A high school class so in demand that students are willing to sit on the floor and audit the class without earning credit?
Although it may look like a unicorn, the description matches a personal finance choice launched by Stuyvesant High School in New York last year. “It’s something every child needs to do, and we’re kind of forced to do it at our own pace, without any guidance,” said Anisha Singhal, a Stuyvesant senior who advocated not only for the school creates an elective, but also for New York to make financial literacy education mandatory in all high schools in the state.
Although Stuyvesant has created its own course, New York State has yet to codify a standalone personal finance requirement. The state legislature has introduced numerous bills to require high school financial literacy classes since 2009, but none have passed. The most recent version was stalled in committee this year, although its sponsor, State Senator Leroy Comrie, plans to reintroduce it in January.
Momentum for State-Level Financial Education
There’s reason to be optimistic about the New York bill’s potential passage in 2023 given the growing momentum at the state level for high school personal finance needs. In April, Georgia enacted a law requiring high school students to take a half-credit financial literacy course as a condition of high school graduation. Florida, Michigan, Nebraska, Ohio and Rhode Island have also passed laws recently. Other states, including South Carolina, Minnesota and New Hampshire, have similar legislation making its way through legislatures. Overall, 12 states require or will soon require a stand-alone financial literacy course as a prerequisite for graduation. Additionally, 25 states require some financial literacy training to be included in the curriculum, including as a unit within an existing class such as math or economics.
The timing couldn’t be more opportune given that many of today’s high school students are preparing to dive into a real-world financial pool without even the basics of personal finance. While the recent financial shocks of the pandemic have illuminated, not only is the water quite deep, but there are also plenty of sharks and, unfortunately, not as many lifeguards as one would hope. “The need has never been greater” said Annamaria Lusardi, founder and academic director of the Global Financial Literacy Excellence Center at George Washington University. “We owe it to this younger generation to be well prepared for the future.”
Dismal levels of financial literacy among Americans
Many studies have shown that high school students, like most Americans in general, have surprisingly low levels of financial sophistication. Professor Lusardi administers an annual survey measuring financial literacy on topics ranging from saving, borrowing and investing. Unfortunately, the 2022 results show little change in Americans’ working financial knowledge and only a slight gap between age groups. On average, American adults could only answer 50% of the questions correctly, with Gen Z scoring the lowest.
Specifically, many high school students are about to embark on an educational experience that increasingly places a heavy debt burden on students. Two-thirds of those who graduated with a bachelor’s degree in 2020 graduated with debt, up from less than half in 1993. link between their field of study and the level of income they can expect after graduation and many students attend college without understanding financial aid, loans, debt, credit, l inflation, budgeting and credit scores,” according to the Center for Financial Literacy at Champlain College.
In addition, students have even greater access to financial instruments, such as credit cards, which can quickly amplify already high debt levels. The percentage of students using credit cards in college has increased over the past decade from 28% in 2012 to 46% in 2022 and a recent survey of 20,000 students by AIG Retirement Services and EVERFI indicated that students rely more on credit cards. The survey found that 40% of students have total credit debt of more than $1,000 in 2022, up 7 percentage points from last year. A more troubling finding is that 38% of students don’t plan to pay their bill every month, meaning they incur double-digit interest charges.
Consequences of the first financial errors
Financial mistakes in early adulthood could have significant consequences after graduation. A lower credit score could lead to an inability to get loans, apartment rentals, or even jobs in some states; it could also mean incurring tens of thousands of dollars in additional loan interest charges due to a higher interest rate on a mortgage or the inability to refinance student loans. As Robert Manning, author of Credit Card Nation summarizes, “While freshmen and their parents probably think more about testing and studying during orientation, the fact is that after graduation, a student’s credit score is arguably far more important to their future than grade point averages.”
These and other findings explain why it is so important to include a personal finance requirement in secondary schools. Financial literacy helps young adults make better financial decisions and leads to better financial behavior. Financial education has been shown to reduce the likelihood of using other forms of borrowing such as payday loans. It has also been positively correlated with asset accumulation early in life. A study focused on credit outcomes found that states with three states with financial literacy requirements saw an increase in credit score and lower delinquency rates among participants. “The results are striking,” Carly Urban, professor of economics at Montana State University Told Bench. “Credit scores go up and delinquency rates go down. If you’re a student borrower, you go from low to high interest, you don’t accumulate credit card debt, and you don’t use private loans, which are more expensive.
Why some financial literacy bills are stalled
Although momentum is building, not all financial literacy bills have made their way through state legislatures. Three themes may explain why legislation has stalled in some states: a deference to the rights of local districts; the perceived opportunity cost of offering personal finance electives; and the potential difficulty in finding a qualified instructor to teach the classes. For example, a financial literacy bill died earlier this year in Wisconsin due to concerns that it would come at the expense of career education choices. “We are trying to add [career-training] experiences to meet labor market needs with more than a high school diploma and less than a four-year degree,” said Ben Niehaus, director of member services for the Wisconsin Association of School Boards. “There are only so many hours in a day.”
States must focus on the curriculum
With the undeniable trend of codifying high school financial literacy courses, a key area for states and schools should be pedagogy and curriculum. Examples should be adapted to match the experience of high school students and salient life events. The class of Stuyvestant, for example, has seniors review the financial aid programs of their college acceptances, which helps to personalize the student experience.
Unfortunately, some states’ programming may be too outdated and specific. The Florida Program understand lessons on “balancing a checkbook” and “receiving an inheritance,” which strike me as potentially anachronistic and exclusive. More importantly, many state curricula don’t cover how to evaluate financial advice, including what high school students are bound to hear on social media sites like TikTok. Course content should also be more forward-thinking and include “discussion of new financial tools, like payment and trading apps and digital money, because students are already hearing about them, according to Tim Ranzetta, co-founder of Next Gen Personal Finance. “You better talk about cryptocurrency.”