Studies have long shown that high school students are woefully misinformed 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 spurred ongoing efforts to make financial literacy classes a school requirement.
Seven states now require a stand-alone financial literacy course as a high school graduation requirement, and five more state requirements come into effect within the next year or two. About 25 warrants at least some financial training, sometimes as part of an existing course. This year, about 20 other states have considered establishing or expanding similar rules.
Opponents of state mandates say the requirements, while laudable, may encroach on the limited time available for other high school electives and would impose costly demands on teacher training or hiring.
Nevertheless, financial literacy courses are gaining ground.
“I think there’s a lot of momentum now; many more states have legislation pending,” said Carly Urban, an economics professor at Montana State University who has studied financial literacy. In seven states — Alabama, Iowa, Missouri, Mississippi, Tennessee, Utah and Virginia — “almost all schools require it,” she said, though some graduation prerequisites don’t come into play. force only in 2023.
Over the past two years, Nebraska, Ohio, Rhode Island, and most recently Florida have passed laws making financial literacy a staple in high schools within a year or two. In North Carolina, graduation requirements take effect in 2023.
Thirty-four states and the District of Columbia introduced bills addressing financial literacy in the 2021-22 legislative sessions, according to the National Conference of State Legislatures. Of these, about 20 focus on secondary schools.
The Kentucky and District of Columbia bills appear to take into account that student-athletes are now allowed to earn money for the use of their name, image or likeness. None of the measures require secondary schools to teach financial literacy. But the Kentucky bill, which the governor signed into law, requires colleges to set up financial literacy workshops for student-athletes. The DC bill would encourage colleges with student-athletes to teach financial literacy.
Last month, Republican Florida Governor Ron DeSantis signed a bill calling for students entering high school in the 2023-24 school year to take a financial literacy course as a condition of graduation. . The new law provides a half-credit course on personal money management, including how to open 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 the ability of students in financial management, when they find themselves in the real world.”
Financial literacy is an issue that is remarkably bipartisan. Rhode Island Gov. Dan McKee, a Democrat, sounded a lot like DeSantis when he signed Rhode Island’s requirement for financial education in high schools last year.
“Financial literacy is key to a young person’s future success,” McKee said. “This legislation paves the way for our public high schools to provide young people with the skills they need to achieve their financial goals.”
Urban, from Montana, said state policies that require stand-alone financial literacy courses help students the most, especially if states set standards on what topics should be included in the curriculum. . Most courses last one semester.
Some states use materials provided by the nonprofit Next Gen Personal Finance, which offers a free study guide and classroom materials for teaching financial literacy, to help set the standards, while others have expanded units already included in economics, math, or social studies courses.
Next Gen’s free courses include tutorials for teachers, plus in-class study guides on topics like managing credit, opening checking and savings accounts, budgeting, paying for school academics, investing, paying taxes and developing consumer skills.
In a 2018 study, only a third of adults could answer at least four of five financial literacy questions on concepts such as mortgages, interest rates, inflation and risk, according to the Foundation for Financial Literacy. Financial Industry Regulatory Authority Investor Education. Financial literacy was lower among people of color and youth.
According to the Organization for Economic Co-operation and Development, about 16% of 15-year-old American students surveyed in 2018 did not meet the basic level of financial literacy skills.
But with a little education, those numbers can improve, according to Urban studies.
“The results are striking,” she said in a phone interview. “Credit scores go up and delinquency rates go down. If you’re a student borrower, you go from low to high interest, you don’t accumulate credit card debt, and you don’t use private loans, which are more expensive. Additionally, his research found that young people who have taken financial literacy courses are less likely to use expensive payday loans.
Even the teachers who run the classes tend to see an increase in their savings.
“If access remains limited – especially 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 becoming financially independent,” Urban wrote in a 2022 study of high school personal finance courses.
The California Assembly Committee on Education unanimously approved a high school financial literacy bill 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 head”.
Educators need resources to teach these concepts, he said, noting that when he was a teacher he wrote his own course materials for teaching financial literacy.
The COVID-19 pandemic has underscored how few Americans are prepared for financial emergencies, giving new impetus to financial literacy requirements, 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 come up with $2,000 in an emergency, and “it really hit home when people were forced off work. and collect a paycheck. If policymakers haven’t found a way to get money from people, we’re dealing with more than just paying the rent; we face hunger and homelessness.
Pelletier estimates that about 30% of public school children now have access to financial literacy classes.
But not all financial literacy bills made it through the legislative process. A bill in Wisconsin this year died after objections from the Wisconsin Association of School Boards.
Ben Niehaus, director of member services for the association, said his group agreed with the intent, but was concerned about the rapid one-year timeline and the possibility of “compromising elective choices”.
The bill’s sponsor, Republican State Rep. Alex Dallman, said in a phone interview that he hopes to reintroduce the bill next session, possibly with only a half-credit course. .
“In our current economy, we’re taking out massive loans, not paying them back, and we have to be smarter about how we handle money,” he said. He added that technical schools across the state like the idea of teaching finance because it could lead more students to conclude they should forego an expensive college education for a lucrative career in the trades.
But Niehaus said a financial literacy requirement could take time out of vocational electives, such as manufacturing courses, that many Wisconsin high schools have started offering.
“We try to add these experiences to meet the needs of the labor market with more than a high school diploma and less than a four-year diploma. There are only so many hours in a day,” Niehaus said.
“Yes, it’s important, but career and technology education is also important, and we think local school boards should decide.”