Business 5 min read By Callum Montgomery
Financial Literacy Is Built Through Practice, Not Classroom Theory
Simulations that let students and employees rehearse budgeting, spending and risk decisions are gaining ground as a complement to traditional financial education, as higher interest rates make real-world money skills more urgent.
Financial literacy is not acquired by memorising facts in a classroom. It is built through repeated practice, according to a growing body of thinking on how people learn to manage money. Simulations that allow students and employees to rehearse budgeting, spending and risk decisions before the stakes rise are increasingly being used to bridge the gap between theoretical knowledge and real-world behaviour.
The approach reflects a broader recognition that knowing what a compound interest rate is, or being able to define a diversified portfolio, does not automatically translate into sound financial decisions when a person is under pressure. Practice in a controlled environment gives learners the chance to make mistakes, see the consequences and adjust their approach without suffering lasting financial damage.
That shift in emphasis comes as the economic backdrop has become considerably less forgiving. The low interest-rate, low-inflation era that lasted for nearly 15 years after the global financial crisis has ended, and a higher-priced, higher-rate world has taken its place. Mortgage rates that once sat in the 3% range during the 2010s are long gone. The average 30-year mortgage rate reached 6.95% last week, the highest in more than a year and a half.
Economists attribute the change to a structural transformation of the economy. Joe Brusuelas, chief economist at the tax consulting firm RSM, said the shift stems from a pre-pandemic economy in which consumer and business demand was weak, to one in which healthy spending is colliding with supply shocks and bottlenecks. «We've undergone a structural transformation of the economy,» Brusuelas said. «The regime change in inflation and interest rates is the outcome.»
Several forces are pushing borrowing costs higher regardless of central bank decisions. Big technology firms are borrowing heavily to build artificial intelligence data centres, while the federal government continues to run large annual budget deficits. Companies and government are competing for lenders' money, pushing up longer-term bond yields. The yield on the 10-year Treasury bond topped 5% this year for the first time since 2023.
Consumers, meanwhile, are still spending at a healthy pace despite surveys showing widespread pessimism about the economy. A recent report showing retail sales picked up last month led economists at Bank of America to forecast growth of 3% at an annual rate in the July-September quarter. But inflation has outpaced the annual growth in average wages for the past five months, and affordability remains a top concern heading into the midterm elections.
Federal Reserve Chairman Kevin Warsh highlighted the shift in a speech at the central bank's annual conference in Jackson Hole, Wyoming. After 2008, he said, it was widely assumed that excess capital would sit on the sidelines because there would not be enough compelling investment opportunities. «Well, times sure have changed,» Warsh said. «Ever-expanding pools of capital are pouring into AI-related infrastructure of all sorts.»
Brusuelas described the expansion as «imbalanced», with growth «entirely dependent» on the AI buildout and strong spending by wealthier consumers who have benefited from rising stock prices. That uneven picture makes personal financial resilience more important, and it is precisely the kind of scenario that simulation-based training is designed to address.
By practising budgeting, spending and risk decisions in a simulated environment, learners can experience how higher rates affect loan repayments, how inflation erodes purchasing power and how investment choices carry trade-offs. The method does not replace financial facts, but it puts them to work. For employers, the appeal is a workforce better equipped to handle everything from pension decisions to day-to-day money management. For students, it offers a rehearsal space before the consequences become real.
