Bills
| 3.23.22

Should the Dept. of Education Fund Financial Literacy Education in K-12 Schools? (S. 155)

Do you support or oppose this bill?

What is S. 155?

(Updated April 5, 2020)

This bill — the Youth Financial Learning Act — would establish a grant program at the Dept. of Education to help states fund in-school financial literacy programs. The grant program would also encourage community partnerships to promote school-age youths’ financial literacy.

Argument in favor

Too many young people are graduating from high school with limited to zero financial literacy. This affects their financial choices, futures, and society at large. Providing financial literacy education in schools will help students make better financial decisions from a young age.

Argument opposed

Teaching financial literacy via a single class won’t stick or yield results. At 18 or younger, many students simply won’t retain the lessons they learn about healthy financial habits long enough to apply them in the real world.

Impact

K-12 students; schools; school districts; states; state education authorities; financial literacy programs; and the Dept. of Education.

Cost of S. 155

A CBO cost estimate is unavailable.

Additional Info

In-Depth: Sen. Doug Jones (D-AL) reintroduced this bill from the 115th Congress to establish a competitive grant program at the Dept. of Education to help states build in-school financial literacy programs and encourage community partnerships to promote school-age youths’ financial literacy:

“For many of our high school students, they will soon face major financial decisions that can have a lasting impact on their future. By providing them with the financial literacy skills they need, they can make smarter, more informed choices about taking on the expense and commitment of loan. Alabama is leading the way by requiring personal financial education and, through my legislation, I hope we can help more young folks better prepare to go to college, buy a home, or start a business.”

Sen. Maggie Hassan (D-NH), one of the original cosponsors of this bill, adds:

“Financial literacy is a fundamental, but unfortunately, undervalued skillset that is necessary to help our young people make smart financial decisions. Whether our young people are looking to take out student loans – or establish good credit – this bill would create federal grants to help prepare them for the long-term impacts of those decisions and support their future financial well-being.”

The National Financial Educators Council supports teaching financial literacy from a young age via a range of approaches. Freedom Financial Network’s Andrew Housser argues that money management courses aren’t “an inborn skill,” but rather “something that each person must learn — just like math, reading and writing.”

Dr. Trey Holladay, Athens City, Alabama’s Schools Superintendent, notes that his schools have long placed an emphasis on helping students become financially literate. He believes a grant like the one proposed in this grant would help his school district provide financial literacy education to its students. Holladay argues, “If we can teach our children to be financially savvy starting at a young age, they will avoid so many problems in the future.”

John Lohr, a pension fund analyst and fiduciary expert, argues that high school is the worst place for teaching financial literacy. He points to a 2014 study by economic researchers from Harvard, Wellesley College, and the Federal Reserve Bank of Chicago, which found that state mandates requiring high school students to take personal finance courses had “no effect on savings or investment behavior.” Lohr suggests integrating “basic financial behavioral principles” into education writ broadly instead:

“What this country needs is basic financial behavioral principles introduced in kindergarten, integrated with other basic learning skills like math, science, art (what is the cost of crayons, anyway?), reading. Incorporate financial mores into real life concepts, all the way through trade school or graduate school. Start with the teachers. Every one of them should be adequately trained and resourced. They should be made made aware of the importance of financial literacy and relevant pedagogical methods, and how it relates to their subject competency. They should be taught how to incorporate it into their classroom and they should receive continuous support, tools and training to teach financial literacy in their class the rest of their teaching lives.”

This bill has two Democratic cosponsors in the 116th Congress. Last Congress, it had the same two Democratic cosponsors and didn’t receive a committee vote.


Of Note: Sen. Jones’ home state of Alabama is one of the few states with personal finance education as a graduation requirement. The Alabama State Board of Education’s standard course of studies requires students to take a one-semester career preparedness class before graduating high school. In addition to helping students plan for college or their careers, the course also teaches them how to manage their personal finances, save for the future, understand and use credit cards wisely, prepare household budgets, and understand student loan borrowing.

According to the Brookings Institution, as of October 2018, 20 states and D.C. don’t require high school financial literacy to be offered or taken in any capacity. In 2018, three states — Louisiana, Kentucky, and Iowa — passed major legislation requiring their respective state education boards to establish high school financial literacy requirements.

The Brookings Institution notes that lack of basic financial knowledge among today’s youth is a matter of “national concern” with a range of consequences:

“The lack of basic financial knowledge and skills among youth today is of national concern. American high school students routinely fail tests that evaluate their financial knowledge and are ill-prepared to face important decisions about borrowing, saving, investing, and planning for their financial futures. A 2008 analysis of the Jump$tart Coalition’s national survey found that the average financial literacy score of high school seniors was just 48.3 percent, more than 10 points below a ‘passing’ score, and the lowest in a series of failing scores since the bi-annual test was first administered in 1998. An analysis of a nationally representative sample of young adults found that only 27 percent understood the concepts of inflation and risk diversification and could do simple interest rate calculations, while a 2018 survey identified a similar knowledge gap among college students. The consequences of these low levels of financial literacy can be significant. Low financial literacy is correlated with a host of negative credit behaviors, including higher borrowing rates, mortgage delinquency, and home foreclosure. These negative behaviors are particularly pronounced among young people: individuals age 18 to 34 pay more in interest on credit card debt and penalty fees than older adults, and are also twice as likely to take a hardship withdrawal from their retirement account or miss a mortgage payment.”

Champlain College’s Center for Financial Literacy notes that financial literacy leads to a range of better personal finance behavior, benefiting both individuals and society at large:

“There are a variety of studies that indicate that individuals with higher levels of financial literacy make better personal finance decisions. Those who are financially illiterate are less likely to have a checking account, rainy day emergency fund or retirement plan, or to own stocks. They are also more likely to use payday loans, pay only the minimum amount owed on their credit cards, have high-cost mortgages, and have higher debt and credit delinquency levels. As a society, we need more training programs that increase the number of financially literate citizens who are able to make better and wiser financial decisions in their own lives. Such programs are not just good for the individual but also helpful to society. The 2008 financial crisis clearly shows that poor financial decisions by individuals had negative consequences on our country.”

The Brookings Institution adds that financial literacy education for K-12 students is a matter of sound public policy for states, which have a vested interest in their citizens’ economic health:

“States have a vested interest in the economic health of their citizens, making low financial literacy an important issue for policymakers. Public education before high school graduation can play a role in improving financial literacy and promoting sound financial decision-making. Yet many—if not most—financial education efforts focus on college students and adults. Such efforts are often reactive rather than proactive, and may be too little too late. Furthermore, programs offered by firms and colleges may fail to reach a large number of Americans. In contrast, earlier education initiatives during and before high school can target individuals before they have had the opportunity to get into serious financial trouble and become entrenched in negative behaviors. Research suggests that introducing children and adolescents to general concepts, such as responsible spending and good saving habits, may pay dividends later in life by establishing the building blocks for financial well-being in adulthood. Financial education at an early age, therefore, can be viewed as an ‘investment in human capital.’ On a state level, some boards of education have worked effectively to promote financial education for K-12 students through standards and mandates, but many other states lag behind. In the nonprofit sector—on local and national levels—a number of programs, curricula, and initiatives targeted at high school students (and even younger students in some cases) also provide a substantial amount of financial literacy education.”  

Students who take financial literacy courses in high school reap immediate benefits from their financial educations. According to the 2016 Students and Money National Research Study, which surveyed 76,000 high schoolers across the U.S., nearly two out of three high school students who had taken a personal finance course reported they were already earning an average of $3,000 a year. A majority of survey respondents also said they were in the habit of setting monthly budgets, and 20 percent owned cars they’d paid for themselves.

Studies have shown that parents — who some argue are the natural resource for children to learn about finances — frequently aren’t teaching their kids about personal finance at home. In 2017, a T. Rowe Price survey found that nearly 69 percent of parents had some reluctance about discussing financial matters with their kids. In fact, the survey found that parents were nearly as uncomfortable talking to their children about money as they were talking to them about sex. Only 23 percent of children surveyed in the T. Rowe Price study said they talked to their parents about money frequently; by contrast, 35 percent said their parents were uncomfortable talking to them about money.


Media:

Summary by Lorelei Yang

(Photo Credit: iStockphoto.com / FatCamera)