modules emphasize that people invest in their human capital through education, on-the-job training, and practice, and that investment pays off.
inflation
Inflation reduces purchasing power. Understanding the difference between nominal interest rates (measured at current prices) and real interest rates (adjusted for inflation) is important for financial decision making.
But not everyone has that understanding. For example, respondents to financial competence surveys are often asked the following questions:
Imagine a savings account with an interest rate of 1% per year and an inflation rate of 2% per year. After a year, how much can you buy with the money in this account?
- than today
- exactly the same
- less than today
- don’t know/refuse to answer
A 2011 study by Annamaria Lusardi and Olivia S. Mitchell found that less than two-thirds of people surveyed in the United States were able to correctly answer a multiple-choice question (“C”), brought results.
learning tools
Inflation is introduced in the “Inflation” episode of the Economic Lowdown video series below.
The Economic Lowdown Podcast Series episode “Getting Real About Interest Rates” explains nominal and real interest rates.
Fiscal and Monetary Policy
Fiscal and monetary policies influence households, saving, spending and investment decisions. Fiscal policy is the spending and taxation measures taken by the federal government (Congress and the President) to affect the economy. Monetary policy is the action taken by the central bank (Federal Reserve Board) to use interest rates and money supply tools to achieve goals such as maximum employment and stable prices.
learning tools
In the online module “Government Budget,” students take on the role of freshman members of the US House of Representatives and seek to contribute to the goals of voters and the long-term goals of the United States.
Teachers and students can earn digital badges.
You can also learn about the Fed’s monetary policy tools and how central bank policy decisions affect the economy.
Economic measurement
Gross Domestic Product (GDP) is a measure of how much an economy produces in a year. There is a lot to learn about GDP. GDP is important because it tells you if the economy is growing or slowing down over time. Use inflation-adjusted GDP (real GDP) when comparing economic output year-over-year. We also use real GDP to determine real GDP per capita. It is sometimes used as a proxy for standard of living.
The “GDP and Pizza” video explains some important concepts about Gross Domestic Product.
learning tools
“GDP and Pizza Video Explainers” is a series of short videos that provide an overview of this very important measure of economic output.
Additional resources to help teachers and parents with their financial and personal financial education can be found at stlouisfed.org/education. Our students, especially the most vulnerable, need an understanding of economics to better navigate the economy and improve their financial stability.
Note
- See 2011 Journal of Pension Economics and Finance Article “Financial Literacy and Retirement Planning in the United States” by Annamaria Lusardi and Olivia S. Mitchell.