Credit or Debit? Teaching Personal Finance (2024)

The statistics about personal finance in America are staggering. Different surveys show that anywhere from half to three quarters of Americans live paycheck to paycheck, and 69% have less than $1,000 in savings. Moreover, less than half of Americans understand how much money they’ll need to retire.

When you look at the state of teaching personal finance in schools, these statistics start to make sense. Only one in six high schoolers are required to take a financial literacy course, yet in just a few short years, nearly all of them will be responsible for handling their finances.

In this article, we’ll explore the financialliteracy concepts students need to know before they enter adulthood, andtechniques for teaching personal finance appropriate to each grade level.

Financial Literacy: The National Standards

The Jump$tart Coalition® for Personal Financial Literacy has created standards for the knowledge K–12 students should develop throughout their education. Students of all grade levels can engage with these concepts with increasing complexity as they get older, so these standards are a great foundation no matter what age group you teach.

• Spending and saving: Personal finance is a constant balance between spending to meet one’scurrent needs and wants, and saving for future goals. It’s important to teacheven young students that every dollar they spend is a choice: Is this purchaseworth slowing progress toward a future goal?
• Credit and debt: Students should understand how debt works, the risks associated withit, and how it can impact their future. Topics you cover might include interestrates, monthly payments, credit scores, and different types of debt (e.g., studentloans, credit cards, mortgages).
• Employment and income: Students should learn that adults trade their time for income. Theyneed to know what it means to build a career and increase their incomepotential, and how their employment choices affect their financial present andfuture.
• Investing: Investing is a concept that baffles even some adults, so it’s helpfulto start introducing these concepts early. With younger students, you mighttalk about the difference between saving and investing and how money can createmore money, and with older students, you might talk about risk,diversification, the stock market, and more.
• Risk management and insurance: Students should learn the different types of insurance, why peoplemight want to buy some types of insurance (and avoid others), how to weighrisk, and the definitions of terms like premium and deductible.
• Financial decision making: Financial decisions are a unique intersection of personal values, takingcalculated risks, and balancing the present and the future. The earlierstudents can develop a healthy framework for wise decision making, the betteroff they will be.

Teaching Personal Finance: Elementary School

Even the youngest students can start learningfoundational concepts of handling money. For example, it’s useful to discussparadigms like want and need (e.g., “I need food and shelter” but “I want avideo game”) and how to prioritize spending finite resources on needs first andthen wants. The following lessons from TD Bank provide ready-made instructionto introduce key concepts like saving, spending, and credit.

• Grades K–1: This lesson helps students develop a desire and plan for how to save money. It discusses topics such as why saving is important, how to use a budget, and the benefits of saving money at a bank.

• Grades 2–3: In this lesson, students will learn about the different types of payment options people use, including cash, checks, and credit cards. Students will learn about checking accounts, ATM transactions, and how to write a check.

• Grades 4–5: This lesson introduces students to the concept of credit, including how credit can benefit both financial institutions and consumers, how borrowing money compares to borrowing a physical object, and how to use credit responsibly.

Teaching Personal Finance: Middle Grades

Middle schoolers will be able to dive deeperinto the concepts of spending, saving, investing, and borrowing money. Here area couple of activities from Scholastic designed specifically for grades 6–8:

• Lesson 1: Saving Money for Your Future: Saving will come more naturally to some students than others. This activity gives students the “how” and “why” behind saving money by introducing the magic of simple and compound interest.

• Lesson 2: Saving Money by Finding the Better Buy: Like saving, spending is a good and essential part of handling money. This lesson shows students how to be smart spenders by calculating unit rates, discounts, and fixed and variable costs.

Classroom Activity

In addition to the lessons from Scholastic, considerplaying the Game of Life with your students, tailored to teaching them how tonavigate monthly expenses. Here’s how it works:

• Salaries: First, write a variety of salaries on pieces of paper and have each studentdraw one out of a hat. Make sure to provide a wide range of figures, butnothing too extravagant.
• Rent or mortgage: If you have access to a computer lab, send students to Zillow.com to choosea house to buy or apartment to rent (the house listings will show an estimatedmonthly mortgage payment). Don’t let students get too hung up on finding theirdream house; the purpose is to get an idea of different price ranges. If youdon’t have access to a computer, you could have them draw pictures of housesout of a hat, along with its monthly rent or mortgage payment.
• Groceries and other necessities: Give students newspaper ads that list the price of things likegroceries, toiletries, and clothing. Have them put together a rough list ofwhat they think they’d need to buy for a month. Again, don’t let them get lostin the weeds; you might give them parameters of the types of things they mustbuy (e.g., one item of clothing, one cleaning supply, 10 breakfast items, andso on).
• Utilities and other bills: Give students an estimate for the utilities they might pay for theirchosen house or apartment. Also let them choose the type of car they’d like todrive, along with its monthly payment and gas costs.
• Leftover cash: Once students have gathered all their essential expenses, have them calculatehow much money they have left over. This amount is how much students have left forsaving and for “fun” spending. As a class, talk about how salary and monthlyexpenses impact this number and how students feel about their choices given howmuch (or little) leftover cash they have.

Teaching Personal Finance: High School

It’s easy to help teenagers see the relevance of personal finance to their lives. High schoolers are likely working part-time jobs, paying for some of their own clothes or entertainment, saving for prom or a car, and considering how they’ll pay for college. The following are some of the more complex financial terms you can introduce to your high school students:

• Taxes:Especially when teenagers see their first paychecks, they’ll be ready to learnabout tax rates, Social Security, Medicare, and other issues that impact howmuch money they bring home.
• Compound interest: Compound interest can be students’ best friend or worst enemydepending on whether they invest or owe money. Make sure they know the basiccalculations behind compound interest, and the fact that they need to look forthis term anytime they consider investment or loan opportunities.
• Opportunity cost: Teenagers think they have all the time in the world; however,opportunity cost will show them differently. Students should know that every useof money is a choice; if you choose to buy a new outfit now, you lose anopportunity to save for the future.
• Value of education: Because the cost of college can be so high, students need toseriously consider the cost vs. the higher potential earnings education canbring them. This calculation shouldn’t discourage students from pursuing highereducation; rather, it should help them be wise about their choice of school,major, lifestyle during school, etc.
• Risk: Becausemost students haven’t handled large amounts of money, it’s likely hard for themto imagine the devastation of financial loss. That’s why it’s important to helpthem understand risk, why they should diversify investments, and why differenttypes of insurance are necessary.
• Time value of money: Because money can earn interest and increase in value over time, studentsneed to understand the time value of money (i.e., the fact that money availableright now is more valuable than the same amount in the future).
• Cost–benefit analysis: Depending on our level of desire, we can hone in on either the costor the benefit of putting our money toward something. However, cost–benefitanalyses will help students consider both so they can make the best decisionpossible.
• Debt: Particularlygiven that students may be soon taking out student loans, getting their firstcredit card, or perhaps cosigning for a car, they need to understand how debtworks: interest rates, how interest compounds, monthly payments, penalties fornot paying, and more.
• Delayed gratification: The ability to delay gratification is a marker for future success inmany areas of life. Students can apply this mentality to important issues likesaving and investing to set themselves up for a secure financial future.
• Scarcity: Time and money are both finite, so students need to understand how tomake decisions given their limitations at different times in life.
• Inflation: Students should understand what inflation is, how it fluctuates, andhow it should impact their consideration of debt, purchases, and the amount ofmoney they need to invest for retirement or other expenses.

Classroom Activity

Ask students about a goal they have—one thatcosts money. It could be to buy a car, start a business, live in New York,travel to Europe, or any other long-term dream they wish to fulfill. Have themdo independent research about how much it would cost to fund that initiative.Then ask them to figure out how long it would take, how large of a salarythey’d need, and what sacrifices they might have to make to accomplish thismission. At the end, they should have a timeline, a budget, and an analysis ofthe factors that will impact their efforts toward their goal.

The purpose of this activity is not to discourage students’ ambitions. Rather, it’s to show them how to create realistic paths to their dreams. Too many people make big financial decisions or pursue big goals without first sitting down to calculate how to make it happen, and because of that, they often fail to accomplish what they set out to do. With this activity, you’re showing students how to do the work upfront to create the lives they dream of.

More on Preparing Students for Adulthood

Academics are important, but they’re not the only thing students need to succeed in adulthood. Teachers have a unique opportunity to prepare students for life beyond the classroom by teaching personal finance to students of all ages. Introducing these concepts early and often will help students not feel so overwhelmed the first time they start paying real bills and making real financial decisions.

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