Market Overview

Is 'Financial Education' Still Relevant?


It’s hard to deny a need for financial education. In recent years, we’ve contended with a housing crisis, a student debt crisis and a retirement savings crisis. That’s a lot of money trouble for one decade.

But not everyone is on board. Some economists report students aren’t getting any better with money. And there’s nothing wrong with a healthy dose of skepticism–most solutions aren’t that simple. But the criticisms toward financial education aren’t that simple, either.

“We talk about how personal finance, really, begins at home,” Laura Levine, President of the Jump$tart Coalition, a nonprofit dedicated to educating young people about money. “In a perfect world, that is absolutely true. But we don’t live in a perfect world.”

A Brief Background

There’s a recent trend in championing this type of education, no doubt prompted by those aforementioned crises. Congress established the Financial Literacy and Education Commission in 2003. And the Jump$tart Coalition has been promoting financial literacy in the United States even earlier than that, since the mid-nineties.

Still, financial education is a pretty new initiative. Just four states (Missouri, Tennessee, Utah and Virginia) require high school students to pass a personal finance class to graduate. In 17 states, students are required to take courses that at least touch on personal finance topics. According to the National Conference of State Legislatures, almost 20 states approved or adopted financial literacy resolutions last year.

How Effective Have Programs Been?

This seems like an easy question to answer. It’s not.

Some studies and reports criticize the efficacy of these programs. For example, in 2009, economists Lewis Mandell and Linda Schmid Klein authored the study, The Impact of Financial Literacy Education on Subsequent Financial Behavior. They specifically named research by the Jump$tart Coalition for Personal Financial Literacy, and suggested that students who had taken a personal finance class in high school class “are no more financially literate than those who have not…”

But, in fact, other research shows that financial education does have an impact. The University of Arizona’s APlus study followed the money behavior of college students. It concluded: “Our research findings suggest that parents, schools and the marketplace would do well to partner to help children and young adults develop positive financial attitudes and behavior.”

The National Endowment for Financial Education (NEFE) shows some positive outcomes, too, in research over the past 15 years. But they admit that, basically, the research is still thin.

Support From Educators

Despite critics’ concern that financial education creates an added burden on our teachers, most educators agree that personal finance has a place in the education system. According to the NEFE, 89 percent “of teachers agree or strongly agree that students should take a financial literacy course or pass a test for high school graduation.”

But this isn’t to say educators will follow through. The same Jump$tart study indicated that most teacher incentives focus on improving standardized national examinations. In other words, financial education is a distraction.

Moving Forward

Ironically, strapped budgets keep a lot of states and localities from moving forward with financial education measures. But, ideally, it would be a worthwhile investment. Knowledge can make us a little less vulnerable to any flaws or corrections in our financial system. It seems education could go a long way in strengthening our economy by protecting us from so many of the financial disasters we’re still recovering from, years later.

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