Why credit unions must lead in early childhood financial education

America is in a financial crisis. No, not like the 2008 meltdown that engulfed the entire world overnight. This financial crisis is gradually crippling the country, draining American pocketbooks of hundreds of billions of dollars every year.

In 2023, in the most prosperous country in history, Americans lost a staggering $350 billion a year due to mismanagement of our personal finances.

The data is devastating:

• Fifty-six percent of Americans don’t have the savings to cover a $1,000 emergency expense.
• Thirty-two percent of American workers run out of money before payday (including workers earning more than $100,000 per year).
• Just 57% of American adults are financially literate. That includes only 36% of Gen Z adults.
• Even as credit card finance rates surge to record levels, the average credit card debt grew by nearly 15% in 2022.
• Americans lose, on average, $1,819 annually due to financial literacy.

Worse, all the data is trending in the wrong direction. Aging baby boomers, the most financially literate of the generations, are being replaced by the least financially literate millennials and Gen Zers.

How did we get here?

For most of us growing up, conversations about money or finances rarely happened around the family dinner table. According to a CNBC poll, 69% of parents said they are reluctant to talk about finances with their kids. Plus, many parents don’t teach their kids about money because they were never taught. Financially illiterate children, whose only context for money is that it comes in handy when they need to buy something, turn into financially illiterate adults, creating generation after generation of people just trying to get by.

The only hope for younger generations was that they could learn the basics of personal finance in school before they were cast out to the world to make critical real-world decisions. However, until recently, most K-12 school districts weren’t on board with financial literacy curriculums primarily because they didn’t have standardized courses, qualified educators to teach them, or the funding to add them.

States are finally stepping up

For some time, many states supported adding financial literacy courses in high school but fell short of mandating or funding them. However, researchers studied three states –Georgia, Idaho, and Texas—where personal finance high school education mandates were enacted as early as 2007 and found that they had a significant impact on improved credit scores and reduced default rates of young adults.

Since then, advocacy groups such as the NAACP, Jumpstart, and the Council for Economic Education have been pushing for state-mandated and funded financial literacy programs in K-12 schools. The recommended curriculum includes coursework on budgeting, savings, investing, and managing credit and financial risk.

Today, a growing number of states have responded to the call for mandated personal finance requirements in high schools, with 12 requiring a standalone financial literacy course as a prerequisite for graduation. California and New York are on the verge of instituting similar mandates, while 25 other states now require the inclusion of financial literacy training as part of the existing curriculum. Currently, 41 states have legislation pending related to financial literacy training in public and charter schools.

Financial literacy must start earlier

While that represents significant progress, some financial literacy advocates say it doesn’t go far enough, claiming that personal finance education should begin much sooner—as early as preschool or kindergarten. Researchers have found that kids as young as five are able to make choices and form persistent money habits. Kids in the eight to 12-year-old range can take on more complex topics, such as the importance of saving, budgeting, and understanding tradeoffs.

Young kids with stronger financial literacy foundations become teenagers who can take on more learning responsibilities, such as managing a budget or setting up a mock investment portfolio. Most importantly, they learn that financial decisions can have good or bad consequences.

Momentum building in states for early financial education

Though most state-mandated financial education programs only target high school students, several states have introduced legislation requiring elementary and middle schools to teach financial education as early as first grade. California, Hawaii, Massachusetts, Montana, New York, Tennessee, and Washington are among the first states to propose financial literacy programs for grade school students, and more are expected to follow suit.

Short of state mandates, financial incentives, and availability of age-appropriate coursework, grade school districts are less inclined to add it to their curriculum, leaving the responsibility for early personal finance education to the parents.

The problem is that when younger children who are curious about money don’t have access to formal financial education, they allow questionable sources such as TikTok and YouTube to fill the void.

Private youth financial literacy programs are filling the gap

Recognizing the dire need for early childhood financial literacy, a small but growing industry of instructional programs has emerged, creating a valuable resource for parents, schools, and community groups who want to offer financial education to young kids. These programs, typically developed in collaboration between parents, psychologists, educators, and financial experts, provide financial literacy courses, games, and applications designed to engage kids with age-appropriate topics.

Kids can learn financial literacy in a variety of ways, but they are most receptive to participation in practical financial activities, such as starting a mock savings account, opening a small business, or investing in stocks. Activities are fun and engaging, teaching kids financial lessons on making choices and tradeoffs.

Why credit unions must lead

Credit unions, with their community-focused approach and commitment to member well-being, are uniquely positioned to spearhead early childhood financial education initiatives. As trusted financial partners deeply embedded in local communities, credit unions can bridge the educational gap by championing financial literacy programs for elementary and middle school children. Embracing this leadership role aligns seamlessly with the cooperative principles of credit unions, promoting not only financial literacy but also contributing to the overall prosperity and resilience of the communities they serve. As a practical matter, once financial education is mandated in elementary and middle schools, the rush will be on for competing banks to snatch up these communities to offer their own programming. Now is the time to act.

At My First Nest Egg, we are thrilled to partner with credit unions to provide early childhood youth financial education with a fresh and age-appropriate approach to instruction and learning. We began with the premise that childhood financial literacy should be simple, fun, and impactful. So, the foundation of our program is a modern and tech-forward app that, in just minutes a day, can help kids aged 3 to 13 develop the skills necessary for making sound financial decisions through fun activities. Interested in bringing the My First Nest Egg experience to your community? Let’s work together to improve the financial health and stability of your community.