Many Americans, burdened by a lack of retirement savings and more than one trillion dollars in student loans, are desperate to know how to make smarter financial decisions. Educators, financial institutions and even some savvy parents have come up with methods to instill good financial behavior. Yet there's widespread disagreement on the most effective means of teaching kids about money. On one issue most agree: Too many Americans lack the basic knowledge to manage household finances well.
Some educators say financial literacy courses can do more harm than good -- giving students enough knowledge to boost their confidence to take greater risks but not enough to help assess those risks. “An illiterate nation can’t compete globally,” says Annamaria Lusardi, an economics professor at the George Washington School of Business. “How can we even think of not teaching it?”
In a post-recession world, where personal finance education has yet to improve the way we make financial decisions, financial services firms are stepping in to get the job done. “The idea that the fox is going to teach the hen is a bit much,” says Lauren Willis, a professor at Loyola Law School in Los Angeles.
When my cousin Marc and his sister started receiving allowances as kids, my aunt and uncle gave the practice a novel twist: They indexed the allowance to the price of ice cream at Baskin-Robbins. Pondering the episode helped Marc figure out a way to help his own kids manage their money and learn about finance.
Even the best financial minds can make foolish mistakes. Bloomberg asked celebrated economists, wealth managers and personal finance gurus: What’s one of the worst mistakes you’ve made with your own money?
"Our brains are responsible for good intentions not being translated into action. There’s a little tug-of-war going on in our minds. To make things that are not pleasant happen, we have to learn how to exert self-control. "
The nomination of Janet Yellen to head the Federal Reserve is an important milestone. But will her appointment as the central bank’s first female chief draw more undergraduate women to the field of economics?