Household debt is continuing to grow in America, with credit cards being one of the most costly to pay off. Total national student loan debt is at $1.2 trillion. And, since 2008, more than 14 million homes have been foreclosed.
It’s hard to deny a need for financial education. In recent years, we’ve contended with a housing crisis, a student debt crisis and a retirement savings crisis. That’s a lot of money trouble for one decade.
Yes, our economic system has its flaws. Those who lack an understanding of basic personal finance philosophies seem to be especially vulnerable to those flaws. And that’s a lot of us. There’s an obvious need for financial literacy, and many people agree: teaching it in schools is the solution.
But not everyone is on board. Some critics say efforts aren’t working. Some economists report students aren’t getting any better with money. And there’s nothing wrong with a healthy dose of skepticism–most solutions aren’t that simple. But the criticisms toward financial education aren’t that simple, either.
I talked about the issue with financial education advocate Laura Levine. She also happens to be the President of the Jump$tart Coalition, a nonprofit dedicated to educating young people about money.
“We talk about how personal finance, really, begins at home,” Levine says. “In a perfect world, that is absolutely true. But we don’t live in a perfect world.”
Levine explains that some families simply can’t provide enough guidance. Considering the stats of those crises I mentioned, that makes sense. This is especially true in underprivileged areas, where some families are unbanked. Levine continues:
“Whenever families aren’t able to do it, the next best place to do it is in school…the teacher’s role is critical.”
A Brief Background
Four states (Missouri, Tennessee, Utah and Virginia) require high school students to pass a personal finance class to graduate. And in 17 states, students are required to take courses that at least touch on personal finance topics.
According to the National Conference of State Legislatures, almost 20 states approved or adopted financial literacy resolutions last year. Interestingly, that last stat will vary, depending on the source and their criteria—so not every organization or institution even agrees on what financial literacy is in the first place.
There’s a recent trend in championing this type of education, no doubt prompted by those aforementioned crises. But Congress established the Financial Literacy and Education Commission in 2003. And the Jump$tart Coalition has been promoting financial literacy in the United States even earlier than that, since the mid-nineties. Still, financial education is schools is a pretty new initiative.
It’s important to keep that in mind when it comes to studying how effective it is.
How Effective Have Programs Been?
This seems like an easy question to answer. It’s not.
Some studies and reports criticize the efficacy of these programs. For example, in 2009, economists Lewis Mandell and Linda Schmid Klein authored the study, The Impact of Financial Literacy Education on Subsequent Financial Behavior. They specifically named research by the Jump$tart Coalition for Personal Financial Literacy:
“…the large-scale, biennial surveys of high school seniors carried out by the Jump$tart Coalition for Personal Financial Literacy consistently found that students who had taken a high school class in personal finance or money management are no more financially literate than those who have not…”
I asked Levine for her perspective on this.
“Our study wasn’t intended to be a longitudinal study,” she says. “We didn’t follow the same group of students over the years. It’s meant a snapshot in time. It doesn’t mean that education isn’t working. The best way to tell if financial education is working is to do pre- and post-assessments, using the same group of students.”
But of course, that’s costly–and we’re not just talking money, but time. How well can we study the long-term impact of financial education in schools when this is a relatively new initiative?
But, in fact, other research shows that financial education does have an impact. The University of Arizona’s APlus study followed the money behavior of college students. For example, an excerpt from their study shows how students cope with short-term financial shortfalls:
“Parental direct teaching, high school work experience and high school financial education all related to students’ having more financial knowledge by their first year in college…Our research findings suggest that parents, schools and the marketplace would do well to partner to help children and young adults develop positive financial attitudes and behavior.”
The National Endowment for Financial Education (NEFE) shows some positive outcomes, too, in research over the past 15 years. But they admit that, basically, the research is still thin, and they push for more research.
“I think the financial education community will be the first to admit–we don’t have all the research we wish we had,” Levine says. “But we don’t have research telling us it’s definitely not working, which is what we hear. Financial education as a discipline is still fairly new. We are showing gains and we’re going to keep working at this, because not educating people about money is going to be worse.”
Support from Educators
Despite critics’ concern that financial education creates an added burden on our teachers, most educators agree that personal finance has a place in the education system. According to the NEFE, 89 percent “of teachers agree or strongly agree that students should take a financial literacy course or pass a test for high school graduation.”
But this isn’t to say educators aren’t feeling any pressure. In that same Jump$tart study, they noted:
“Conversations with school superintendents and principals have indicated that while they are interested in financial literacy, the intense pressure to achieve satisfactory scores on standardized national examinations has diverted energy and resources to core academic areas.”
It’s a concern they’re working on. Levine explained to me that Jump$tart is spending a lot of time working with teachers and researching how to carry out these lessons more effectively. Of course, that can be a challenge. But nationwide financial education is a lofty goal; there are going to be many challenges.
Greater Challenges Ahead
Teacher qualifications are both a challenge and an opportunity, Levine says. She explains that, because courses and qualifications are regulated at state and local levels, it’s hard to implement a set curriculum or set of standards. This makes it a challenge to administer how personal finance is taught throughout the country.
Funding is another issue. In a status report on high school financial literacy in Colorado, Gary R. Jaeckel, Executive Director, Advocates for Personal Financial Education, explained:
“[Voters] have allocated no funds for implementation of curricula, especially for teacher training (nationally over 80% of teachers feel unqualified to teach financial literacy subjects). Many talk a good story, but ‘where is the beef?’”
USA Today reported that many states shy away from this type of curriculum precisely because of a lack of funding.
The very nature of personal finance is another challenge. Much of personal finance has less to do with math and more to do with behavior.
“There isn’t a way to identify where all the finance teachers are,” Levine says. “If you teach algebra, there’s very little debate that’s in the Math Department. But personal finance might be social studies or consumer science or business. There are a lot more variables.”
In that report from the NEFE, they also ask the question–when should personal finance be taught in schools? High school students probably aren’t going to benefit too much from mortgage lessons. But lessons in curbing impulsive behavior–that might be something you teach at an even younger age. They write:
“This would suggest that our focus should turn from the ‘financial literacy’ education of high school students to behavior modification of children in kindergarten and early grades. This is supported by the work of child development experts who focus on the early development of financial behavior.”
The NEFE suggests using behavioral economics and financial education together. And that’s just one possibility; Jump$tart is working on improving teacher training, as they study what works and what doesn’t.
Sure, it’s a whopper of an objective, teaching kids about money in schools. It’s an overwhelming one. And skepticism has a place in helping to improve efforts, but it’s an issue that should be looked at from all angles.
“Personal finance and financial education are very complex and very nuanced,” Levine says. “We want to make sure we’re really assessing and seeing what makes it effective. But we’re not waiting for a perfect solution to get started. We have to continue to provide this education, even while we’re still trying to make it better. It’s important that we make sure we’re not quick to draw conclusions. Especially not the conclusion to give up.”
Ironically, strapped budgets keep a lot of states and localities from moving forward with financial education measures. But, ideally, it would be a worthwhile investment. Financial education will equip students with knowledge that will serve and protect them in the future. Knowledge can make us a little less vulnerable to any flaws in the system. It seems education could go a long way in strengthening our economy by protecting us from so many of the financial disasters we’re still recovering from, years later.
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Photo Credit: Cali4beach, Flickr
Graph: APlus Study, University of Arizona