Financial Ed in Schools Sometimes Works
There’s little agreement on whether personal finance education in the schools is effective, but success with financial education mandates in Georgia, Idaho, and Texas indicates that it is.
A new study compared thousands of young adults in these states, which have fairly rigorous mandates, with states lacking personal finance education. This focus on states with very strong mandates departs from prior studies that lumped together numerous states with varying levels of mandates. The researchers also looked at whether behavior actually improved – credit scores and loan delinquencies – rather than simply testing students’ knowledge before and after they took the classes.
The three states studied have extensive financial education programs. Curricula in Georgia cover economics, financial institutions, saving, insurance, credit, and investing. Idaho requires a full semester of economics, with intensive personal financial instruction. In Texas, all high school students are required to delve into topics ranging from the rent-vs-buy decision and planning for retirement to personal bankruptcy.
The study assessed the impact of this education on credit scores once the students graduated high school and on whether they successfully avoided poor financial behaviors, such as falling into delinquency on their car loans. Young adults in Georgia, Idaho, and Texas were compared with young adults in the same state before the mandates, as well as people in other states with similar demographics but no mandates.
Consider how Texas compared with California, Kentucky, and Mississippi. During the first year after the financial education mandate went into effect, the study found no significant improvements in credit scores in Texas. But credit scores did improve, relative to those in the control states, during each additional year of the mandates, as the instruction improved. Three years after Texas’ mandate went into effect, credit scores for its young adults were nearly 32 points higher.
Loan delinquencies, including car loans, also improved with each additional year of mandates.
This study is a hopeful sign that financial education can work. And with college-bound graduates often leaping headlong into heavy borrowing for their college education, this is an important finding.
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I was about to say that I'd have a little more confidence had the study been funded from a source other than FINRA. Then I realized I didn't know much about FINRA. They have a pretty rich site (http://finra.org). Anyone who's never seen it should check it out.