A number of states currently mandate financial literacy classes for high school students, covering areas such as budgeting, saving, and managing debt.
Only seven states — Alabama, Iowa, Mississippi, Missouri, Tennessee, Utah, and Virginia — received an A grade, indicating that they require students to take a semester-long personal finance course, or an equivalent, according to a “report card” from the Center for Financial Literacy at Champlain College in Vermont. On the other hand, five states received an F, meaning they have “virtually no requirements” for personal finance education in high school.
However, the report projected that 23 states will receive an A grade by 2028 when additional programs recently approved by state legislatures are implemented.
The surge in offerings is partly a response to the pandemic, which drew attention to fragile household finances and substantial income inequality. According to John Pelletier, the center’s director, there was a significant push for these programs after the pandemic. Higher inflation has also strained consumers’ budgets, and the resumption of student loan payments has renewed worries about student debt.
There is also increasing concern about financial disparities among racial and ethnic groups. A large survey conducted in 2021 by the FINRA Investor Education Foundation revealed that approximately a third of American adults reported having “too much” debt, a figure that is higher at 39 percent for Black adults. The survey also found that Black and Hispanic adults are less likely to have an emergency fund to cover three months of expenses in case of a job loss or illness. Furthermore, the percentage of adults with “high” financial knowledge, as demonstrated by their ability to correctly answer four out of five financial questions about topics like compound interest, inflation, and risk, is much lower for Black and Hispanic adults.
Mr. Pelletier stated that requiring all students to take a financial literacy course can help reduce such inequality.
Carly Urban, a professor of economics at Montana State University, mentioned that discussions about what topics should be taught in classrooms are often bitterly divisive, but state legislators appear to be finding common ground in supporting high school financial instruction. A 2022 poll from the National Endowment for Financial Education found that most American adults wanted their states to require a semester- or yearlong financial course to graduate from high school, and most said they wished they were required to take such a course.
Over the years, questions have arisen about whether high school financial literacy classes are effective. But recent research indicated that high school financial instruction leads to improvements in credit scores, lower loan delinquency rates, reduced use of risky services like payday lending, increased utilization of low-interest college financing, and higher repayment rates for first-generation students and those from low-income families.
However, a recent study showed no impact on eventual retirement savings. Perhaps, for teenagers heading to college or just entering the workforce, the concept of retiring is too distant. According to Dr. Urban, classes should prioritize topics more “immediately relevant” to teenagers, such as budgeting, long-term debt, and credit.
Christopher Jackson, who teaches a personal finance course to seniors at Da Vinci Communications high school, stated that students were enthusiastic about saving in Roth individual retirement accounts once they understood the concept of compound interest and how investments grow over time. One of his students has already saved $14,000, he said. He uses a curriculum from Next Gen Personal Finance, a nonprofit that advocates for teaching universal personal finance in high school, as a base for his instruction and supplements it with relevant books.
The report from the Center for Financial Literacy suggests that personal finance topics are most relevant in 11th or 12th grade, just before students begin managing their own living expenses. It recommends teaching these concepts shortly before students are thrust into financial independence, whether they get jobs or go to college.
Here are some questions and answers about financial literacy:
How financially literate are Americans in general?
According to the 2023 Personal Financial Index report from the TIAA Institute and the Global Financial Literacy Excellence Center, American adults have shown a “generally poor” level of financial literacy. On average, adults correctly answered about half of the index’s 28 questions in 2023, indicating an ongoing struggle, particularly with understanding risk.
Improving financial literacy is crucial because people with a very low level of financial savvy are more than four times as likely as those with a very high level to have difficulty making ends meet in a typical month, the report noted.
Where can I test my own financial knowledge?
FINRA offers a seven-question financial literacy quiz online. For more questions, you can try a 10-question personal finance quiz from the Council for Economic Education.
Where can I find information on financial literacy curriculums?
Next Gen Personal Finance offers free curriculum materials and teacher instruction. Other sources include The JumpStart Coalition for Personal Financial Literacy, the University of Chicago Financial Education Initiative, and the Consumer Financial Protection Bureau.
