INTRODUCTION RESULTS DISCUSSION

STATE FINANCIAL EDUCATION MANDATES: IT’S ALL IN THE

IMPLEMENTATION

Carly Urban1J. Michael Collins2

Maximilian Schmeiser3 Alexandra Brown4

1Montana State University

2University of Wisconsin-Madison

3Amazon

4Federal Reserve Board

May 24, 2017 URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

DISCLAIMER

The views expressed in this talk are those of the authors and do

not necessarily represent the views of the Federal Reserve Board,

the Federal Reserve System, or their staffs.

This research was supported by a grant from the FINRA Investor

Education Foundation. All results, interpretations and

conclusions expressed are those of the research team alone, and

do not necessarily represent the views of the FINRA Investor

Education Foundation or any of its affiliated companies.

I am currently serving part-time as a visiting researcher under the

CFPB’s IPA program. The work I am presenting today is based

on my own research and does not implicate or represent the

CFPB in any way.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL LITERACY

Financial Literacy amongst young adults in the U.S. is particularly

weak:

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL LITERACY

Financial Literacy amongst young adults in the U.S. is particularly

weak:

Performed at the OECD average on the 2015 PISA.

7 out of 15 participating countries and economies.

< 1 in 3 Americans aged 23 - 28 possess basic knowledge of

interest rates, inflation and risk diversification. (Lusardi,

Mitchell, and Curto 2010).

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL LITERACY

Low Levels of Financial Literacy have been associated with:

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL LITERACY

Low Levels of Financial Literacy have been associated with:

lower rates of planning for retirement, asset accumulation, stock

market participation (Lusardi and Mitchell 2007, 2014; Lusardi

et al. 2010; van Rooij et al. 2012).

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL LITERACY

Low Levels of Financial Literacy have been associated with:

lower rates of planning for retirement, asset accumulation, stock

market participation (Lusardi and Mitchell 2007, 2014; Lusardi

et al. 2010; van Rooij et al. 2012).

greater use of high cost financial services and higher levels of

debt (Lusardi and Tufano 2009; Meier and Springer 2010).

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL EDUCATION IN U.S. HIGH SCHOOLS

Before pushing states towards implementing K-12 personal

finance education requirements, need to understand costs and

benefits.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL EDUCATION IN U.S. HIGH SCHOOLS

Before pushing states towards implementing K-12 personal

finance education requirements, need to understand costs and

benefits.

An existing body of research on the effectiveness of personal

finance education yields conflicting findings (Fernandes et al.

2013).

Does financial education improve financial decisions (Bruhn et.

Al. 2013)? Or not (Cole et. Al. 2013; Willis 2011)?

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FINANCIAL EDUCATION IN U.S. HIGH SCHOOLS

Before pushing states towards implementing K-12 personal

finance education requirements, need to understand costs and

benefits.

An existing body of research on the effectiveness of personal

finance education yields conflicting findings (Fernandes et al.

2013).

Does financial education improve financial decisions (Bruhn et.

Al. 2013)? Or not (Cole et. Al. 2013; Willis 2011)?

Our research asks how effective financial education in high

school is in 3 states with rigorous curriculum and course

mandates.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

WHY PREVIOUS STUDIES MAY BE FLAWED

Errors could lead previous literature to find that financial education is

ineffective:

1 The education is usually not implemented for another 3 or 4

years after the law is passed. Previous studies do not always

account for this.

2 Some states do not require school districts to implement the

curriculum.

3 Cole et. Al. (2013) and Brown et. Al. (2013) assume all financial

education is the same, even though some states simply require

schools to discuss personal finance for one day in social studies

class and others require a course, teacher training, and testing.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

OUR CONTRIBUTION

Question: What are the effects of an intensive personal finance course

requirement in High School on credit behavior?

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

OUR CONTRIBUTION

Question: What are the effects of an intensive personal finance course

requirement in High School on credit behavior?

We chose 3 states with intensive mandates post-2000: Georgia,

Idaho, Texas.

We determined exactly what financial education entailed:

sample curricula.

graduation requirements began with class of 2007.

teacher training.

taught within High School Economics.

no other course requirement changes in the study period.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

MODEL CURRICULA

All three states contain the following topics in their sample curricula:

Understanding interest.

Credit, debt, banking.

The role of insurance.

Understanding credit scores.

Interactions between global and domestic economies.

Encourage participation in stock market game simulations.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

DATA AND METHOD

The data in our study come from the Federal Reserve Bank of New

York’s Consumer Credit Panel.

5% sample of all U.S. credit files from Equifax.

Compare each of these states to one state that it borders but does

not have a financial education requirement, as well as students

within the same state before and after the education began.

This tells us what students in Georgia, Idaho, and Texas would

have looked like if they never had the education.

Look at the first three graduating classes exposed to the mandate

to see if and when the education became effective.

Follow students from 18-22 years of age.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

METHOD

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FIN ED INCREASES CREDIT SCORES

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FIN ED INCREASES CREDIT SCORES

For the first graduating class that received financial education, there is

no measurable change in credit scores for any state.

GEORGIA: 2

nd: ↑ 6 points.

3

rd: ↑ 11 points.

IDAHO: 2

nd: ↑ 8 points.

3

rd: ↑ 16 points.

TEXAS: 2

nd: ↑ 16 points.

3

rd: ↑ 32 points.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FIN ED REDUCES 90+ DAY DELINQUENCY RATES

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

FIN ED REDUCES 90+ DELINQUENCY RATES

Effect size by graduating class

GEORGIA: 1

st: no change.

2

nd: ↓ 1.2 percentage points.

3

rd: ↓ 1.8 percentage points.

IDAHO: 1

st: no change.

2

nd: ↓ 1.9 percentage points.

3

rd: ↓ 2.0 percentage points.

TEXAS: 1

st: ↓ 1.4 percentage points.

2

nd: ↓ 3.4 percentage point.

3

rd: ↓ 5.8 percentage points.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

WHY IS THE EFFECT DIFFERENT IN EACH STATE?

Each state has a different demographic composition.

Each state has a different implementation.

Each state has a different baseline average.

Average Average

Credit Score 90+ Day Default Rate

Georgia 606.5 18.18%

Idaho 632.3 12.17%

Texas 609.3 17.81%

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

TAKEAWAYS

Previous research finding no effect of K-12 financial education

does not distinguish between the types of education offered.

Our research suggests that rigorous education, tailored to a

state’s population affect early-life delinquency and credit scores.

Implementation is key. A mandate alone does not improve

behaviors.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

CONTACT

Carly Urban

Assistant Professor of Economics

Montana State University

carly.urban@montana.edu

www.montana.edu/urban

406.994.2005

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

REFERENCES

Brown, M., van der Klaauw, W., Wen, J., Zafar, B., 2014. Financial education and the debt behavior of the young. Federal

Reserve Bank of New York Staff Report Number 634.

Bruhn, Miriam; de Souza Leao, Luciana; Legovini, Arianna; Marchetti, Rogelio; Zia, Bilal. 2013. The impact of high school

financial education : experimental evidence from Brazil. Policy Research working paper ; no. WPS 6723; Impact Evaluation

series ; no. IE 109. Washington, DC: World Bank Group. http://documents.worldbank.org/curated/en/

2013/12/18640673/impact-high-school-financial-education-experimental-evidence-brazil

Cole, S., Paulson, A., Shastry, G. K., 2013. High school and financial outcomes: The impact of mandated personal finance and

mathematics courses. Harvard Business School Working Paper 13-064.

Fernandes, D., Lynch, J. G., Netemeyer, R. G., 2014. Financial literacy, financial education, and downstream financial

behaviors. Management Science 60 (8), 1861-1883.

Klapper, L., Lusardi, A., van Oudheusden, P., 2015. Financial literacy around the world: insights from the Standard & Poor’s

ratings services global financial literacy survey.

http://gflec.org/wp-content/uploads/2015/11/Finlit_paper_16_F2_singles.pdf

Lusardi, A., Mitchell, O. S., 2007. Baby boomer retirement security: The roles of planning, financial literacy, and housing

wealth. Journal of Monetary Economics 54 (1), 205-224.

Lusardi, A., Mitchell, O. S., Curto, V., 2010. Financial literacy among the young. Journal of Consumer Affairs 44 (2), 358-380.

Lusardi, A., Tufano, P., 2009. Debt literacy, financial experiences, and overindebtedness. National Bureau of Economic

Research Working Paper Series (W14808).

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION
INTRODUCTION RESULTS DISCUSSION

REFERENCES CONTINUED

Meier, S., Sprenger, C., 2010. Present-biased preferences and credit card borrowing. American Economic Journal: Applied

Economics 2 (1), 193–210.

van Rooij, M. C. J., Lusardi, A., Alessie, R. J. M., 2012. Financial literacy, retirement planning and household wealth. The

Economic Journal 122 (560), 449–478.

FINRA Investor Education Foundation, National Financial Capability Study, 2013

Willis, L. E., 2011. The financial education fallacy. American Economic Review 101 (3), 429–34.

URBAN, COLLINS, SCHMEISER, BROWN MSU

STATE FINANCIAL EDUCATION