April is National Financial Literacy Month, when the federal government and many states encourage citizens to become more financially literate. Unfortunately, many today lack a basic knowledge of economics, to our nation’s detriment.
Across the country, states are starting to mandate that students take a personal finance course to graduate high school, often in place of economics courses. In 2022, only 23 states required students to take a financial literacy class in order to graduate; by 2026, that number had rocketed to 39 states.
Meanwhile, only 22 states now mandate the same for economics classes, a number that seems to decline each year.
Some argue that financial literacy is a more practical subject than economics. With limited classroom time available, who doesn’t support teaching the life skills of budgeting, borrowing, and investing?
While the goal is admirable, the method is not. Positioning financial literacy as something separate from—or even more important than—economics misunderstands what financial literacy actually is and sets up students for failure.
Financial literacy is not a standalone subject; it is actually applied economics.
While economics has a bad reputation for being complicated and irrelevant, at its heart, economics is simply the study of choices. This means that economics is the basis for all decisions we make in our lives: financial, civic, and even personal.
Every decision we face—whether to rent or buy a home, when to pay down debt or invest, whether to accept a job offer—requires the analytical tools that economics provides, such as opportunity cost, marginal thinking, time value of money, incentive structures, risk, and return. Teaching financial literacy stripped of economics leaves students with little more than a collection of rules, lacking the reasoning to apply them.
Research on financial education has consistently found that only teaching students “rules” produces modest, short-lived behavioral change. Students learn the rule and pass the assessment, but within months, the knowledge has faded. This is because it was never anchored to a conceptual framework, like economics.
Practically, you can’t teach about the stock market and how stock prices change without using the idea of markets and prices. Or, why home, auto, and other loan rates change without understanding the role the Federal Reserve plays in maintaining stable prices and employment. Students won’t be able to make spending and saving decisions absent an understanding of the costs and benefits of these choices.
My organization, the Foundation for Teaching Economics, identifies five Economic Reasoning Propositions that are the engine beneath every personal finance decision: people choose; choices involve costs; people respond to incentives; institutions shape choices; and sound decisions are grounded in evidence.
These are the specific cognitive tools a person needs to evaluate a mortgage, resist a high-interest credit offer, or understand why a “free” financial product is never actually free. Financial literacy without these tools is navigation without a compass.
I have observed this pattern consistently over my teaching career at university and K-12 levels. Students who arrive in personal finance courses with even a basic grounding in economic reasoning—an understanding of trade-offs, incentives, and the concept of scarcity—absorb and retain financial concepts far more effectively than those encountering them cold.
The students who struggle are not those who lack exposure to budget worksheets. They are the ones who have never learned to think about decisions the way an economist does.
To be clear: None of this is an argument against financial literacy education. Instead, it’s an argument for doing it right.
The most effective programs integrate economic reasoning as the connective tissue that makes financial concepts coherent and transferable. Teaching how interest rates work is financial literacy. Teaching why central banks adjust them, how those decisions flow through to mortgage markets, and how a household should respond is economics and financial literacy working together.
Sound financial decision-making necessitates a capacity for reasoned judgment under uncertainty, built on a foundation of economic principles. Students deserve that foundation, and we can’t provide it by treating financial literacy as a standalone subject. If students are ever to make sense of the rapidly changing world around them, they need the economic way of thinking as a grounding.
This Financial Literacy Month, we should focus on keeping basic economics in the classroom, for our students’ (and nation’s) economic future.
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