SpendWell: Proactive & Hands-On Financial Education for Younger Generations
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To: Dr. Miguel Cardona, Secretary of Education, United States of America Department of Education
From: Ma. Rizza A. Cerilles (De La Salle University – Dasmariñas), Verencya Oktoviani (Bandung Institute of Technology), Areeb Khawaja (YSpace, York University), and Ananya Basu-Kaul (University of Manchester)
Numerous countries, including the USA, experience a crisis in financial literacy. It is often overlooked by formal education sectors. One solution to that is to incorporate financial education within secondary and post-secondary education curriculums, with the help of a financial mobile app, where students and even the general public, can experience hands-on learning by managing their finances in real-time: SpendWell.
Background
Financial literacy has been overlooked by formal education sectors. Schools, both secondary or postsecondary, focus on academics but neglect to incorporate important life skills & knowledge such as financial literacy. According to the National Center for Education Statistics, one in five American 15-year-olds doesn’t understand basic financial concepts. This is highly concerning and shows that the country is in dire need of financial education, especially for younger generations.
As defined by the Task Force on Financial Literacy, “financial literacy means having the knowledge, skills and confidence to make responsible financial decisions.” This means people not only need to be knowledgeable but also need to put the skills and knowledge into practice. In fact, the many conceptual definitions of financial literacy fall into five categories: (1) knowledge of financial concepts, (2) ability to communicate about financial concepts, (3) aptitude in managing personal finances, (4) skill in making appropriate financial decisions, and (5) confidence in planning effectively for future financial needs.
Financial literacy is crucial, not only to an individual’s personal finance state but also to society as a whole. Financial literacy can improve the literacy of financially vulnerable people, thereby alleviating poverty.
The Problem
Financial literacy among Americans has been steadily declining. The rate of financial literacy for Americans fell from 42% to 34% between 2009 and 2018, even though over 70% of Americans self-report being highly financially literate. The rate is also significantly lower for younger generations. In fact, only 24% of Millennials in the USA demonstrate basic financial literacy.
Young generations, especially freshly graduated high school students, face financial challenges as they embark on their post-secondary studies or start a career in the workforce. As a new college student, one important responsibility that they face is the management of personal finances, including debts. In the 10 years following the end of the Great Recession in 2009, student loan debt itself increased nearly 130 percent. More than half of all American students have to go into debt to get through college, and their average student loan debt topped $37,500 in 2020 (EducationData, 2021). Young generations are also much more likely to spend more recklessly, especially with the rise of online shopping, which creates ample opportunities to use and overextend credit, accumulating debt quickly.
Source: Next Gen Personal Finance Report 2019-2020
A 2020 survey by National Foundation for Credit Counseling (NFCC) shows how student loans have increased over time, and how the debt status is for students and young adults. In 2014 and 2020, from $1.06 Trillion to $1.57 Trillion, respectively, a tremendous increase in only six short years. Unfortunately, the alarming increase in debt is not matched by the increase in financial education across the USA. A Next Gen Personal Finance 2019-2020 Report shows the disparity of financial education in various US states (see figure above). Financial education is yet to be incorporated properly in formal education curriculums.
The Solution
According to the study of Urban, et al. (2020), well-funded teacher preparation may be key to successfully implementing financial education programs. If high schools in the United States require their students to complete financial education before graduation, it will discourage young people from lacking the self-control and awareness to invest in financial literacy and underestimating the long-term implications of their current financial decisions.
Georgia's approach is the most effective of the policies discussed in the study. It has three unique components: (1) Provided funding for two experts to train teachers on the new curriculum for standardized the course offering and prepared teachers to cover the new personal finance material, (2) teachers are certified experts (certified economics teacher or having obtained a broad field certification in social studies) to reduce the probability that a teacher has unrelated specialization in teaching personal finance, and (3) student standardized testing included topics from the economics course, including personal finance content.
These requirements resulted in fewer defaults and higher credit scores among young adults, but this general finding masks important heterogeneity at the state level. The heterogeneity goes beyond variation in course requirements and standardized assessments. Behavior also affects the fragility because of the diverse financial education policies across states on financial knowledge being measured. As it estimates the effects of these requirements on the credit report outcomes of 18- through 21-year-olds, the young people are just establishing their financial independence and financial knowledge that will help them develop future positive financial behaviors.
Consequently, we are proposing the integration and incorporation of financial education within the formal education curriculum, in both secondary and post-secondary education. As stated by Tim Ranzetta, co-founder of Next Gen Personal Finance, “If there is one thing I’ve learned in trying to bring personal finance education to every high school student in America, it’s that high school teachers are the ones who will make it happen.” This solution is also backed by research. In a survey of nearly 16000 college students, research by The National Endowment for Financial Education shows conclusively that well-educated students exhibit positive financial behaviors.
This financial education curriculum will also be supported by technology, specifically mobile-based apps, where students can learn how to manage finances in a hands-on way. In this way, younger generations can learn about personal finance formally, but also informally with the help of a mobile app. With the help of a financial mobile app, to incorporate financial education within secondary and post-secondary education curriculum. Students and even the general public can experience hands-on learning by managing their finances in real-time. An app wireframe prototype with a policy to promote financial literacy is created — Spendwell.
Spendwell is an integrated Money Management and Financial Education App. The features include:
Money management, which includes budget allocation, savings calculation, reminders, and financial simulations. The app can also learn about user spending habits & offer suggestions to manage their money better.
Financial education in the form of bite-sized financial education to complement financial education from schools. The topics covered include Financial Literacy 101, Investment Basics, Budgeting Basics (e.g. 50.30.20 rules), Credit Checks, Tax Checklists, Budgeting for Debt Payments, and Personalized Budgeting, such as budgeting for college students or people with children.
With this integrated app, students and general users will be able to simultaneously learn personal finance and directly apply what they learned - all in one app.
Conclusion
Financial literacy is crucial not only to each individual, but also to society as a whole. The huge gap in financial literacy can only be filled with proper education, both in formal and informal sectors. This can be achieved by integrating financial education in secondary and post-secondary curriculum, supported by readily available technology that suits the needs of the 21st century — in the form of a mobile app: Spendwell. It is a Money Management and Education App that aims to close the gap in financial education, so that poverty can be alleviated, thus increasing prosperity in the country.
References available in full pdf.