?>

Uncategorized

Economic Education versus Financial Literacy

There is a disturbing trend in the field of economic education that has been growing for quite some time, especially as it relates to younger students. No, it is not the influence of one school of economic thought over another, nor is it a lack of resources, funding, or even opportunity. No, this is a case of replacing the good with the good, with the best of intentions, and dangerous consequences.

In recent years, there has been a growing push for financial literacy education. I want to stress now that this is a good thing! Financial literacy is an important skill that every single person will be able to use to their benefit. We strongly support financial literacy initiatives for every age. Financial literacy itself is not a problem.

The problem arises when institutions, organizations, bureaucrats, administrators, and educators mistakenly view financial literacy education as a sufficient alternative to traditional economic education, or worse, when they view it as a sufficient instructional channel to actually teach economics. Financial literacy is a subset of economics, an application of a limited portion of economic concepts. As such, the two get lumped together and are confused as being interchangeable. I want to address why this ought not be the case.

While I was teaching economics full-time, I would get two or three weeks into the school year before the concept of money ever entered my classroom discussions. I did this in order to explicitly show my students that economics in not confined to the realm of monetary transactions. Yes, money is an important resource that facilitates economic exchanges, and the concepts of scarcity and opportunity cost (among countless others) certainly can and should be applied to how we use money. But the same is true of our time, energy, and countless other resources. When we confine discussions of economics to only those which include monetary exchanges, students tend to believe that these concepts simply do not apply elsewhere. Surely they must be taught to see that trade-offs are made not only with our pocketbooks, but with our time as well! In extreme situations (though not uncommon), I have even experienced students who come to believe that economics itself is merely a tool for a class of wealthy elites to manipulate public policy for their own benefit. When these students watch The Lego Movie, they wrongly believe that the only message related to economics is the “overpriced” coffee. Oh, how we have failed these youth!

While financial literacy education (as a replacement for economic education) can lead people to place false restrictions on the practicality of economics, it can also leave people ignorant of the assumptions upon which financial literacy rests.

When we teach financial literacy, especially in the primary grades, we tend to assume the use of a singular currency and the universal application of that currency across every exchange. Yet our children are growing up in a world where technology make it possible for me to choose between currencies based on the present purchasing power parity. I can walk into any store and choose to spend dollars, bitcoin, fractions of a gold reserve, or even foreign currencies. Financial literacy alone falls short in helping students understand not only the options they have, but the interplay between these options as they fluctuate in value, relative to each other and relative to the goods and services of the market.

Many popular financial literacy programs teach people, especially children, to shun the use of credit cards and other debt-financing options, despite the fact that the vast majority of them will ultimately rely on debt to finance a college education. Like so many other things make taboo, rather than learning appropriate application of these tools, understanding the trade-offs associated with them and how they actually work, young people simply use them in the shadows, shamefully hiding their ignorance until they have dug themselves into a dangerous financial hole. Meanwhile, entrepreneurs and travel hackers around the world utilize credit to their advantage, having the tools to appropriately assess risk and reward, while those who have avoided personal debt will find themselves unable to comprehend the liquidity of their own government and the impact this may have on their own financial situation.

Financial literacy education is certainly an admirable and worthwhile objective. But the close relationship with economic education leaves too many believing that one is a substitute for the other. The recent emphasis on financial literacy alone at the expense of broad economic theory, especially by organizations who proclaim themselves experts in economic education, is quite troubling. As a profession, we are placing blinders on our students, dangerously oblivious to the fact that we do so.

Read more

Thrown Pokéballs Are Thrown (or how games teach economics without even trying)

While teaching an entrepreneurship course to high school seniors some years ago, I was looking for a way to assess their understanding of the economic way of thinking and their ability to apply it to making real decisions. In a moment of frustration, I picked up my tablet looking for a brief diversion. I noticed a new app that one of my kids must have installed. It was a game I had never seen before, so I opened it up to check it out. Within a matter of minutes, I realized that in playing this game, I was utilizing the economic way of thinking to make better strategic decisions. I had to identify my objectives, accumulate various resources that would help me achieve my goals, and make decisions about the alternative uses of each resource based on relative scarcity and the opportunity cost of each possible use. It was everything that I needed! Instead of a quiz or an essay, I simply had students play the game and then explain, in short sentences, how they applied various economic concepts to the game. I was able to quickly assess their level of understanding while also giving them opportunities to practice using concepts they did not yet fully grasp. In their eyes, they were just playing a game.

A couple years later, my children again open my eyes to the educational potential of video games, but this time the game in question was Minecraft. I had been preparing myself for a weekend seminar and was in the process of re-reading several essays from economists James Buchanan and Ronald Coase, when my sons invited me to play Minecraft with them. I was somewhat familiar with the general concept of the game, as it was not new to our household, but I had never actually played. Behind on my readings, I declined their offer, but sat with them while they played. Suddenly, the mood in the room turned from friendly to fierce and I knew a problem was brewing. My eldest son had found an alternate route into a mine and had harvested several resources that my youngest son had been saving for later use. A public access / private property rights dispute had arisen right before my eyes! My children were struggling with the very same intellectual issues that I was reading about at that very moment, but instead of reading the history of British lighthouses or the grazing habits of hypothetical cattle, they were playing a game. I seized this opportunity to apply the lessons of the Coase Theorem to their game play, with only minimal explanation. Needless to say, I put down the books and picked up a controller.

In the last year, a few of my children have taken to playing Pokémon GO! The  game fascinated me from the get-go, and I immediately saw economic lessons in the game. I was not prepared, however, for just how quickly my young children would internalize these lessons. My youngest son, who is eight years old, recently demonstrated a profound understanding of what it means to think on the margin and the sunk-cost fallacy. While trying to catch a particularly difficult Pokémon, he threw ball after ball, but to no avail. He suddenly gave up trying without catching the “mon” in question.

“Why did you give up?” I asked. “You’ve already used all those balls trying to catch it. Why give up now?”

“Well, Dad,” he says, “it doesn’t matter how many Pokéballs I’ve thrown. I’ve already thrown them, so they don’t count anymore. All I care about is how many I have left. After that last try, it just wasn’t worth using any more Pokéballs to catch it. I want to save them for later.”

Read more

Why Economics?

“Economics? For kids? Really? Why?”

Simple: complex problem solving.

A quick glance at the most recent Future of Jobs report produced by the World Economic Forum shows that complex problem solving is expected to be the most in-demand workplace skill for the foreseeable future. The economic way of thinking is a pragmatic approach to problem solving, dealing with issues big and small, personal and global.

Economist Peter Boettke, professor at George Mason University and author of Living Economics, reminds us that “economics puts parameters on people’s utopias.”

One of the first lesson of economics is that, as a result of scarcity, people have to make trade-offs about how resources are used to improve the human condition. While kids may be endlessly creative in their approach to problem solving (another highly sought-after skill), creativity alone does not solve problems, and neglecting the trade-offs needed to solve one problem can often result in significantly greater problems somewhere down the line. This is why these problems can be so complex in the first place.

It is easy to craft a solution to a problem. How do we feed all of the hungry in the world? Make more food and give it to them! Actually solving that problem, on the other hand, is quite complex. Is this a problem of production, distribution, or some other issue? Do we need more farm land? What does that do to the environment? What about technology to make agriculture more productive? Where do we obtain the resources to make that happen?

Yes, this does prove to be a more complex problem to solve, once we understand that resources are scarce and different people around the world have different beliefs about the trade-offs that ought to be made. One of the most important constraints that must be considered when trying to solve complex problems is the limitations of our own knowledge. As Nobel laureate F. A. Hayek famously declared, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

Some global problems cannot be solved with global solutions, but must be solved at the local level with varied approaches depending on the resources and customs available. A study of economics, above all else, helps us to approach a problem with the humility to accept such a reality. While it is good to consider the skills our children will require in their future jobs, the whole purpose of those jobs will be to improve upon the human condition, to solve problems for themselves and others, to make real life better for real people.

That is why we teach economics.

Read more

Too Young?

“So, how young do you think is too young to start teaching kids economics?”

I was sort of stunned by the question.

I was sitting on a panel presenting non-traditional ways of using media to teach economics and I had just told a room full of economists, including a Nobel laureate, that they ought to be using The Lego Movie to teach the theory of comparative advantage. I had a display of Lego minifigures set up on the table next to me (which I had to rent from my son, but I’ll save that story for another blog post) which I had actually played with as a part of my presentation. My roommate at this particular conference had brought a suitcase full of plastic bananas. Yes, indeed, how young is too young to play with Legos and plastic bananas?

From the moment children are born, if not sooner, they begin to experience economics. An infant recognizes that it has desires going unmet, and signals appropriately.  From a very young age, children almost instinctively know that clearly defined property rights can be an effective form of dispute resolution, as they emphatically declare, “Mine!” They learn that sharing resources voluntarily can help them develop positive interpersonal relationships while being forced to share often leads to frustration and resentment. When playing games, they learn how institutions and rules help shape our decision-making process, and how cheaters make the process more difficult for everyone by destroying trust relationships.

While children are experiencing these phenomena is perhaps the best time to teach them what they mean and how to apply these principles to other aspects of life as well!

For most children, by the time they are learning economics in a formalized school setting, what they are taught is dull and boring, a compartmentalized version of a social science that treats people as mere inputs to the machine of productivity.

No wonder they hate it! They’ve been convinced that it is little more than a tool for the greedy and corrupt!

That is not the economics I know and love. That is not the economics that I teach. Just ask one of my own kids to explain

Just ask one of my own kids to explain “The Power of the Special” and you will see that economics is about real people helping others to become the hero of their own story.

Here at ATKE, we feel a sense of urgency to help kids learn and love the economic way of thinking and to do so in a way that is not only fun and engaging but real and relevant to who they are as people. It is never too early to start teaching kids economics!

Read more