Opinion: How to Teach Kids Money Matters

(Feb. 26) -- With all the focus on health care this week, it would be easy to overlook an event in Washington that could ultimately make a significant difference in the financial future of our country's next generation.

With little fanfare, a bipartisan bill -- yes, you heard that right -- was introduced in the House of Representatives that would set up savings accounts for every newborn in the country and seed them with $500. It seems like a small idea, but it's potential is huge if it helps turn around a silent crisis in the U.S. -- financial illiteracy.

With a nearly 10 percent unemployment rate and no personal safety net to keep afloat, a significant number of Americans are in major financial trouble. And while big banks bear much of the responsibility for the economic turmoil facing the nation, the root of this financial crisis is in large part due to the population making bad financial decisions.

A recent Time magazine article argues that the U.S. can't afford the risk of another financial crisis fueled by a financially illiterate populace. And, to produce financially viable adults, we need to start educating our children earlier and more thoroughly about money matters.

But how?

As Time notes, research shows that traditional efforts to teach kids about money did little to "help students make better decisions outside the classroom." In other words, we're wasting money by trying, unsuccessfully, to teach kids how not to waste money.

What this research actually reveals is that the way we've been teaching financial education just isn't working. Perhaps the hours spent being taught finance in a classroom are less a predictor of how financially capable a child will become than actually having assets they can learn to manage.

A recent paper by Dr. Trina Williams Shanks and others at the Center for Social Development summarized recent research on the impact of assets on a child's well-being. It shows that having assets appears to be a far better predictor of a child's ability to handle money than schoolroom lessons alone. Meanwhile, new research by the center will shed an important light on whether the mere presence of a bank account, of financial inclusion in society, leads to more financially astute behavior among children.

The reality is that only a minority of the U.S. population has any sort of tangible savings or assets. And as the proportion of children living in poverty in the U.S. reaches nearly 20 percent, the hopes for such a "learning by having" approach to financial capability grow slimmer.

In fact, a recent New York Times article blasts the U.S. government for its meager investment in the future of its youngest generation: For every $5 spent on a senior citizen, the government spends only $2 on a child. Dr. Nancy Folbre, an economics professor at the University of Massachusetts, calls for those of us working on child economic outcomes to push for policy dialogue and change, "By the time they grow up, it's too late to influence the policies that partly determine their own success in adulthood," she writes.

So perhaps we need to think "outside of the classroom" and teach financial education, in part by providing children with more meaningful tools through which to learn.

More specifically, we should be investing in and supporting programs and policies that can encourage healthy financial habits and provide children opportunities to think about their futures (and hence the consequences of their financial decisions) starting early in life.

That is the premise of the bipartisan ASPIRE Act, which opens and seeds a savings account for every child born in the U.S. The aim is to provide each child with the means to learn to save, manage money, create wealth and invest in productive assets after reaching adulthood.

The U.K.'s Child Trust Fund does that too. And interestingly enough, the Child Trust Fund has become a financial education tool not only for the children who own the account but their parents as well, according to recent evaluations.

When it comes to financial education, we clearly need less focus on learning by "curriculum" and more focus on learning by "doing." But learning by doing won't work well if an increasing majority of our nation's children have nothing to learn from, and ever fewer hopes of getting the opportunity to become "financially capable" adults.

Jamie M. Zimmerman is the director of the Global Assets Project in the Asset Building Program at the New America Foundation.

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