Illustration by C.J. Burton

Should Financial Literacy Be Required?

Surveys show that many parents are reluctant to talk to their kids about money. In the past few years, more schools have decided that it’s their role to step in and fill the gap. Seventeen states now require students to take a course on personal finance before they graduate from high school.

But not everyone agrees that these courses are worth the investment. The head of a group that promotes economic education and the head of a financial research center square off about the value of financial literacy requirements.

March 9, 2020

Would you send athletes into a game without any practice? Hand kids a library card but not teach them to read?

Give them the car keys without teaching them how to drive? Of course not. Yet we let students slide into adulthood without learning the basics of personal finance.

We know that young Americans struggle with credit card debt and student loan debt, and that many grow up in homes where it’s a struggle just to make ends meet. Requiring financial education gives all young Americans the tools they need to make informed decisions that will benefit themselves, their families, and their communities.

When we treat personal finance with the respect given to other subjects—when teachers are trained, and there is a required, well-defined personal finance curriculum—financial education works. Three years after Georgia, Idaho, and Texas mandated personal finance courses, credit scores for young adults increased up to 32 points and loan delinquency rates decreased by as much as 16 percent.

Financial education levels the economic playing field for young people.

And in my experience, teaching personal finance resonates with kids. One student told us, “At first, it felt like a foreign language. Now, I understand how to make more thoughtful decisions about my life. It’s a new way to think.” After Virginia implemented a required class, a graduating senior said, “This was by far the most practical class ever offered. It should have been required a long time ago.”

Perhaps the most important reason to incorporate financial education in schools: It levels the economic playing field. Data shows that college educated men from wealthy families do just fine without personal finance in the classroom, furthering the gap for young people who were born without these advantages and who lack financial education in their schools. Access to financial education is a path to economic mobility. That is why it needs to be part of all our schools’ K-12 curriculums. It’s time and money well spent.

—NAN J. MORRISON

President and CEO, Council for Economic Education

There’s been an increase recently in the number of states that require students to take financial literacy classes in order to graduate from high school. The irony is that requiring schools to spend time and money teaching financial literacy is an awful financial decision.

That’s because classroom-based financial literacy programs simply don’t work. They may increase people’s financial knowledge, but they don’t change people’s behavior, and that’s what matters.

Financial education programs in schools usually cover such concepts as making a budget, calculating interest, comparing prices, and the importance of saving for emergencies and the long term. Scholars have studied hundreds of these financial literacy programs, and the findings are consistent. The most comprehensive analysis of financial literacy program evaluations, published in the journal “Management Science” in 2013, found that financial literacy education was responsible for a one-tenth of 1 percent change in financial behaviors, such as increased savings or reduced borrowing. That is a vanishingly small impact.

Studies show that financial education doesn’t change people’s behavior.

The reason most Americans’ finances are in terrible shape isn’t a failure to budget or because people don’t understand interest rates. Americans’ finances are in terrible shape because the cost of higher education, health insurance, child care, and rent have all increased far faster than paychecks. No amount of financial literacy is going to fix that.

The programs that do positively influence people’s actual financial decisions are the ones that give people information at the precise moment they are making a decision. This is why schools should provide information on financial aid, and specifically about different types of loans, to high school students when they are trying to figure out how to pay for college. Beyond that, students are much better off spending more time in ordinary math classes.

It’s economic folly to make schools spend money on useless personal finance classes—and to force students to take them.

—TIMOTHY OGDEN

Managing Director, Financial Access Initiative, New York University