The CFPB has issued a report that describes a new “developmentally informed, skills-based model” for helping youth achieve financial capability. Entitled “Building blocks to help youth achieve financial capability,” the report highlights key milestones from early childhood through young adulthood that support the development of adult financial capability, and makes recommendations “for delivering evidence-based, age-appropriate, and developmentally appropriate financial education policies and programs.” The CFPB also issued a “Report brief” that discusses the research presented in the report and a teaching tool to enhance personal financial education in schools that the CFPB refers to as “a personal finance pedagogy.” The report, brief, and teaching tool were issued in conjunction with a “Youth Financial Capability Town Hall” held in Dallas, Texas at which Director Cordray delivered prepared remarks.
The CFPB defines financial capability as “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.” The CFPB’s initiatives to build financial capability are based on its view that individuals 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 CFPB’s research found that adult financial capability most likely stems from three “building blocks” of youth financial capability:
- Executive functions: a set of cognitive processes used to plan, focus attention, remember information, and juggle multiple tasks successfully
- Financial habits and norms: the values, standards, routine practices, and rules of thumb used to routinely navigate day-to-day financial life
- Financial knowledge and decision-making skills: familiarity with financial facts and concepts, and the ability to do financial research and make conscious and intentional financial choices
In the report, the CFPB discusses how and when children and youth acquire these building blocks and details the specific competencies that children and youth develop during early childhood, middle childhood and adolescence. Based on this “developmental model,” the CFPB makes the following recommendations for helping children and youth acquire the three building blocks:
- For children in early childhood, focus on developing executive function
- Help parents and caregivers to more actively influence their child’s financial socialization
- Provide children and youth with financial experiential learning opportunities
- Teach youth financial research skills (e.g. skills to find and evaluate financial information)
For each recommendation, the CFPB explains why the recommendation helps build financial capability and provides examples from the field and potential strategies for putting the recommendations into place. The CFPB deserves to be commended for its innovative efforts towards helping children and youth achieve financial capability.