There’s long been different schools of thought on who should be educating children on which subjects. Some contend that schools should focus on core subjects like English, math, history and science and leave “life skills” instruction to parents. The problem is that most kids are not learning skills like personal finance at home. That’s creating a knowledge gap with real consequences.
Young adults typically score woefully low when measured on financial acumen. Young people are most likely to engage in expensive credit behaviors like payday loans and paying high interest and late fees on credit cards. Add in soaring student debt, and young people today are in financial bind before they get their first paycheck. There’s new evidence that shows that a little financial education would go a long way to putting young people on a better financial path.
Many experts see financial education as a critical tool to empowering Americans in their money decisions and avoiding another crisis like the subprime mortgage debacle. But only 17 states have instruction in personal finance as a required course for primary education, according to the Council for Economic Education’s most recent Survey of the States.
Researchers at Center for Financial Security recently looked at students in three states that have adopted relatively thorough financial education requirements —Georgia, Idaho, and Texas. The researchers found that young adults age 18-22 in those states had higher credit scores and fewer credit delinquencies than students in neighboring states without a financial education requirement.
Analysis also showed that, while graduates of the first class required to take the financial education course showed little improvement in financial health, subsequent classes made noticeable strides toward smarter money management. This suggests there is a learning curve for teachers and schools, and that they become far more effective with practice.
The results showed that three years after high school, students required to take a financial education class had significantly improved credit scores. Scores were up 11 points in Georgia, 16 points in Idaho, and 32 points in Texas. In addition, students from all three states had cut their rate of credit payments that were at least 90 days late by 10% in Georgia, 16% in Idaho, and 33% in Texas.
In an ideal situation, parents would be financially educated and would pass on that information and their hard-earned wisdom to their children in conversations as important and frank as “the talk” about the birds and the bees. However, in the absence of that reality, there may be an important role for school educators. Many kids will never need to know the quadratic formula or how to write a haiku in “the real world”. However, everyone benefits from an early understanding of personal finance. It’s something that we all become educated on eventually – either the hard way or the easy way.