Money lessons without money: The financial literacy fallacy

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Teaching kids financial literacy without real money is like teaching swimming with PowerPoint slides. And we all know how that ends.

We’re making the same mistake with money that we once made with abstinence-only sex education: pretending that pure knowledge will triumph over emotion, peer pressure, and real-world temptations. Spoiler alert: it won’t.

But there’s an even more fundamental problem here. 

Before we start debating how to teach kids about compound interest, maybe we should ask why only 26% of eighth-grade students in the United States are proficient in basic math.

That’s right.

We’ve managed to create a system where three-quarters of our students struggle with fundamental mathematics.

And our response is to add yet another layer of complexity to the curriculum.

This is a perfect example of what C. Northcote Parkinson called the “law of triviality” aka bread & circuses. Parkinson’s fictional nuclear committee obsessed over a bike shed while ignoring the reactor design. 

We do the same thing all the time in education. While our students struggle with basic algebra, school boards and administrators spend countless hours debating financial literacy curricula, arguing about whether to teach the Rule of 72 to kids who can’t divide by 2. It’s like installing a fancy security system on a house with no foundation. 

We’ve seen this pattern before. 

Education is particularly susceptible to flavor-of-the-month initiatives that promise revolutionary changes but deliver minimal results. 

Remember when iPads were going to revolutionize learning? How about the “whole language” approach to reading that set back literacy instruction for a generation? Or the “new math” of the 1960s that left both parents and students bewildered? Or the focus on equity language?

Each wave came with passionate advocates, compelling PowerPoints, and promises of transformation. Each receded leaving behind unused equipment, abandoned programs, and increasingly cynical teachers.

Financial literacy is following the same trajectory. 

When I tell people this, they usually respond with something like: “But shouldn’t kids at least learn the basics of money management?” 

This seems reasonable, just like it seemed reasonable when people said “Shouldn’t kids at least learn about the risks of sex?” But in both cases, this response misses the point in a way that’s both subtle and fundamental.

The problem isn’t that financial education is useless. 

It’s that it fundamentally misunderstands why people make poor financial decisions. The champions of financial literacy imagine that if someone takes out a predatory loan or racks up credit card debt, it must be because they don’t understand interest rates or payment schedules. But this is like saying that people smoke because they don’t understand lung cancer statistics.

What makes financial decisions hard isn’t the math. 

Most personal finance math is basic arithmetic. It’s the same arithmetic that most of our students currently struggle with. The hard part is everything else: impulse control, peer pressure, status anxiety, and the fundamental uncertainty of the future. 

Teaching teenagers about compound interest won’t help them resist the urge to keep up with their friends’ spending any more than teaching them about calories will stop them from eating junk food.

Consider the college debt crisis. 

The calculations behind student loans aren’t complicated. Any high school student can understand that borrowing $200,000 at 6% interest will require substantial monthly payments. But that’s not why 18-year-olds take on crushing debt for degrees with limited earning potential. 

This is particularly problematic when Gen Z thinks they have to make $587,800 to be financially successful.

They do it because everyone they know is going to college, because their parents expect it, because they’ve been told their whole lives that education is always worth it, and because at 18 it’s nearly impossible to truly understand what it means to pay $2,000 a month for the next 20 years. Or it might seem immaterial if you’re going to be making $587,800.

The proponents of financial literacy make the classic mistake of confusing education with behavior change. It’s the same mistake we made with abstinence-only sex education: assuming that if you just explain the consequences clearly enough, young people will make rational choices. 

But humans aren’t rational calculators who simply need to be programmed with the right information. We’re emotional beings, subject to peer pressure, cognitive biases, and an inability to really think about the abstract future vs the tangible present.

This isn’t to say we shouldn’t teach personal finance at all. 

But we need to be honest about its limitations. 

Teaching financial concepts in a classroom is like teaching swimming with PowerPoint slides. You can explain the theory of the butterfly stroke all day, but at some point you need to get in the water. And with money, the water is always cold, deep, and full of currents that weren’t in the textbook.

What would work better? 

The obvious answer is giving students actual experience managing money. Some schools have experimented with giving students real budgets to manage, complete with the ability to make mistakes and face consequences. But these programs are expensive and complex to run, which is why we default to cheaper alternatives like classroom instruction and online modules.

The real solution is surprisingly simple, though not easy: show students how to use what they’re learning to make actual money. When a teenager makes their first hundred dollars applying math to a real problem, they learn more about financial literacy than a semester of classroom instruction could ever teach them.

Imagine if instead of abstract exercises about compound interest, we helped students start small businesses. Instead of worksheets about budgeting, we encouraged them to find opportunities to earn and manage real money. The math suddenly becomes relevant when it’s helping you price your services or calculate your profit margins. The lessons about saving become real when you’re deciding whether to reinvest in your business or take that money to the movies.

Below is a video of high school junior Thomas Turner who built a car detailing business doing $4000 in revenue. Here he talks about how making money made him appreciate it more (via the Future Titans podcast). 

This isn’t just theory. 

The most financially literate young people didn’t get that way from classes – they got that way from starting YouTube channels, selling on Etsy, building websites, or running home services businesses. They learned about taxes because they had to file them. They learned about pricing because customers gave them immediate feedback. They learned about investing because they had actual profits to invest.

(note: here’s 54 business ideas for aspiring middle and high school entrepreneurs)

When real money is at stake, you don’t need to manufacture engagement or relevance. You don’t need to create artificial scenarios or roleplay real-world situations. The motivation is built in, and the feedback is immediate and meaningful.

So the next time someone suggests financial literacy as a solution, ask them this: are we teaching people to swim, or are we just showing them PowerPoint slides about swimming? Maybe instead of another curriculum, what we really need is to help our students get in the water – with the support and safety equipment they need, but with real stakes and real rewards.

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3. Beyond grades: Why measuring learning kills it
4. Degrees of deception: How America’s universities became debt factories
5. Bread, circuses and education
6. The School of Entrepreneuring
7. From myth to measurement: Rethinking US News & World Report College Rankings
8. The perverse incentives driving America’s government schools
9. The endless ladder
10. Students are solving the wrong problems
11. Your kids grades are bullshit
12. Ghost nonprofits and the manufacturing of virtue