Studies have long shown that high school students are woefully uninformed about personal finances and how to manage them. But the COVID-19 pandemic, which has revealed how many American adults are living on the financial edge, has fueled ongoing efforts to make financial education lessons a school requirement.
Seven states now require a stand-alone financial literacy course as a requirement for high school graduation, and the requirements of an additional five states will take effect in the next year or two. About 25 require at least some financial training, sometimes as part of an existing course. This year, another 20 or so states have considered establishing or expanding similar rules.
Opponents of the state mandates say the requirements, while laudable, may infringe on the limited time available for other high school electives and would impose costly teacher training or hiring requirements.
However, financial education courses are becoming fashionable.
“I think there is a lot of momentum now; many more states have legislation in the works,” said Carly Urban, an economics professor at Montana State University who has studied financial education. In seven states — Alabama, Iowa, Missouri, Mississippi, Tennessee, Utah and Virginia — “almost all schools require it,” she said, though some prerequisites for graduation don’t take effect until 2023.
In the past two years, Nebraska, Ohio, Rhode Island and, more recently, Florida have passed laws making financial education mandatory in high schools within the next year or two. In North Carolina, graduation requirements take effect in 2023.
Thirty-four states and the District of Columbia have had bills addressing financial education in the 2021-22 legislative sessions, according to the National Conference of State Legislatures. Of those, about 20 focus on high schools.
Bills in Kentucky and the District of Columbia appear to take into account that student athletes can now earn money for the use of their name, image or likeness. Neither measure requires high schools to teach financial education. But the Kentucky bill, which the governor signed, requires colleges to set up financial education workshops for student athletes. The DC bill would encourage colleges with student athletes to teach financial education.
Last month, Republican Florida Governor Ron DeSantis signed a bill requiring students entering high school in the 2023-24 school year to take a financial education course as a graduation requirement. The new law requires a half-credit course in personal money management, which includes how to set up and use a bank account, the meaning of credit and credit scores, types of savings and investments, and how to get a loan.
At a signing ceremony, DeSantis touted the law as something that “will help improve students’ ability in financial management, by the time they finish in the real world.”
Financial education is an issue that is remarkably bipartisan. Rhode Island Governor Dan McKee, a Democrat, looked a lot like DeSantis when he signed Rhode Island’s requirement for financial education in high schools last year.
“Financial education is key to a young person’s future success,” McKee said. “This legislation paves the way for our public high schools to give young people the skills they need to reach their financial goals.”
Urban, from Montana, said state policies requiring stand-alone financial education courses help students the most, especially if states set standards for what subjects must be included in the curriculum. Most courses last half a year.
Some states use materials provided by the nonprofit organization Next Gen Personal Finance, which offers a free study guide and instructional materials for teaching financial literacy, to help set standards, while others have expanded on units already included in economics, math, or social studies courses.
Free Next Gen courses include tutorials for teachers, along with classroom study guides on topics like managing credit, opening checking and savings accounts, budgeting, paying for college, investing, paying taxes and developing consumer skills.
In a 2018 study, only one-third of adults were able to answer at least four out of five financial education questions about things like mortgages, interest rates, inflation and risk, according to the Industry Regulatory Authority’s investor education foundation. Financial. Financial literacy was lower among people of color and younger people.
About 16% of 15-year-old American students surveyed in 2018 did not meet the baseline level of financial literacy, according to the Organization for Economic Co-operation and Development.
But with some education, those numbers can improve, according to Urban’s studies.
“The findings are compelling,” he said in a telephone interview. “Credit scores go up and delinquency rates go down. If you’re a student loan borrower, you switch from high to low interest, and you don’t rack up credit card debt, and you don’t use more expensive private loans.” In addition, his research revealed that young people who have taken some financial education courses are less likely to use expensive payday loans.
Even the professors who lead the courses tend to experience an increase in savings.
“If access remains limited, particularly for students who have the most to gain from education, state policy may be the only option to ensure all students have access to personal finance before they become financially independent,” Urban wrote. in a high-level 2022 study. school courses in personal finance.
The California Assembly Education Committee unanimously approved a financial education bill for high schools last week. Committee Chairman Patrick O’Donnell, a Democrat and former high school economics teacher, said financial concepts like individual retirement accounts, Roth IRAs, loan terms and other things are “difficult to understand.” …in their heads.”
Educators need resources to teach those concepts, he said, noting that when he was a teacher, he wrote his own course materials for financial education instruction.
The COVID-19 pandemic has highlighted how few Americans are prepared for financial emergencies, giving financial literacy requirements a new boost, according to John Pelletier, director of the Center for Financial Literacy at Champlain College in Vermont. “COVID woke people up,” he said in a phone interview.
He cited a 2020 Federal Reserve study that showed many Americans couldn’t scrape together $2,000 in an emergency, and “it really hit people when they were forced to stop working and get a paycheck. If policymakers haven’t found a way to get people to have cash, we’re dealing with more than just paying rent; we are dealing with hunger and homelessness.”
Pelletier estimates that around 30% of public school children now have access to financial education courses.
But not all financial education bills have made it through the legislative process. A bill in Wisconsin this year died after objections from the Wisconsin School Boards Association.
Ben Niehaus, the association’s director of member services, said his group agreed with the intent but was concerned about the speed of a year and the possible “compromise of elective options.”
The bill’s sponsor, Republican state Rep. Alex Dallman, said in a phone interview that he hopes to reintroduce the bill in the next session, possibly with only a half-credit course.
“In our economy right now, we’re taking out massive loans, we’re not paying them back, and we have to be smarter about how we handle money,” he said. He added that the state’s technical schools like the idea of teaching finance because it may lead more students to conclude that they must forgo an expensive college education for a lucrative career in the trades.
But Niehaus said a financial education requirement could take time away from career-training electives, like manufacturing courses, that many Wisconsin high schools have begun offering.
“We’re trying to add these experiences to meet the needs of the job market with more than a high school diploma and less than a four-year degree. There are so many hours in a day,” Niehaus said.
“Yes, it’s important, but career and technology education are also important, and we think local school boards need to decide.”
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