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Experts ring bell for better financial literacy instruction in schools

Kelly Dilworth
Financial literacy

Progress toward teaching financial literacy in American schools has stalled, according to the latest state-by-state survey by the Council for Economic Education,

As a result, many U.S. students still aren’t receiving a quality financial education, says the council’s “Survey of States” report released Jan. 29.

“There has been notable progress since the first survey was published in 1998, yet the pace of change has slowed,” conclude the report’s authors. “The 2016 Survey of the States shows that there has been no improvement in economic education in recent years and slow growth in personal finance education.”

Its findings show a mix of steps forward and back:

  • All 50 states and the District of Columbia include some form of economic instruction, a big advance from 1998, when only 39 did so.
  • Twenty states require high school students to take a course in economics, two fewer than in 2014.
  • Seventeen states require high school students take a course in personal finance, the same as in 2014.
  • In a standardized financial literacy test of 15-year-olds in 18 countries, American students are in the middle of the pack, just ahead of Russia, just behind Latvia.

“There is wide variation across states in terms of what sorts of economic and personal finance education is offered,” wrote the University of Wisconsin-Madison’s J. Michael Collins in a commentary included with the report. Some states include personal finance instruction in their K-12 curriculum standards, but don’t provide schools with any training or guidance on what to teach, says Collins. Others offer more comprehensive training and instruction, but fall short of testing students on what they learned.

The types of classes offered also vary state-by-state. According to the Council for Economic Education, 45 states now include personal finance in their K-12 curriculum standards. But just 17 require high school students to study personal finance in high school and only five require a semester long course on it.

The Center for Financial Literacy at Champlain College also surveyed state-by-state financial education programs in the fall of 2015 and found most states leave it up to school districts to design and implement financial literacy instruction. Among the states that require financial literacy instruction,  only Utah requires formal, fleshed out classes that are monitored for effectiveness by a standardized statewide exam.

According to experts such as Collins, Utah’s more rigorous approach is significantly more effective than states that take a more lax approach to teaching personal finance.

“In states where personal finance is part of a formal course, teachers are trained on the content and students are tested, students develop better credit behaviors early in adulthood,” he says. “Students who graduate after more rigorous standards are put into place are more likely to make on-time payments and keep up with their bills – they still use debt and credit, but seem to understand how to manage those obligations better than students who did not graduate under higher standards for personal finance and economics.”

More education, better scores?
Last year, Collins and his colleagues at the Federal Reserve Board and Montana State University posted a working paper on the Financial Industry Regulatory Authority (FINRA) Investor Education website that examined the long-term impact of high-quality financial education.

Using data from Equifax and the Federal Reserve Bank of New York’s Consumer Credit Panel, the study found that the credit scores of young adults between the ages of 18 and 22 increased significantly in states that required high school classes in personal finance. The more rigorous a state’s requirements, the more young adults’ credit scores improved.

According to Collins, the study’s findings underscore the need to bring high quality financial education to more states across the country. “Student credit scores are 8 to 17 points higher by age 22 in three key states that made a change in financial education policies in 2007,” wrote Collins in the Council for Economic Education report. “States that combine personal finance and economics, support teachers and hold students accountable for learning objectives have the best chance of promoting the development of young people who are better financial managers and stewards of their credit.”

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