«Abstract This report is one phase of a project that attempts to understand financial literacy education for young children, that is, the ability of ...»
Financial Literacy Programs Targeted on Pre-School Children:
Development and Evaluation
Karen Holden, Charles Kalish, Laura Scheinholz, Deanna Dietrich, and Beatriz Novak
University of Wisconsin-Madison
This report is one phase of a project that attempts to understand financial literacy
education for young children, that is, the ability of pre-school age children to grasp
financial literacy concepts that may increase their and their parents’ financial knowledge and improve financial decisions in later years. During this phase we have searched and compiled information on financial literacy programs targeted to young (pre-school and K-3rd grad) children, the cognitive development and capabilities of children at these ages, and whether there have been evaluations of the effectiveness of those programs. Our ultimate goal is to develop and rigorously evaluate a financial literacy program for this age group that is consistent with children’s cognitive abilities and the underlying financial concepts that must be understood to improve financial decision making.
Since very young children are financially dependent on parents and have few resources (monetary or property) that they independently control, financial education targeted to this age group, in contrast to older individuals, generally does not aim to teach financial facts that would immediately change financial behavior. Rather, it is generally recognized that children of this age can be taught basic concepts about monetary exchange, financial constraints, and the tools of sharing and purchase that will enable them to earlier and more easily manage later financial challenges and become more independent and financially secure spenders and savers in adulthood. It is also thought that incorporating parents into their children’s financial literacy education may increase parents’ own financial knowledge and make them better financial decision-makers, improving their families’ financial well-being.
This review first looks at the key financial concepts that are targeted in the financial education programs aimed at young children. This includes an assessment of the financial literacy standards that are established by the States for those that have them for this young age group. We next undertake a literature review of children’s cognitive ability to grasp complex concepts in general and specifically key concepts that underlie measures of financial knowledge. Both of these are important in evaluating the validity of existing financial education efforts aimed at this age group. We next discuss the issue of evaluating the outcomes of financial programs targeted on young children, whether such evaluations have been undertaken and, when they are, how data were obtained and evaluation methods used. In that third section of the report we alsodescribe U.S. and international financial literacy programs. We emphasize that the concepts we discuss are 1|Page not just those that are typically seen as “financial” in the literature, but the underlying concepts and values that are required for financial reasoning at these ages.
Our conclusions are generally that the literature on children’s cognitive development and financial literacy education are not well integrated. Few financial literacy programs are explicit about how the concepts taught and the lessons developed are expected to improve financial knowledge and rarely discuss their connection with later financial behavior.
There has been virtually no rigorous evaluation of these programs. This is not to say that some of the programs we found—and there are lots of them—may not improve children’s ability to later become better financial decision makers. However, financial literacy programs tend to concentrate on very concrete lessons without apparent consideration of what are the underlying concepts to be taught, the cognitive ability of children to grasp those concepts and the behavior and timing of behaviors that seek to be improved. We highlight the few exceptions.
We propose that the next stage of this project focus explicitly on:
1. What is the behavior and knowledge (outcomes) that children could usefully learn earlier and better?
2. Which programs (interventions) do this and how?
3. What is the best way (intervention method) to deliver these lessons?
4. What are the practical and legal constraints on and opportunities for the delivery these lessons to young children?
5. How can programs be evaluated, including the ability to gather data on young children’s early learning on later outcomes?
6. How should these early childhood education programs targeting financial knowledge be integrated with other educational goals for that age group and with financial literacy education at older ages?
Introduction The literature on financial literacy is in consensus that being financially literate denotes one’s understanding and knowledge of financial concepts and is crucial to effective consumer financial decision making. (Fox, Barthlomeae and Lee, 2005, p. 195) Financial education has been defined to include any program that addresses the knowledge, attitudes, and/or behavior of an individual toward financial topics and concepts. (Fox, Barthlomeae and Lee, 2005, p. 195) The definitions, appropriately, refer to the compelling behavioral motivations for financial education—to enable more “effective” financial decisions with the often statedmotivation to improve the financial well-being of individuals and families making those decisions. To achieve this goal, financial literacy education programs aim to increase
financial “knowledge” with financial education programs generally of three types:
education that offers broad financial education on savings, budgeting, investment, and credit management; education on retirement and savings; and education on home buying and management (Fox, et al 2005). Clearly, educational programs that describe financial savings, investment vehicles, credit and debt, retirement and savings, and discuss how to buy and manage home finances are not appropriate for young children. What then can financial education programs focus on for young children? This is a topic we begin to discuss in describing State financial education standards, and in the following section in which we describe programs that target very young children’s education. We focus on two aspects of those programs—the “concepts” that are taught and the evaluations that have been done of program effectiveness.
Why target young children?
The focus of this investigation is on children, primarily of preschool age. This group is the focus of many financial education programs that are described in Tables 3.1 and 3.2.
The assumption is that good money practices arise in part from childhood experiences and that the 3|Page “life-long benefits of teaching children good money habits make it well worth the effort. Children who are not taught these lessons pay the consequences for a lifetime” (Danes and Dunrud, 2008).
The habits and practices that are instilled in very young children about money receipt, expenditures, and savings may form the basis of good money practices when older. The Credit Union National Association’s Thrive by Five educational cite perhaps best states
the reason for initiating financial education early:
Children learn about money from many sources. Long before they enter school, they observe adults using money and buying things. …What children witness affects their attitudes about what money is for. Some of these beliefs will help them as adult consumers and some will not. (CUNA, nd) A review of financial education programs in the European Union, discussed in Section
3.2 argues that “there is only a small degree of dissent about the ideal contents of a financial literacy scheme.” (Habschick et al., 2007, p. 96). We do not find this same uniformity among programs oriented towards the very youngest children. That report also goes on to say that “the bigger question is why people do not regularly apply the skills they have learnt.” We hypothesize two reasons that are connected with very early childhood education. It indeed may be that financial concepts and habits must be acquired and instilled early. In doing so, however, we hypothesize it is important, first, to agree on the basic underlying concepts that when acquired early lead both to acquisition of more “adult” financial knowledge and to better financial decisions as adults. It is also important to understand how these concepts coincide with the cognitive development of young children to assure concepts are taught when they are meaningful.
Thus we argue the current focus on young children is valuable because:
1. It may be it is skills acquired in childhood and habits instilled by parents that are most important to later patterns of financial behavior,
2. Few financial education programs target pre-school children and their effectiveness is virtually unexamined,
3. Because very young children have had little experience with financial concepts, it may be underlying concepts, for example of trade and exchange, rather that the enabling institutions and practices that must be taught to them,
4. Because very young children do not interact independently with financial institutions and markets, curricula for them may have to be fundamentally different for them
5. The ability of very young children to understand basic financial concepts is likely closely tied to cognitive development which must be considered in program development, and 4|Page
6. Because very young children are not required to be in school, curriculum must include parents as teachers and be attractive for adoption by the pre-schools which they attend.
We first explored what financial literacy curricula were available that targeted pre-school children. Section 3 presents the compilation of the programs we found in the United States (section 3.1) and in other nations (section 3.2). We examined two aspects of these curricula—the basic financial concepts that appeared to be taught and whether any evaluation of program effectiveness were available.
Section 2 reviews the current state of our knowledge about children’s cognitive ability to grasp basic financial concepts. This discussion reflects the underlying assumption that drives our approach to this topic—that for the very youngest children, financial literacy education must be consistent with children’s cognitive developing. For example, understanding savings and investments requires a sense of future selves that are different from but a continuation of one’s current self. When do children grasp the difference between present and future? Understanding money exchanges requires a sense of giving and receiving, of fairness and trust in exchanges not accomplished simultaneously will be completed. When do children understand those concepts? Understand money transactions also requires a sense of magnitude—that value is not measured by coin size (nickels are not larger than dimes in value) and that “money” and goods can be exchanged through credit cards and checks that represent value but are not themselves the “money” behind the exchange. When do children begin to understand that exchanges involved a set of unseen transactions involving other parties?
lists the concepts we propose as important components of early childhood financial education. These are derived from our own experience in financial education (Holden) and cognitive development (Kalish) as well as from sources that list essential knowledge to understanding more advanced economic or finance principles. These include the Council on Economics Education, formerly the National Council on Economics Education, (http://www.ncee.net/ea/standards/), the Jump$tart Standards (http://www.jumpstart.org/guide.html), the concepts listed at the Economic Education Web (http://ecedweb.unomaha.edu/K-12/K-5concepts.cfm) and through examining individual financial education programs that describe the underlying principles (see, for example, ASIC, 2003, discussed in Section 3.2).
In addition, a major component of our inquiry was examining State education standards for financial education. Advocacy and action for mandatory financial literacy education occurs at the state level in the U.S., because educational standards and requirements are state-level mandates and, therefore, it is states that would be able to mandate effective curricula across state licensed schools. Many have adopted standards, whether for 5|Page voluntary or mandated course instruction, that indicate learning expectations at the different grade levels.
Early in 2008 the President's Advisory Council on Financial Literacy was established with one of its directives being to “improve financial education efforts for youth in school and for adults in the workplace.” One step in its process towards this goal is a call to “establish standards for the content of a sound financial education program,” arguing that there is no agreement across programs on what content is necessary for effective financial education. Council meeting documents show that Council discussions centered on older school age youth and adults--their financial knowledge deficits and the financial literacy programs designed for them. In their September report to the President among their
Recommendation 1 – The United States Congress or state legislatures should mandate financial education in all schools for students in grades Kindergarten through 12. For those schools without access to curricula, require the adoption of “Money Math: Lessons for Life,” a ready-to-use curriculum created by the Department of the Treasury and endorsed by the Council.