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Financial knowledge and decision-making skills

Financial knowledge and decision-making skills help people make informed financial decisions through problem-solving, critical thinking, and an understanding of key financial facts and concepts.

Importance of financial knowledge and decision-making skills

Strong financial knowledge and decision-making skills help people weigh options and make informed choices for their financial situations, such as deciding how and when to save and spend, comparing costs before a big purchase, and planning for retirement or other long-term savings.

Development of this building block

Financial knowledge and decision-making skills typically don’t develop until adolescence and young adulthood. During these years, they become more relevant, especially for youth who start to earn money, buy things on their own, manage a bank account, or borrow for education.

The tables that follow show what this building block looks like at three stages of development and how the skills and abilities relate to adult behavior associated with financial well-being.

Early childhood (ages 3–5)

Milestones for financial knowledge and decision-making skills  What it may look like in adulthood

Has early math skills like counting and sorting

Calculates change owed at point of sale, categorizes spending for budgeting, tracks cash flow 

Grasps very basic financial concepts like money and trading

Estimates costs, calculates discounts or sales tax 

Middle childhood (ages 6–12)

Milestones for financial knowledge and decision-making skills  What it may look like in adulthood

Understands basic financial concepts 

Has a realistic idea of how much things cost, saves a portion of earnings, pays bills on time, makes a budget

Successfully manages money (like their allowance) or other resources to reach personal goals

Spends to meet needs before wants, follows a budget, saves for big purchases or events (e.g., vacation)

Adolescence and early adulthood (ages 13–21)

Milestones for financial knowledge and decision-making skills  What it may look like in adulthood

Understands advanced financial concepts and processes

Understands risks and benefits of investing, uses credit wisely, manages debt

Routinely manages money or other resources to reach personal goals

Spends with values and goals for today and the future in mind, pays day-to-day and month-to-month expenses, saves for retirement, has financial flexibility to splurge once in a while

Identifies trusted sources of financial information and accurately uses them to compare and make decisions

Seeks credible information (e.g., “Consumer Reports,” product labels, store ads), compares features and costs before making big purchases, consults trusted advisers, knows the difference between a bargain and a scam

Teaching this building block

Schools can provide opportunities for youth to practice financial behaviors, make financial decisions, and reflect on the outcomes and consequences of those decisions. Across the curriculum, teachers can provide opportunities for students to learn how to find and recognize reliable financial information, compare financial products, and do purposeful financial research in order to analyze options and make decisions.

Instructional strategies

Research shows that the following strategies can be effective to help people develop financial knowledge and decision-making skills.

  • Competency-based learning: Student-centered learning that encourages students to progress toward well-defined benchmarks to give them a sense of mastery and ownership over the skills and knowledge they are learning
  • Direct instruction: A structured, straightforward, teacher-directed approach that focuses on an explicit skill and typically includes a lecture, demonstration, or discussion
  • Personalized instruction: Teacher assesses each student’s needs, then tailors instruction to the individual student, including focusing and differentiating resources, strategies, supports, and pacing on that student’s needs to individualize learning
  • Project-based learning: A hands-on strategy in which students actively explore real-world challenges, answer meaningful questions, and accomplish relevant tasks and, in doing so, are encouraged to make their own decisions, perform their own research, overcome obstacles, and present their work to others
  • Simulation: Hands-on learning activities that use real-world scenarios to promote critical thinking and application of learning

Learning activities

Learning activities that nurture financial knowledge and decision making should support young people’s acquisition of factual knowledge, research and analysis skills, and deliberate financial decision-making. The types of activities that support these skills include the following.

  • Financial coaching and mentoring: Adults engage and encourage students (individually and in small groups) to develop financial capability and work toward financial goals
  • Financial simulations: Educational tools or activities that replicate real-world financial management situations and allow students to develop skills such as budgeting, comparison shopping, and investing by making mock decisions that result in realistic consequences
  • Real-world case studies: Stories that present realistic situations involving a dilemma, conflict, or problem to be negotiated or resolved by analyzing and evaluating a range of information and weighing the consequences of different decisions

Resources for teaching financial knowledge and decision-making skills