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A Critical Void in Personal Finance Education

Until it's filled, many young people will be shortchanged.

The 2008 credit crisis taught us many lessons — not the least of which was that financial illiteracy can cause havoc.

While it’s true that lenders were at fault for many of the millions of mortgage foreclosures back then, borrowers often shared the blame by unwittingly taking out loans they had no chance of repaying.

The credit crisis exposed a serious void in financial literacy in our country; yet, today — eight years later — most schools in the United States still do not teach courses in personal finance.

Only 17 of the 50 states require such courses in high school — the same number that required them two years ago, according to the Council for Economic Education’s 2016 Survey of the States.

The council reported that only 20 states now require high school students to take an economics course — two fewer than in 2014. Only 16 of these states require standardized testing of economic concepts, the same as in 2014 (but down significantly from 25 back in 1998).

That’s frustrating, but there has been some progress. For example:

  • 45 states now include personal finance in their K-12 standards, up from 21 in 1998, and 37 require those standards to be implemented.
  • All 50 states, plus Washington, D.C., now include economics in their K-12 standard curricula (up from 39 in 1998) and 45 require implementation of the standards.

Financial education varies widely by state. Some require that standards be implemented in primary school. Others merely suggest that high school classes in economics or personal finance be offered, while others require students to pass those courses in order to graduate.

The states with the most stringent mandates seem to get their graduates off to a better financial start, based on data released in January of 2016, from the Financial Industry Regulatory Authority’s Investor Education Foundation, which promotes financial literacy.

It reveals that high school students who are required to take personal finance courses have better average credit scores and lower debt delinquency as young adults.

The FINRA group reported “notable improvements” in credit outcomes for 18- to 22-year-olds in three states — Idaho, Georgia, and Texas — where financial education requirements are strict. All three made financial education mandatory after 2000; they had not previously required it in high schools.

Idaho requires students to complete a half-year course in personal finance, while Texas adds the testing requirement for graduation. Georgia takes it a step further by requiring that teachers also be trained.

The study found that credit scores of the graduates from those three states were most improved among those who took the classes in the second and third years after the mandates were implemented, when coursework was better integrated into the system. The Georgia students’ scores then jumped nearly 11 points, or 1.8%, compared with scores prior to the mandate. The Idaho young adults’ scores rose 16 points, or 2.6%, and the Texas group increased their credit rating by 32 points, a 5.2% gain.

Students who graduated under higher standards proved themselves more likely to make on-time payments and keep up with bills, and they seemed to understand how to manage their obligations better than those who weren’t exposed to personal finance and economics courses in school, the FINRA group said.

Do your local schools require economics and personal finance courses? If not, urge your administrators to add them to the curriculum.

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