Financial Illiteracy

"This is US history. I see the globe right there."
--Jeff Spicoli (Fast Times at Ridgemont High)

Just one more study to toss on the pile of evidence showing that kids are financially illiterate. Similar findings have been reported for years with little improvement trend.

Billion$ of resources have been thrown at this problem over the last decade. But few 'educators' seem to realize that financial markets are complex social systems likely to render traditional pedagogical techniques ineffective for skill building. This is because skills required to navigate complex social systems rely on tacit knowledge that is difficult to codify. Building decision-making skills via traditional classroom methods is unlikely to work well.

Learning platforms that immerse learners in the complex environment are likely to make more progress. Experiential learning is one approach. Learning by doing. One downside of employing this approach for developing economic and financial skill is that the cost of mistakes can be high. Tuition is steep.

An alternative is observational, or vicarious, learning. Here, students learn by watching the behavior of role models. This is essentially the apprenticeship model where learners 'shadow' experts while they do their thing. This model is a time tested way of building complex skills. It has been around for thousands of years.

Once hard to do in many school environments, technology is now available to put students in front of experts over long distances. I've been involved with research suggesting that it is indeed possible to employ web-based technologies for improving financial literacy (e.g., Ford, 2006; Ford et al., 2007).

The biggest problem we may face in this regard is locating appropriate experts. It is not like kids have a ton of role models to observe and learn from when it comes to appropriate financial decision making.

Ironically, the federal government, which continues to role out programs aimed at improving national financial literacy, provides the worst possible example when it comes to prudent financial behavior. It is the classic 'do as I say but not as I do' situation.

When someone asks you why our kids are financially illiterate, one of the best answers you can give is: "Because the adults are."

References

Ford, M.W. (2006). Outside the lines: Exploring student use of web-based vicarious learning about financial markets. Journal of Business and Leadership, 2(2): 325-333.

Ford, M.W., Kent, D.W. & Devoto, S. (2007). Learning from the pros: Influence of web-based expert commentary on vicarious learning about financial markets. Decision Sciences Journal of Innovative Education, 5(1): 43-63.