Olivia S. Mitchell, professor of business economics and public policy at the Wharton School, joins Ripple Effect to discuss the current state of financial literacy in the United States. While more states are introducing financial education requirements, progress remains uneven across schools and communities. Mitchell explains why starting earlier is critical, how parents and educators can better prepare students, and the key areas where financial education still falls short.
Transcript
Dan Loney: The month of April is National Financial Literacy Month. It is an important month, an important topic. To find out more about how things are going in that realm, it’s a pleasure to be joined once again by Olivia Mitchell, Wharton professor. Olivia, always great to chat with you. I'll start out with what your view is on state of financial literacy right now? You and I have talked about it for several years and things have developed, but where are they right now?
Olivia S. Mitchell: Thanks for having me, Dan. The state of financial literacy is improving, but it's still very uneven. The biggest positive change is now 30 U.S. states have mandated a high school financial literacy course in order for the students to graduate. That's terrific. But access and quality still differ across states, across school districts, and teacher quality could also be very uneven. It's still very important, of course, because my research with Annnamaria Lusardi determined that only one in three American adults meets the basic standard of financial literacy, which strengthens the case for starting earlier and teaching more consistently.
Loney: You brought up a couple of components there about teaching and the states. That's an issue unto itself. But in terms of the teaching and the curriculum, how do you continue to improve it? What are the areas that need to be focused on? And how do we get more teachers to be able to teach this curriculum?
Mitchell: This is a very fraught question because here at the University of Pennsylvania, Wharton, we have actually brought in teachers who teach financial literacy. So, that's something that teachers are willing and eager to learn because they themselves know they don't know how to make financial decisions. The only way they can pass it on to their students is to build up not only their confidence but their skills in this area.
Loney: So, colleges have the opportunity to play a vital role in that development at the local level, building up these programs, working almost like a public-private partnership so that we can improve things moving forward.
Mitchell: Well, the University of Pennsylvania, for example, where I work, is actively teaching financial literacy beyond its own campus by running programs and having courses delivered to high school students in underserved communities. And these classes are wonderful. They cover real-world topics like paychecks, student loans, credit cards. Penn also, of course, focuses on financial wellness for its own students, offering workshops, peer counseling, and tools on budget, debt, and investments.
Loney: What are some of the other key components when you're talking about putting together a program like this in a school district? What are the areas that need to be focused on so that kids can be better prepared for when they're either going to college or going out into the real world?
Mitchell: I think the first issue is relevance. Students need to understand how the material that they're learning can apply to real decisions they'll face now or will face very soon, including things like budgeting, spending, saving. Many students end up taking out student loans, and that's clearly an area where you need more financial literacy. Fraud is another area because we're all so exposed now to the opportunity for scams and theft.
I think another important area is practice because learning comes not just from listening, but it comes from doing. Students need to build habits and decision skills through cases, simulations, budgeting. Obviously, teacher quality is another key factor. Having a strong curriculum is great, but it only works when teachers are well-prepared and supported.
The other point I would make is that continuity is critical. I don't think financial literacy needs to be delivered once and done in 12th grade. Ideally, it should start at home. As I'm fond of saying, when my two daughters were young, I had the Bank of Mom, and each kid got a pittance of an allowance, and if they wanted more, they could do chores around the house. And the Bank of Mom was a spreadsheet on my computer, which also taught them about Excel. And then if they wanted money, I mean, obviously, I bought food and clothing and stuff like that. But if they wanted to go out with their friends, they had to see how much was in their Bank of Mom. And if they didn't have enough money, either they couldn't do it or they had to work to earn more. So, I believe it starts at home. But in elementary school, kids need to learn about the difference between needs and wants, how saving works, and that money is limited, right? Money doesn't grow on trees. It's also important to teach them delayed gratification and simple budgeting.
Then I would say two more steps in middle school, kids need to learn how banking works, the basics of earning, taxes, digital payments. It's a useful time to introduce ideas like interest and debt and online financial safety, especially nowadays. In high school, what's crucial is to make students ready for the real world. They need to learn about credit, loans, investing, insurance, taxes, and long-term planning like retirement. They also need to become exposed to topics like social media. Right now, you can get on TikTok and get all kinds of bad financial advice without even trying. Digital assets are also important because those are obviously things that kids are exposed to.
Loney: I don't know if it's a direct need, but do we also have to start to have conversations for kids around cryptocurrency because that's becoming more prevalent these days?
Mitchell: I think cryptocurrency is absolutely essential to teach kids about. I think it's Costa Rica or maybe it's El Salvador that is now using crypto as the medium of exchange for the country. I myself don't hold crypto, but the Trump administration has recently said that it wants to encourage not only alternative investments in 401k plans, but also cryptocurrency. So, understanding what it is, what it's not, what the risks are associated with that asset, I think is absolutely essential to teach kids.
Loney: One of the things that so many business sectors are talking about these days is artificial intelligence. I'm wondering if you're starting to hear the use of artificial intelligence come into play when you're thinking about financial literacy. Does it become that much more important, especially if we're not able to get the numbers of teachers that we need at the high school and middle school level focusing on financial literacy, that AI can play some role level in developing and continuing to teach this type of content?
Mitchell: The conversation has really moved from whether AI will be part of education to how to use it responsibly. AI can be very useful as a support tool because it can help personalize lessons, generate scenarios, translate material, and help students practice decision-making. But it can't replace strong teachers or become, heaven forbid, an unverified financial advisor. The key to using AI as a support tool rather than a replacement for educators is that it can really expand access and make learning more engaging.
Loney: What are some of the other areas that you are looking at and watchful of when you think about financial literacy moving forward the next 10, 20, 30 years?
Mitchell: I would say that the focus should be on expanding access, improving quality, and starting kids earlier in the educational process. I think several areas come to mind. Universal access. Every student should have a meaningful personal financial learning experience before graduation. Implementation quality is critical. States need to pair the mandates with teacher training materials and accountability. Earlier exposure. Middle school is an important entry point because money habits and digital behavior start early. And students now need to understand not only budget and saving, but also how to deal with buy now, pay later opportunities online. Crypto risks. FINRA's (Financial Industry Regulatory Authority) latest national capability study recently added questions on asking people about inflation, AI, and buy now, pay later, which shows how fast the content is evolving.
Loney: When I was growing up, one of the things that my parents did for me when I turned 16 was to [make me] get a summer job. That started the process of understanding getting a check and opening an account. Even something as simple as having a summer job or a weekend job during the school year can probably be a big benefit for that individual as they're getting started on this journey around financial literacy.
Mitchell: Absolutely. Babysitting jobs, any job that pays you a little money, is very useful in helping begin to understand the need for saving, budgeting. Where do you put the money if you want to save it? Hopefully, not under your mattress.
Loney: For many years I've heard you talk about the Bank of Mom, and I can just tell you the Bank of Dad has been very challenged, but we're doing OK with my three kids. I fully have taken this to heart about how important the role of the parent is in this process. I think it is very much at times undersold how much the parent can do in helping their child or children understand what financial literacy, some of these components actually mean.
Mitchell: I think it's going to get harder because when I was in probably kindergarten, we learned about what's a penny, what's a dime, what's a nickel. And nowadays people don't carry cash anymore and they don't carry coins. So, that is difficult.
Loney: We don't have to teach about the penny anymore since we don't make it anymore.
Mitchell: Right, exactly. I was amused when my daughter came home from school, she was probably in first grade, and she said, mom, I did something great today. In exchange for two dimes, somebody gave me a quarter. So, they got two coins and I got one.
Loney: Oh, wow.
Mitchell: Yeah, well, you know, we need to do a little more teaching about financial literacy here.
Loney: What are you most hopeful for as we move forward? Because it seems like there is more of an understanding that this is a core component that so many kids need to have.
Mitchell: I think it's Finland that has announced that it's going to be the No. 1 country for financial literacy by 2030. I wish as a country we would dedicate ourselves to making sure that our people are sufficiently financially literate. And yet you see people getting out of school and not understanding the student loans they have, not understanding that they should do more than just pay the minimum on their credit cards. There's a lot to do, and content is evolving very quickly, especially with TikTok and so forth. People need to understand what's bad advice and what's good advice, and it's their responsibility to pick it up.
