Two Cheers for School-Based Financial Education. Issue Brief
Author: Mandell, Lewis
Date: 2009-06-00
Type: Reports - Descriptive
Subjects: High Schools,Secondary School Curriculum,Consumer Education,Budgeting,Consumer Economics,Instructional Effectiveness,Money Management,Educational Finance,Compensation (Remuneration),Fringe Benefits,Credit (Finance),Debt (Financial),Retirement Benefits,Family Financial Resources,Developmental Tasks,Developmentally Appropriate Practices

The near-collapse of the American financial system has led to a search for its causes and ways to prevent it from happening again. Many political leaders blame at least some of the sub-prime mortgage crisis on mistakes caused by financially "illiterate" consumers and propose to solve that problem with mandatory classes in personal finance. Currently, about 20 percent of US high school graduates complete a semester-length course in personal finance. Unfortunately, five consecutive surveys by the Jump$tart Coalition have found no evidence that teaching personal finance in high schools has improved students' ability to understand and use financial information. Many hypotheses have been advanced to explain the lack of success in teaching personal finance at the high school level. Better-trained teachers and mandatory courses may help, but gains from these solutions have, thus far, been slight. Some feel that constantly-changing financial products and regulations mean that students have little motivation to learn about financial decisions that will no longer be useful when they become adults. Others hypothesize that basic financial habits, such as careful product evaluation and thrift, are formed at a younger age and are difficult to change in late teenage years. One promising finding is that school-based financial education appears to have a long-term, positive impact on financial "behavior", manifesting itself when students are adults. Since high school courses do not appear to materially improve scores on financial literacy tests administered to high school seniors, the greatly delayed behavior changes are likely to be "emotional" responses to materials presented in class. These appear to play out years later when former students have the financial ability to engage in a range of financial choices. One cheer for financial education! Unsatisfactory test results from teaching high school students have led some to suggest that reaching a younger, pre-high school population might prove to be more effective. Younger students might be more susceptible to new ideas and less vulnerable to peer pressure, which can influence spending choices and levels of consumption. However, younger students may lack the background and cognitive development to understand some of the key concepts of personal finance. This suggests that nontraditional types of education, with strong emotional appeal and shared experience, may be more effective in communicating important concepts to younger students and helping them form behaviors that will benefit them throughout their lives. Two large-scale pilot programs have evaluated the use of a nontraditional (live improvisational play) educational intervention on pre-high school students. While the results are still preliminary and have not yet been replicated on a national sample, it appears that teaching younger students with materials based on personal experience, which appeals to their emotions, may be an effective way to increase knowledge, change attitudes, and alter behavior. These results would also appear to support the institution of child accounts, which use the child's ownership of assets to personalize age-appropriate financial education from the earliest grades. "Cheer" two for school-based financial education! (Contains 1 figure.)