“How do I build credit without going into debt?”

“Should I invest or pay off debt first?”

“What percentage of my income can go towards wants?”

These are just a few of the questions that may come from students wanting to know more about managing their money. For younger generations, an adequate understanding of personal finance from an early age is essential to building long-term financial stability and achieving life goals.

Financial literacy is defined as having the understanding of how to manage, invest, budget and save money. Knowing how things like credit, debt, interest and other key factors of personal finance work can empower people to make informed decisions with their money.

However, national financial literacy gaps between older adults and Generation Z have widened. On the ninth annual Personal Finance Index, a report assessing levels of financial literacy in Americans, United States adults correctly answered approximately 49% of the questions, while Gen Z averaged a score of 38%. 

The importance of basic financial knowledge 

Math teacher Chris Paulus teaches Financial Algebra, a semester-long course for 11th and 12th graders. Being able to manage finances in daily life is just as important as emotional and physical health, he said.

“The foundational concept is that it can give you freedom,” Paulus said. “If you are in control of your finances, you can make more choices and not feel, for example, trapped by debt or things like that. That’s the overarching picture.”

Certified Financial Planner Cynthia Jabr founded Brand New Day Wealth Planning, which provides financial advice to women and couples. Jabr said being financially literate from an early age guarantees a “safety net” for the future.

“It’s going to be so much better for you in the long run, having that financial education at an early age, so that once you are in the real world, you’re like, ‘I remember how this works, I know what I have to do,’ and you know how to set it up,” Jabr said. “I think that it is just so important to teach that in school as early as possible.”

Paulus said cash flow, income statements and balance sheets are three essential concepts taught to students in Financial Algebra. While these concepts overlap with corporate finance, they can also help reach personal aspirations, he said.

“You don’t have to know a lot of math, but just the fundamentals,” Paulus said. “So again, I’m going to focus on that idea of freedom, right? We are trapped by, honestly, our desires for having things or doing things when we’re not able to pay for them.”

Senior Morgan McClinton was a Financial Algebra student during the first semester. McClinton said she was interested in taking the class because she believed it would teach her how to manage her money as she entered adulthood.

“Having money is an investment in your future,” McClinton said. “To start saving at a young age is really important because it kickstarts your career and kickstarts your adulthood and independence.”

Although McClinton never formally learned financial literacy during elementary school, she said the financial skills she gained at Archer will help her reach life goals, such as investing in stocks, opening a bank account or planning for retirement. She said schools should require financial literacy courses starting in early grades to better prepare students for future financial endeavors.

“It’s definitely an important concept for children to learn, especially during the time that we’re in now,” McClinton said. “I think I don’t know specifically how they’re teaching it or if there’s enough, but I think it is important to teach it and to have it built into the curriculum.”

Jabr said a common misconception she sees in teenagers and adults alike is the belief in high risk assets or investments, such as cryptocurrency. She said many people don’t understand building wealth through traditional low-risk compounding techniques to grow it over time.

“People want to get rich overnight and they don’t understand that it is very speculative, so it’s very unpredictable, and so you can win, yes, but you can also lose everything,” Jabr said. “I think that is a big gap that people just don’t want to accept.”

In the following audio clip, Jabr talks about three important concepts people have to know to manage their finances.

What is causing Gen Z’s low financial literacy rates?

Aside from the idea Gen Z does not have as much expertise with handling money, McClinton said the biggest barrier to becoming financially literate is the way they are raised. Depending on how lenient parents are with spending, it could affect someone’s attitudes toward money, she said.

“If you’re very spoiled in your household, you’re obviously learning different things. You’re learning that it’s okay to spend this much,” McClinton said. “I think that it’s also important for parents to lay down a foundation in their household so their children are able to, in the future, when they are financially supporting themselves, be able to do that and not have to rely on others.”

Jabr said understanding cash flow, which is recording money that comes in and out of your account, requires tracking your income and spending less than you make. Modern digital wallets like Apple Pay and online shopping sites like Amazon make it harder to stay within a budget.

“You just have to click twice and you pretty much have your order on the way. It makes us not realize how much we’re spending,” Jabr said. “Apple Pay as well, right? You just tap your phone, you don’t need to have a wallet with you. You’re not taking out cash, you’re not seeing your actual physical cash going down in your wallet anymore. It just makes it harder to track, and so therefore it makes it easier for us to spend more than what we actually make.”

In addition to digital wallets like Apple Pay, McClinton said online shopping and advertisements are the primary influences that often change how have teenagers overspend when shopping.

“That’s where a lot of Gen Z’s money goes to, is just having the accessibility to just shop wherever you are and just click, click, click, click,” McClinton said. “We learned about that in the class too, how the ads bring you in, and Gen Z is like, ‘Oh, this is free. I’m going to buy it.’ I think that is the one thing that’s not creating stability.”

With Gen Z being the first generation to grow up entirely with smartphones, social media has acted as a source of information and news. Since influencers do not always have the credentials needed to give reliable advice, it can lead to the spread of misinformation, Paulus said.

“When I was growing up, we only had, I think five television stations, right? And there were newspapers, but now you can go anywhere to get information, and in some sense, you don’t know who’s providing the information and how credible they are,” Paulus said. “They might have a dynamic personality, but that doesn’t mean they’re telling us the truth.”

The future of financial literacy

Jabr said the continuous debt cycle Americans are trapped in concerns her, especially with the cost of living rising daily. She said managing personal cash flow and setting aside money is what helps avoid debt.

“Build a habit of saving every single paycheck, and don’t spend more than you make. That’s what I would say for every young person. You have to save your money. Build a habit of saving and every time you get a raise, you save that money,” Jabr said. “Save a little bit more and just build that habit and start investing young in low-cost funds. Not in anything expensive, nothing crazy, nothing that’s going to make you money tomorrow. You just have to wait it out. That’s for your future self.”

Paulus also said the national crisis of debt worries him. He said he encourages young people to be cautious with how they their current decisions will affect their future financial strain. 

“Just think about freedom, the freedom you will get if you are in control of that,” Paulus said. “Not having our buttons pushed by the messages we get that spending is great. I think we have to be a little thoughtful about the long run.”