More states now require financial literacy classes in high schools

A slew of states now require financial literacy classes for high school students, covering topics such as budgeting, saving and debt management.

Only seven states—Alabama, Iowa, Mississippi, Missouri, Tennessee, Utah and Virginia—received an A grade, which means students must take a semester-long personal finance course, or its equivalent, at a “report” from the Center for Financial Literacy at Champlain College in Vermont. Five states received an F, meaning they have “virtually no requirements” for personal finance education in high school.

But, the report said, 23 states are expected to receive an A grade by 2028, when additional programs recently approved by state lawmakers are in place.

The surge in supply is partly a response to the pandemic, which drew attention to households’ precarious finances and glaring income inequality. “After the pandemic, things accelerated,” said John Pelletier, director of the center. Higher inflation has also put pressure on consumer budgets and the resumption of student loan payments has revived concerns about student debt.

Concerns are also growing about financial disparities between racial and ethnic groups. While about a third of American adults reported having “too much” debt, the percentage is higher — 39 percent — for black adults, according to a study big survey conducted in 2021 by the FINRA Investor Education Foundation. (The foundation – an arm of the Financial Industry Regulatory Authority, a non-governmental regulator that oversees brokerage firms – conducts the survey every three years.)

The survey shows that Black and Hispanic adults are less likely to have an emergency fund to cover three months of expenses in the event of job loss or illness. And while about a third of adults have “high” financial literacy, as indicated by their ability to correctly answer four out of five financial questions on topics such as compound interest, inflation and risk, the percentages are much lower for Black and Latinx -American adults.

Requiring all students to take a financial literacy course could help reduce this inequality, Mr. Pelletier said.

Carly Urban, an economics professor at Montana State University who studies financial literacy, said discussions about what topics to teach in classrooms are often bitterly divisive, but state lawmakers appear to be finding common ground in support of financial instruction in secondary schools. Most U.S. adults said they wanted their states to require a semester- or year-long finance course to graduate from high school a 2022 poll from the National Endowment for Financial Education. And most said they wished they had to take such a course.

Over the years, questions have arisen about whether financial literacy classes in high schools are effective. But recent research by Dr. Urban and others, cited in the new Champlain College report, shed light on what works. Financial classes in high schools, she said, improve credit scores “overwhelmingly,” lower loan default rates and reduce the use of risky services like payday loans. It also drives more students toward low-interest student loans and away from high-interest loans, and increases repayment rates for first-generation college students and students from low-income families.

But a recent study she co-authored with Melody Harvey, an assistant professor at the University of Wisconsin-Madison, found no impact on the final pension savings. Perhaps, she said, the idea of ​​retirement is too far away for teens heading off to college or just entering the workforce. “Young people may be fixated on ‘now,’” said Dr. Urban. The study recommended that classes prioritize topics that are “immediately relevant” to teens, such as budgeting, long-term debt and credit.

Christopher Jackson, who teaches a personal finance course to seniors at Da Vinci Communications high school, a socioeconomically and racially diverse public school in El Segundo, California, said he found that students were enthusiastic about saving in individual Roth retirement accounts once they understood the concept of compound interest and how investments grow over time. He advises them to open Roth IRAs at age 18, rather than waiting until they graduate and start a career. One of his students has already saved $14,000, he said. He uses a curriculum from Next generation personal financea nonprofit that pushes for the teaching of universal personal finance in high school as a foundation for its education and supplements it with books on relevant topics, he said.

“You can’t play the money game if you don’t know the rules,” Mr. Jackson said. “I teach them the rules of the game.”

Sebastian Torres, 19, a 2022 graduate of Da Vinci Communications, said Mr. Jackson, which includes a section on the psychology of financial decision-making, helped him plan for both college and retirement. “I really didn’t know anything about 401(k)s before Mr. Jackson talked about them,” he said. “I 100 percent think it was worth it,” he said of the high school course.

According to the Center for Financial Literacy report, personal finance topics are most relevant in grades 11 or 12, just before students start managing their own living expenses. It recommends that students be taught these concepts shortly before they become financially independent, whether they get a job or go to college.

Here are some questions and answers about financial literacy:

How financially literate are Americans in general?

According to the 2023, American adults have demonstrated ‘generally low’ levels of financial literacy Personal financial index report from the TIAA Institute and the Global Financial Literacy Excellence Center.

The report serves as an annual barometer of financial literacy in the United States. The survey asks 28 questions about personal finance, including income, budgets, expenses, saving, investing, borrowing, debt management, insurance, understanding risks and finding reliable sources of information and advice.

On average, adults answered about half of the index’s 28 questions correctly in 2023, consistent with results since 2017. Americans have particular difficulty understanding risk. The low level of financial resources is “worrying,” the report said, because the index measures “practical knowledge” regarding financial situations we encounter in everyday life.

Improving financial literacy is important, the report said, because people with very low levels of financial literacy are more than four times as likely as those with very high levels to struggle to make ends meet in a normal month.

Where can I test my own financial knowledge?

FINRA offers a seven questions financial literacy quiz online. Want more? Try a 10 question personal finance quiz from the Council for Economic Education.

Where can I find information about financial literacy curricula?

Next Gen Personal Finance offers free teaching materials and teacher instruction. Other sources include The JumpStart Coalition for Personal Financial Literacy, a nonprofit organization that aims to improve financial literacy among young people; the University of Chicago Financial Education Initiative; and the Consumer Financial Protection Bureau.