Published On: January 18, 2021
Home>Financial Education>Real Financial Literacy Requires Real Money

This post explores how Participatory Budgeting (PB) creates authentic, experienced-based opportunities to teach financial literacy, promote financial independence, and fulfill our mission of fostering greater economic equality.

Financial Literacy Defined

In the 2015 edition of the National Standards in K-12 Personal Finance Education, the Jump$tart Coalition for Personal Financial Literacy® defined financial literacy as:

“… the ability to use knowledge and skills to manage one’s financial resources effectively for a lifetime of financial security.” [1]

This definition is nearly identical to the one provided by the President’s Council on Financial Literacy:

“… the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” [2]

These and similar definitions from other sources emphasize that financial literacy goes beyond the mere knowledge of facts and figures: It is the ability to use that knowledge to manage financial resources. It’s active and dynamic, evolving based on context, experience, the results of prior choices, and our goals. This may also include the goals of our families, our communities, and the world we inhabit.


Unlike Math, We Need to Teach Financial Literacy

Although each of us is born with varying degrees of mathematical skills, [3] financial literacy is not one of them. Instead, we learn it through life experience and education.

Research has shown that encounters with financial literacy start between ages one and two, as toddlers make their first purchase requests (often for candy, to their parent’s dismay). This continues, from assisted purchases, to a set of increasingly complex financial experiences with bank or college savings accounts (which may have been started when the child is born).

Unfortunately, not all life events promote the kind of competence that leads to a lifetime of financial security and well-being. Indeed, the experiences of far too many people teach poor habits, or they create significant misunderstandings that need to be unlearned. As a result, it’s essential to have positive life experiences that develop financial literacy.

But as society changes, the rudimentary knowledge needed to manage financial resources also changes. For example, non-cash transactions (credit and debit cards) are now more common than cash-transactions, meaning more skill and self-discipline are required to ensure basic transactions do not create damaging long-term debt. Similar changes have occurred in how we purchase homes, make investments, and plan for retirement. These all mean that financial education must be designed to integrate societal evolutions seamlessly.


Experiential Learning and Financial Education

The President’s Council on Financial Literacy distinguishes it from financial education this way. It is:

 “… the process by which people improve their understanding of financial products, services and concepts, so they are empowered to make informed choices, avoid pitfalls, know where to go for help and take other actions to improve their present and long-term financial well-being.”[2]

This leads to the question of how to teach financial literacy, a topic explored in this blog post. The best approach is to create authentic, learn-by-doing experiences that allow students to grapple with real-world issues.

This is why Participatory Budgeting, a process in which students collaboratively determine how to invest a budget to improve their school, is the soul of FirstRoot’s curriculum. PB is an enlightened, experiential learning approach that stands in stark contrast to the ‘drill and kill’ method employed by traditional teaching — drilling knowledge into students through lectures and videos while killing their motivation to engage with the content. Drill and kill is especially disastrous when applied to teaching such essential life skills as financial literacy, in which the education requires more than mere factual knowledge.

To illustrate, consider a student who engages in PB as compared with a student in a traditional financial literacy program. In PB, students are making real choices with real money. This means that they learn far more than simply how to create a budget and how to spend money: They learn to assess the impact of their choices, determining whether the positive outcomes they projected materialized. The importance of this reflective step cannot be overstated. Reflection is essential when acquiring life skills.

Contrast this with the traditional financial literacy curriculum comprised of facts, worksheets, and hypothetical examples of spending money. Because nothing is at stake, there is no emotional commitment to making realistic decisions. And without concrete results from spending actual dollars, students cannot assess the intended and unintended consequences of their choices.

We do not suggest that every choice students will make in their PB programs will work out as intended. Like their parents, teachers, and school administrators, students will occasionally make mistakes, such as underestimating a cost or misunderstanding a proposal’s complexity. In PB, these become the real-world, experiential learning outcomes, essential for future success. After all, it’s far better for students to make mistakes with small budgets in a community than to make significant, life-altering mistakes when they become adults.


Taking the Next Step Toward Financial Literacy

At FirstRoot, we believe Participatory Budgeting is an ideal first step toward financial literacy, but we have plans to do a great deal more. For example, think about the act of creating a realistic budget. Students learn how to do this during a PB cycle for their school. And while these skills are directly transferrable to their lives, especially as they prepare for life after high school, young adults need education on creating and managing a personal or family budget tailored to their unique situation. Using advances in AI and collaborative technologies, and maintaining the theme of experiential learning, FirstRoot’s budgeting solutions will enable young adults to learn how to create effective budgets by establishing and managing them.

More broadly, each financial first we experienced — from trying to understand the net income from our first paystub, to preparing our first tax return, to filling out our first loan application — requires learning-by-doing. Our commitment is to design these financial services so that each economic first continues to advance students towards a lifetime of financial well-being.



[1] National Standards in K-12 Personal Finance Education,, 2015

[2] President’s Advisory Council on Financial Literacy 2008 Annual Report,, 2018

[3] We’re All Born with Mathematical Abilities, National Public Radio, August 1, 2017