When I was in high school in Frisco, Texas, financial literacy wasn't a required course. I opted to take AP economics, but we never discussed smart savings strategies or how to build a budget.
Instead, we studied the financial sector and economic performance measures. At 17 years old, I would have benefited more from learning about credit and compound interest. Maybe that would have kept me from maxing out my first credit card during my freshman year of college (don't worry, I've since learned my lesson).
A lot has changed since I was in high school. Thirty-six states in the US now require a personal finance class to graduate, though only 21 of them require a stand-alone class. My home state of Texas, along with 14 others, allows the coursework to be integrated into another course.
Fun fact: California is the latest state to adopt a personal finance requirement, ordering school districts and charter schools to offer a stand-alone, one-semester course in personal finance as of June 2024. Alaska and the District of Columbia are the only states without any personal finance education requirements to date.
Though strides have been made toward increasing financial literacy in school, Mara Derderian, director of the financial planning program at Bryant University, says there's still work to be done.
The current school requirements typically start in high school, something that Derderian views as too late. "A lot of people assume small children can't comprehend certain things," she says. "But I think these conversations are more impactful when you start earlier and continue to build upon it."
I write about money for a living, so I spend a lot of time looking for ways to improve my own financial literacy. But for this one, I have to go back to high school first.
How much do we really know about personal finance?
High school is the perfect time to learn about the importance of budgeting, different savings methods, how credit works and the impact of debt. Graduation comes with a new slate of independence: It's when teenagers often start living on their own, making an income, using a bank account and often… borrowing tens of thousands of dollars for student loans.
What do teenagers really learn about personal finance? To satisfy my curiosity, I asked 50 students at a high school in Austin, Texas, to answer 11 basic personal finance questions. By no means is this survey representative of every high school student in the US. However, it's a small sampling to gauge what students (ages 14 to 18) in my community know about the basics. And some of the answers surprised me.
🍎 Want to test your own financial knowledge? Take our 11-question personal finance quiz to see if you're smarter than a high school student.
Yes, it's a trick question, and 68% of students didn't know the answer. Compound interest is both good and bad, depending on whether you're borrowing or saving money. In a savings account that earns compound interest, your interest also earns interest, aka making you money. But the opposite is true when you owe money since compound interest adds more to your debt over time.
This one surprised me because the results were split. Nearly half (48%) didn't know what you do with a CD, but 44% correctly said you can use a CD to lock up money for saving. Only 2% said you put it in a CD player — so much for millennial-era antiques!
Fair enough: I didn't know what a CD was until well into my 20s. A CD is a savings product that offers a fixed interest rate in exchange for locking up your funds for a certain period of time. It's a great way to earn interest, but you don't want to put your everyday cash there. You'll typically face hefty penalties if you need to withdraw your savings early.
Many students got this one right: The least risky place to stash your savings is in a high-yield savings account. And though the stock market can often get you greater returns over the long run, it comes with a lot of short-term volatility and risk.
Conjuring up a Depression-era distrust of financial institutions, 30% of students said it was best to hide hard, cold money under their mattress. While I can see the appeal, hoarding cash this way won't earn you interest and your funds won't be protected. It's better to keep your savings in a federally insured bank or credit union, where your funds won't be accidentally destroyed when you wash your sheets.
This one is interesting because not a single student selected all of the correct answers. Let's break it down:
Best places to grow your savings, safely
| Type of account | Low risk? | Earning potential? | Reasoning |
|---|---|---|---|
| Traditional savings account | Yes | Yes, but … | This is a trick question because, yes, a savings account is low risk but usually has a low interest rate. A high-yield savings account can earn a much better yield. |
| Piggy bank | No | No | A piggy bank is risky because if anything were to happen to your home or you were to lose your piggy bank, you wouldn't get your money back. Plus, you can't earn interest on cash that's parked at home. |
| Flexible spending account | N/A | N/A | This one is a trick question! An FSA is a tax-advantaged account that lets you contribute and use tax-free dollars for eligible health care expenses. You can't use an FSA as your everyday savings account. |
| Certificate of deposit | Yes | Yes | A CD is low risk, and you'll have a guaranteed return as long as you don't withdraw money before the CD matures. |
| Money market account | Yes | Yes | Money market accounts are low risk and insured for up to $250,000 per person, per account, at federally insured institutions. MMAs earn variable interest, so they're less predictable than a CD, but you can still earn a decent rate. |
| I bond | Yes | Yes | I bonds are government-backed investments that are low risk and help hedge against inflation. |
| Cryptocurrency | No | Depends on the day of the week | Cryptocurrency is considered high risk because any assets tied into crypto aren't insured. Crypto is also very volatile, so investors risk financial loss. |
| Type of account | Low risk? | Earning potential? | Reasoning |
| Traditional savings account | Yes | Yes, but ... | This is a trick question because, yes, a savings account is low risk but usually has a low interest rate. A high-yield savings account can earn a much better yield. |
| Piggy bank | No | No | A piggy bank is risky because if anything were to happen to your home or you were to lose your piggy bank, you wouldn't get your money back. Plus, you can't earn interest on cash that's parked at home. |
| Flexible spending account | N/A | N/A | This one is a trick question! An FSA is a tax-advantaged account that lets you contribute and use tax-free dollars for eligible health care expenses. You can't use an FSA as your everyday savings account. |
| Certificate of deposit | Yes | Yes | A CD is low risk, and you'll have a guaranteed return as long as you don't withdraw money before the CD matures. |
| Money market account | Yes | Yes | Money market accounts are low risk and insured for up to $250,000 per person, per account, at federally insured institutions. MMAs earn variable interest, so they're less predictable than a CD, but you can still earn a decent rate. |
| I bond | Yes | Yes | I bonds are government-backed investments that are low risk and help hedge against inflation. |
| Cryptocurrency | No | Depends on the day of the week | Cryptocurrency is considered high risk because any assets tied into crypto aren't insured. Crypto is also very volatile, so investors risk financial loss. |
Benefits of teaching financial literacy in school
Teaching basic personal finance in school equips us with the tools we need to make smart money decisions as young adults. It also ensures that everyone has equitable access to a basic life skill, according to Nan J. Morrison, president and CEO of the Council for Economic Education.
"It's unlikely you're going to get a mortgage at 17, but you might need to get a loan for school," Morrison said. "You have to have the language and vocabulary to know what to do."
Learning to manage your money is a skill you might not realize you need… until you make a money mistake. I'll admit that a lot of my early money mistakes led to great lessons in budgeting and saving.
Being familiar with these topics can also help reduce anxiety when it's time to make big decisions, whether that's taking out student loans or eventually buying a home. Financial literacy also helps you set long-term money goals.
Here are a few other ways students can benefit from learning money management in school:
✔️ Teaches common sense: Everything we do in life involves some kind of financial transaction. Students don't have to know everything, but they have to have the language and know-how to ask the right questions, says Morrison.
✔️ Bolsters confidence when decision-making: We need to feel comfortable making major money decisions. With access to educational tools, young people can confidently weigh what's best for their financial health.
✔️ Instills basic skills: Understanding basic concepts like compound interest can help youth learn the value of saving. It's also a lesson on not allowing debt to spiral out of control when interest rates are high.
✔️ Promotes long-term financial stability: Managing money and thinking ahead can be stressful. Having conversations about the long-term effects of financial wellness can help to set savings goals and avoid bad habits down the road.
Talking about money shouldn't be taboo
Teaching personal finance in school lays the groundwork for kids' success beyond the classroom, instilling basic concepts that are useful in building a career, starting a family and planning for retirement. When I asked the experts about the right time for kids to have money discussions, they agreed that the earlier, the better.
"Rather than require a course you have to pass in high school, I think schools should start to integrate basic personal finance concepts at a much earlier age so it's ongoing," Derderian said.
In fact, children would benefit from learning that money isn't (and shouldn't be) a taboo topic. That can only lead to greater financial agency and independence as adults.
Morrison thinks the ideal time to start learning about money is elementary school. "Little kids are like sponges," she said. "Leaving these conversations out of the classroom puts them at risk for making mistakes and being taken advantage of when they don't need to be."
Questions or comments? Reach me at liliana.hall@cnet.com.
