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Welcome back to Invest in You: Ready. Set. Grow's supplemental Money 101 guide to financial wellness during these trying times.
April is Financial Literacy Month – so we're taking a look at the state of financial education in the U.S. and its effectiveness.
Lack of financial knowledge has led many people to rack up credit card and student loan debt, live paycheck to paycheck, and not save enough for emergencies or retirement. It has resulted in people not being able to buy a home or, in some cases, not able to put enough food on the table.
When Americans' personal finance knowledge was tested in the 2021 TIAA Institute-GFLEC Personal Finance Index, adults correctly answered only 50% of the questions.
Thank you for already undertaking your journey to financial wellness. We hope this supplementary guide helps raise awareness about the importance of financial education in achieving that goal.
Sharon Epperson |
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The state of financial education
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Starting early
It is crucial to teach kids personal finance in high school, financial literacy advocates say. It will help students to make decisions about college loans and budget for living expenses after graduation.
Yet,21 states require personal finance coursework in high school, with only a handful mandating a stand-alone class, according to the Council for Economic Education.
However, integrating the coursework into another class comes with the danger of it not being taught at all. Only about 36% of schools in states that have embedded topic mandates actually require the coursework, an April 2020 research paper found.
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Racial divide
There is unequal access to financial education and advocates warn it could widen the racial wealth gap.
The latest data from Next Gen Personal Finance shows that less than 12% of students are required to take a stand-alone personal finance course to graduate high school, outside of the seven states that mandate it. When it comes to Black and Brown students, it drops to 7.4%. Of low-income students, 7.8% are required to take the class.
The impact is clear. White adults correctly answered 55% of the TIAA index questions, on average. Meanwhile, Blacks answered 37% correctly. Hispanics also lagged behind, scoring 41%.
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Teacher training counts
A state mandate doesn't attach a curriculum for how teachers should teach the materials. There often isn't funding for it, either.
Generally, the curriculum is based on standards set by groups including the Jump$tart Coalition for Personal Financial Literacy and the Council for Economic Education. The coursework focuses on topics such as savings, credit, debt, investing and financial decision-making.
Training educators helps improve whether they feel well-qualified to teach personal finance, research suggests. A 2020 survey of teachers, mostly those likely to teach such a course, found that 70% would feel very confident in teaching it. That's up from 9% in 2009.
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"An investment in knowledge pays the best interest."
— Benjamin Franklin
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Legislation in the works
Twenty-five states and the District of Columbia have introduced bills in their 2021 legislative sessions to increase access in financial education.
These bills range from forming task forces and commissions to developing standards for what should be taught in a course to ensuring that every high school student takes a course prior to graduation, according to Next Gen Personal Finance CEO and Co-Founder Tim Ranzetta.
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Better outcomes
Studies show there is a strong connection between financial literacy and financial well-being.
Adults with greater financial literacy find it easier to make ends meet in a typical month, are more likely to make loan payments in full and on time, and less likely to be constrained by debt or be considered financially fragile.
They are also more likely to save and plan for retirement, according to a report by the TIAA Institute based on research over several years.
A financial education has been shown to reduce the likelihood of using payday loans among young adults and is positively correlated with accumulating assets by the time you're 25.
One study found that three years after personal finance education was mandated in three states - Georgia, Idaho and Texas - there was a reduction in severe delinquency rates and a rise in credit scores.
Another study found personal finance coursework increased the likelihood that college-bound students would apply for financial aid and tap into lower-cost loans and grants. It also reduced private loan balances by about $1,300 for borrowers and decreased the likelihood of carrying a credit card balance.
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The bottom line
Starting early is the key to financial success, advocates say.
"Financial education is learning how to critically think about all facets of your life, particularly money," said economist Julie Heath, director of the University of Cincinnati's Economic Center. "Why wouldn't we start teaching that as soon as we could?" The center developed an award-winning online financial literacy curriculum, including music videos, for students in grades K-6. "By age seven, a lot of kids attitudes about consumption are set or beginning to form. We wanted to get this to students as soon as we can so they can develop responsible attitudes about money."
Research has shown that starting a financial education at a young age helps improve people's overall financial well-being. If you don't have mandated personal finance classes in your school, advocates urge you to reach out to your legislators.
Register now for a CNBC + Acorns Invest in You: Ready. Set. Grow. and Junior Achievement town hall April 22. Students from across the United States will have the opportunity to ask a panel of experts questions about the role education plays in leveling the financial playing field.
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