Financial Capability Will Help Students Prepare for Post-Pandemic Futures

 

A version of this opinion piece originally appeared in the St. Louis Post-Dispatch on April 12, 2021.

Over a year into the COVID-19 pandemic, parents and educators know too well the stress of distance learning and intermittent school closures. The prospect of returning to some kind of “normal” is cause for cautious optimism. Yet the pandemic will cast a long shadow over students’ financial lives, especially students in under-resourced schools.

Take lifetime earnings. It’s tough to tally the impact of pandemic-related learning losses on students’ future income, although experts are trying:

• In April 2020, Brookings Institution authors modeled estimates off a research assumption that every additional year of schooling equates to 10% in additional future earnings. In the U.S., they said, some 76 million K-16 students might each earn $1,337 less a year.
• An analysis by the Organization for Economic Co-operation and Development (PDF) equated a learning loss of just one-third of the school year with 3% lower career earnings for U.S. students. Disadvantaged students, said the September 2020 report, would “almost certainly” suffer more. Because education matters for a skilled workforce, these losses could mean 1.5% lower GDP on average for the rest of the century.

Encouraging Financial Capability

This may all sound depressing. Let’s not allow reckoning with this reality to depress us. Quite the opposite: Knowing the financial stresses that a generation will confront should motivate us to try harder—now—to help them.

One powerful way is by championing financial literacy. In the early 2000s, April was named Financial Literacy Month to promote preparing young people for their financial futures. In 2021, the White House proclaimed it National Financial Capability Month. Encouraging financial capability, however, is not a monthlong effort. It’s a lifelong effort. The earlier it starts, the better: Children can develop financial behaviors as early as age 7, according to research by David Whitebread and Sue Bingham (PDF) of the University of Cambridge.

The St. Louis Fed’s Economic Education website offers free economics and personal finance lessons, activities, and readings that make it easier to prepare students with 21st century skills for college and career readiness. Resources for consumers and parents are included.

Whether it’s for your kids, grandkids, nieces and nephews or your neighbor’s kids, find opportunities to teach the younger children in your life about money and decision-making. Give them chances to spend, save and donate. Go beyond the subject of savings and talk about credit: how it works, how to build it, how to use it responsibly. If you need help, the Federal Reserve Bank of St. Louis has free Parent Q&As that marry reading literacy with financial literacy.

Today’s younger students are tomorrow’s teenagers, so give them a strong foundation to build upon.

Today’s high school and college students, meanwhile, face immediate challenges. The labor market they graduate into may look nothing like that of 2019. These students need help thinking about their educational and career paths. What degrees or certifications can they pursue, and how can they finance these without taking on crippling debt? The St. Louis Fed’s Personal Finance 101 Conversations series may be a useful resource.

Encourage the young adults in your life to keep building their human capital. As noted, education is essential to increasing one’s lifetime earnings and, ultimately, to building wealth.

Incorporating Personal Finance Concepts in Education

Here we must be frank: Individual students, families and school districts are not on even footing when it comes to opportunities for building human capital. Economic inclusion necessitates educational inclusion, and that begs a bigger conversation about dismantling barriers to learning. In the Eighth Federal Reserve District, our Economic Education team has worked to establish partnerships with schools in underserved communities and with Native American tribes, providing professional development and free classroom resources for teachers.

Talk to your administrators and educators to learn how they are incorporating personal finance concepts. The state of Missouri requires personal finance coursework in high school, and updates to the standards were approved by the State Board of Education in 2017. In Illinois, new K-12 social studies standards went into effect during the 2017-18 school year; for the first time, they included financial literacy. Newer research in the paper “The Effects of High School Personal Financial Education Policies on Financial Behavior” bears out that financial education requirements are associated with fewer defaults and higher credit scores among young adults, and that well-funded teacher preparation may be key to successfully implementing these programs.

This summer, the St. Louis Fed will again offer a free personal finance virtual camp, and we are expanding it to include high schoolers. The pandemic’s long-run effects on education and earnings are yet to be tallied. Let’s do all we can, right now, to change those future headlines.