WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today unveiled new resources for financial educators including Building Blocks to Help Youth Achieve Financial Capability, a report that presents a new financial capability developmental model and makes recommendations for financial education. Based on the developmental framework described in the report, the Bureau also released a personal finance pedagogy, a teaching tool to enhance personal financial education in schools.
“The first line of defense for consumers to protect themselves is the ability to make informed and responsible decisions, and financial education that starts in childhood is an essential first step,” said CFPB Director Richard Cordray. “Our Building Blocks report adds to our ongoing efforts to see that every young American can gain the knowledge, skills, and resources they need to build a healthy financial future.”
The CFPB created the model to help financial education policy and program leaders to more effectively deliver financial education opportunities to American youth. The report outlines the building blocks of financial capability, as well as strategies for supporting its development from early childhood through adolescence. Financial capability is the capacity to manage financial resources effectively, understand and apply financial knowledge, and the ability to make a plan, stick to it and successfully complete financial tasks. People with financial capability are more likely to be able to meet current and ongoing financial obligations and feel more secure in their financial futures.
The Bureau’s report Building Blocks to Help Youth Achieve Financial Capability highlights key milestones from early childhood through young adulthood that support the development of adult financial capability, and makes recommendations on achieving it, including:
- Support the growth of executive function: Strong executive function makes it easier to plan, focus attention, remember details and juggle multiple tasks. This skill is used to set goals, save for the future, and stick to a budget. This typically begins to develop at ages 3 to 5.
- Encourage the development of positive financial habits and norms: Financial habits are the values, standards, routine practices, and rules of thumb around financial matters that help people navigate day-to-day financial lives. Children and teens absorb these habits and norms by watching their peers and adults. Parents and caregivers play a central role in this development by demonstrating healthy financial values and behaviors and talking about everyday financial decisions. These skills typically start to develop at ages 6 to 12.
- Teach financial knowledge and decision-making skills: Financial decision-making includes financial planning, research, and choices such as buying a car or financing higher education. Learning from direct, hands-on experience helps young people to acquire relevant knowledge and practice financial decision-making skills. This becomes most relevant during ages 13 to 21.
The report outlines recommendations for ways to help youth learn the building blocks of financial capability. And it provides real-life examples and strategies for putting these capabilities into action. Creators of financial education curricula and program providers can use the developmental model to adapt programs, lessons, and activities. Policy and community leaders can use the recommendations to shape and promote financial education initiatives.
Based on the developmental model described in the report, the Bureau is also releasing a personal finance pedagogy, a teaching tool to enhance personal financial education in schools and to promote lifelong learning and financial skills development. It outlines strategies for instructing students of all ages with a broad range of skills, habits, and attitudes that characterize adult financial capability.
A chief component of this education tool is the “personal finance wheel,” which helps simplify the process by clearly identifying the most appropriate teaching techniques and learning strategies for financial capability. The wheel’s inner ring contains the three building blocks of youth financial capability: executive function, financial skills and decision-making, and financial habits. These divide the wheel into three sections. Each section then points to teaching techniques and learning strategies for developing that specific financial capability building block. This will help equip young people with the knowledge and skills they need to find and evaluate relevant financial information, and help them recognize situations that call for additional research.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.