As our country grapples with the threat of the coronavirus, businesses, schools, and other public venues have closed, leaving many people out of a job. How do we teach financial literacy in these uncertain times?
I talked with Annamaria Lusardi, economics professor at George Washington University and founder of the Global Financial Literacy Excellence Center. There’s no easy answer here. Lusardi says that when it comes to personal finance during a crisis like this one, the best we can do is teach the basics of saving and budgeting. She reminds us of what history teaches us: our country has seen hard economic times and we’ve always prevailed.
The lesson of prevention may seem like cold comfort now. But Lusardi insists it can help students of all ages and economic levels prepare for future success. And it will be key to helping them cope with future economic setbacks.
Brenda Iasevoli: Given the overriding concern about our health, why should kids be thinking about financial literacy right now?
Annamaria Lusardi: Financial literacy is a lot like health; in fact, sometimes we call it “financial health.” And just as with health, prevention is better than the cure. Now is a great time to talk about the fact that shocks happen, putting us in a difficult situation we could have never predicted. Illness happens. Job losses happen. It’s important that we practice prevention—saving and budgeting—so that we are better able to deal with crises like this one.
BI: What should we be teaching kids about preparing for the future?
AL: One thing that personal finance tells us is we have to have a buffer stock of savings. We always need to have something in our piggy bank. Kids should know the ant and the grasshopper tale. When it’s summer and everyone is happy and having fun, the ants were putting food aside. When winter came, the ants were able to deal with it. Like the ants, we need to plan for the future and put money in our piggy bank in case of a sudden need or an emergency. Too many Americans rely on the flexibility of the labor market. When you ask them how they are going to deal with shocks, they say, “I’ll take a second job.” Unfortunately, many don’t have this option. You cannot go to a restaurant now and say, “Hey, I can work more hours.”
People are also borrowing, which provides liquidity but with no insurance. When you use borrowing in an emergency, say, when you max out your credit card, you get liquidity, but at a higher cost. You don’t want to pay a higher cost when you most need it. The best way is to always have money put aside. We should have three to six months of savings liquid—not in a retirement account—because that’s the most secure way to access our money. How does this translate into a lesson for kids? Put money in that piggy bank, because we might have a wish for the future to fulfill or an emergency to address.
BI: How can we teach these lessons to kids?
AL: The little ones should learn what money is. If you think kids aren’t interested in money, give them a piggy bank and you will instantly transform that kid into a banker. They should learn this simple concept: money buys things. You put money away to save up for the things you want to buy. In high school, teach about interest compounding in a savings account. The sooner kids learn these concepts, the better.
We should also teach the simple concept of having a budget. We are all constrained by a budget. It’s not about our wishes. If you ask me, I would like to have the biggest house and garden possible. But the reality is, what I can buy depends on my resources. That’s a very important lesson for the kids: Your choices are constrained by your resources.
To help kids budget, parents can give kids a weekly allowance and let them manage the money. If they want to buy takeout pizza [as they are sheltering in], they need to decide if their budget allows it. This is a good time to instill a sense of constraints. Children will understand why parents don’t buy them every toy they want. They’ll also understand that money is something you earn, that it doesn’t just come from an ATM.
BI: Should parents and teachers be careful about how they talk about the financial crisis with kids?
AL: We don’t want kids to associate personal finance with anxiety and crisis. It’s quite the opposite—personal finance can help us ride through a crisis. Now is the time to teach kids the basics of saving and budgeting. We’re on a ship going through a storm, but this is not the time to talk about storms. This is the time to talk about navigating the ship.
BI: What about teaching the stock market?
AL: Too much of personal finance is associated with the stock market. I teach a course in personal finance. In the first class, I ask students, “What do you think the course is about?” They think it’s about the stock market and investing. But personal finance isn’t just about that. It’s more about setting up objectives and knowing how to achieve them. It’s about saving, and understanding we can make that savings grow over time. Financial literacy is about making good decisions, taking care of ourselves, and achieving our dream of being financially secure over our life cycle, which all adds up to being happy. That’s what personal finance should be about.
I don’t want kids to think the stock market is something that crashes. The stock market is a way for us to improve our capacity to grow our wealth, and there is risk in doing that. The stock market can go up and down. There is great opportunity for growth, but also for loss. We have to be mindful of the risk when we invest.
BI: Do you have any words of comfort from an economic perspective?
AL: More than ever before, we need comfort. These are difficult days. But we are not in a permanent crisis. We are in a severe crisis that will go away. We will get through this. I want to remind everyone that we recently went through a crisis. If you remember, 2008 was a terrible year. The stock market fell 50 percent. We had a 10 percent unemployment rate. Previous generations were hit by shocks, too, and got through them. And we have a big advantage today. We have knowledge. The reason we didn’t have another Great Depression (we called it a Great Recession) is that we learned from the past. We have in place a lot of interventions to monitor fiscal policy. We have so much information at our fingertips now and can keep people informed and updated every minute of the day. I’m comforted by that knowledge.
The views expressed in this interview are those of the interviewee and do not necessarily represent those of HMH.
Financial Literacy Activities for Students Across Grade Levels
Use these financial literacy activities for elementary, middle, and high school students to help them develop the money smarts they need to succeed in tough economic times and all year round.
Activity 1: Life Lessons
Have students read the story of the ant and the grasshopper. There are many free versions on the internet, including this one. Kids can also watch this cartoon version of the story. Older students could respond to the following questions in writing:
- Do you think the grasshopper will make different choices next summer? Why or why not?
- Does the grasshopper need to give up making music altogether in order to be responsible? Explain.
- What are some ways that we can prepare for the future?
- Why is it important to prepare for the future?
Challenge younger students to draw three pictures representing the beginning, middle, and end of the story. Depending on their abilities, they might also write one-sentence descriptions explaining what is happening in each picture. Have them share their illustrations with a family member or caregiver and attempt a retelling of the story. They might also discuss the questions above.
Ask older students to consider the money lesson the story of the ant and the grasshopper teaches. (We should always be saving money so that we’re secure and ready for anything that happens in the future.) Then, challenge them to rewrite the story with human characters. Tell them their stories should describe a money problem that a character faces due to lack of planning, and the lesson he or she learns at the end.
Activity 2: It Pays to Save
Show kids how money adds up over time. Younger kids might simply save change in a clear jar so they can watch their money grow over days, weeks, and months. Kids ages 7 and up can use the Savings Spree app to play a game that teaches them how to save money for short-term goals, spend wisely, donate to charitable causes, or invest. A free virtual-banking app for kids ages 5 to 14, Bankaroo, teaches kids the basics of setting spending goals, saving, and budgeting.
Older students can learn about interest. Ask: What is interest? (A charge for borrowed money, usually a percentage of the amount borrowed.) How can you earn interest? (Save money in an interest-earning bank account or invest it in stocks or mutual funds.) Teach students the Rule of 72, a quick way to calculate how long it takes to double money invested at a particular interest rate. First, divide 72 by the interest rate. Start with 2%. Example: 72/2 = 36. The result shows that it will take 36 years to double your money at a 2% interest rate. Have students figure out how long it will take to double their money at lower and higher rates. Ask: How can the Rule of 72 help people better plan for reaching their savings goals?
Activity 3: Don’t Bust the Budget!
Encourage parents to put the budget for at least one family dinner in kids’ hands. Decide on a set amount. Then give them some rules: The dinner has to feed everyone in the family and include a protein, a vegetable, a starch, and a fruit for dessert. Have students estimate the cost from a takeout menu or grocery store flyers. Finally, they can discuss the challenge over dinner:
- Did you find sticking to the budget difficult? Explain.
- What else can you use budgets for?
- Why do we need budgets?
The views expressed in this interview are those of the interviewee and do not necessarily represent those of HMH.
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To learn how to empower students to define their financial goals and establish a roadmap to help achieve them, see our webinar Personal Finance High School Course: A Roadmap to Financial Resiliency.
