A high school course in such demand that students are willing to sit on the floor and audit the class without earning credit?
While it may sound like a unicorn, the description matches a personal finance elective launched by Stuyvesant High School in New York City last year. “This is something that every kid kind of needs to do, and we are kind of thrown into doing it on our own time, without any guidance,” said Anisha Singhal, a senior at Stuyvesant who advocated not only for the school to create an elective, but also for New York to mandate financial literacy education across all high schools in the state.
While Stuyvesant did create its own course, New York State has yet to codify a stand-alone personal finance requirement. The state legislature has introduced numerous bills seeking to require financial literacy courses in high school since 2009, but none has passed. The most recent version stalled in committee this year, although its sponsor, State Sen. Leroy Comrie, is planning to reintroduce it in January.
Momentum For Financial Education At State Level
There is reason to be optimistic about potential passage of the New York bill in 2023 given the growing momentum at the state level for personal finance requirements in high schools. In April, Georgia enacted a law requiring high school students to take a half-credit financial literacy course as a high school graduation requirement. Florida, Michigan, Nebraska, Ohio, and Rhode Island have all passed laws recently too. Other states, including South Carolina, Minnesota and New Hampshire have similar legislation making its way through legislatures. Overall, 12 states require or will soon require a stand-alone financial literacy course as a prerequisite to graduation. Additionally, 25 states mandate the inclusion of some financial literacy training in the curriculum, including as a unit within an existing class like math or economics.
The timing couldn’t be more opportune given that many of today’s high school students are gearing up to dive into a real-world financial pool without even the basic strokes of personal finance. As the recent financial shocks of the pandemic have illuminated, not only is the water quite deep, but there are also plenty of sharks and, unfortunately, not as many lifeguards as one would hope. “The need has never been greater,” said Annamaria Lusardi, founder and academic director of the Global Financial Literacy Excellence Center at George Washington University. “We owe it to this young generation to be well prepared for the future.”
Low-Levels of Financial Literacy Among Americans
Numerous studies have shown that high school students, like most Americans overall, display a strikingly low level of financial sophistication. Professor Lusardi administers a yearly survey measuring financial literacy on topics ranging from saving, borrowing, and investing. Unfortunately, the 2022 results show little change in the working financial knowledge of Americans and only a slight deviation between age groups. On average, U.S. adults were only able to answer 50% of questions correctly, with Gen Z scoring the lowest.
More specifically, many high school students are set to embark on an educational experience that increasingly places a heavy burden of debt on students. Two-thirds of those who received a bachelor’s degree in 2020 graduated with debt, compared to less than one-half in 1993. Most students “do so without fully understanding how much debt is appropriate for their education or the connection between their area of study and the income level that they can expect upon graduation and many students attend college without understanding financial aid, loans, debt, credit, inflation, budgeting and credit scores,” according to Champlain College’s Center for Financial Literacy.
Moreover, students have even more access to financial instruments, like credit cards, which can quickly amplify already significant debt levels. The percentage of students using credit cards in college increased over the past decade, from 28% in 2012 to 46% in 2022 and a recent survey of 20,000 college students by AIG Retirement Services and EVERFI indicated that students are relying more heavily on credit cards. The survey found that 40% of students are carrying more than $1,000 in total credit debt in 2022, up seven percentage points from last year. A more troubling finding was that 38% of students do not plan to pay off their bill each month, meaning they are incurring double-digit interest rate charges.
Consequences of Early Financial Mistakes
Financial mistakes during early adulthood could have meaningful consequences post graduation. A lower credit score could lead to an inability to secure loans, an apartment rental, or even employment in some states; it could also mean incurring tens of thousands of dollars in additional interest charges on loans because of a higher interest rate on a mortgage or the inability to refinance student loans. As Robert Manning, the author of Credit Card Nation, sums up, “While freshman and their parents are likely thinking more about tests and academics during orientation, the fact is that after graduation a student’s credit rating is arguably far more important to his or her future than grade point averages.”
These findings, among others, are why including a personal finance requirement in high schools is so critical. Financial literacy helps young adults make better financial decisions and begets better financial behavior. Financial education has been shown to reduce the likelihood to use alternative forms of borrowing like payday loans. It has also been positively correlated with early life asset accumulation. A study focused on credit outcomes found that states with three states with financial literacy requirements saw a rise in credit score and a drop in delinquency rates among participants. “The findings are stark,” Carly Urban, an economics professor at Montana State University told Pew. “Credit scores go up and delinquency rates fall. If you are a student loan borrower, you shift to low interest from high, and you don’t rack up credit card debt, and you don’t use private loans, which are more expensive.”
Why Some Financial Literacy Bills Have Stalled
While momentum is growing, not all financial literacy bills have made their way through state legislatures. There are three themes to why legislation has stalled in some states: a deference to local district rights, the perceived opportunity cost of offering personal finance electives, and the potential difficulty in finding qualified instructor to teach the classes. For example, a financial literacy bill died earlier this year in Wisconsin over concerns of “compromising of elective choices” and the fear that it might come at the cost of career-training electives. “We are trying to add [career-training] experiences to meet the needs of the labor market with more than a high school diploma and less than a four-year degree. There are only so many hours in a day,” said Ben Niehaus, director of member services for the Wisconsin Association of School Boards.
States Need To Focus On Curriculum
With the trend unmistakably in the direction of codifying financial literacy courses within high schools, a key focus area for states and schools should be on pedagogy and curriculum. Examples should be tailored to resonate with the experience of high school students and to salient life events. Stuyvestant’s class, for example, has seniors review financial aid packages of their college acceptances, helping to personalize the experience for students.
Unfortunately, some states’ programming may be too antiquated and specific. Florida’s curriculum includes lessons on “balancing a checkbook” and “receiving an inheritance” which strike me as potentially anachronistic and exclusionary. More importantly, many state curricula don’t touch on how to evaluate financial advice, including what high schoolers are bound to hear on social media sites like TikTok. Course content also needs to be more forward thinking and include “discussion of new financial tools, like payment and trading apps and digital money, because students are already hearing about them, according to Tim Ranzetta, co-founder of Next Gen Personal Finance. “You better be talking about cryptocurrency,” he said.
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