“To fully participate in society today, financial literacy is critical.”
-Annamaria Lusardi, Denit Trust Professor of Economics and Accountancy at the George Washington School of Business, and Academic Director of the GW Global Financial Literacy Excellence Center
CEE compiles research from top industry experts and points of impact useful for making a case for the need for economic and financial literacy education in the classroom.
The Problem at a Glance
Americans’ Economic and Financial Literacy
- Only 14% of American adults answered all 5 questions correctly in a test of financial literacy (FINRA’s National Capability Study, 2012)
- First-year college students have an average financial knowledge score of 65.8% across five core competency areas (Inceptia Research Brief, “College Students are Put to the Test: The Attitudes, Behaviors and Knowledge Levels of Financial Education,” January 2013)
- Only 43% of 12th grade students tested at or above proficient – which is the level defined as representing competency over the subject matter – on the most recent National Assessment of Educational Progress (NAEP) economics assessment (National Center for Education Statistics, The Nation’s Report Card: Economics 2012, April 2013)
- American teenagers on average scored less than 60% on a national financial literacy test (National Financial Educators Council National Financial Literacy Test, 2012-2014)
- American teenagers fall in the middle of the pack globally, performing around the average of the 18 countries that participated in PISA’s financial literacy assessment – just behind Latvia and just ahead of Russia; more than one in six students surveyed in the United States lack the financial knowledge and skills needed for the demands of today’s world, failing to meet the baseline level of proficiency (OECD’s PISA 2012 Financial Literacy Assessment)
Americans’ Financial State (Current as of December 2014)
U.S. household consumer debt profile:
- Average credit card debt: $15,611
- Average mortgage debt: $155,192
- Average student loan debt: $32,264
In total, American consumers owe:
- $11.74 trillion in debt (an increase of 3.3% from last year)
- $882.6 billion in credit card debt
- $8.14 trillion in mortgages
- $1.13 trillion in student loans (an increase of 8% from last year)
(“American Household Credit Card Debt Statistics: 2014,” NerdWallet)
Making the Case for the Need for Economic and Financial Literacy Education in the Classroom
When faced with evidence such as this, it is perhaps not surprising that too few students are being exposed in their elementary and secondary education to the fundamental concepts that could better arm them against these outcomes. Only 22 states require students to take a high school economics course to graduate, and only 17 require a course in financial literacy (Council for Economic Education’s 2014 Survey of the States).
Despite the current state of economic and financial education, there is hope for improvement in the future. Years of substantive and carefully-designed research shows that 1) K-12 students can learn economic and financial concepts when taught by teachers who know economics and know how to teach it and 2) students exposed to economic and financial education are more likely to display positive financial behaviors. For example,
- Students exposed to mandated personal finance education exhibit meaningful improvements in credit outcomes. Three years following the implementation of mandates in Georgia, Idaho, and Texas, severe delinquency rates for those students receiving the education declined by 2% in Georgia, 2% in Idaho, and 6% in Texas, and credit scores increased by 2%, 3%, and 5% respectively.
- State financial curriculum mandates elevate the rates at which individuals save and accumulate wealth during their adult lives. Net-worth-to-earnings ratios of those exposed to mandates are more than 9 percentage points higher than the ratios of those who were not exposed.
- Students who have taken a class in personal finance are more likely to engage in financially responsible behaviors such as saving, budgeting, and investing: 93% of those who have taken a class save money vs. 84% of those who have not; 60% of those who have taken a class have a budget vs. 46% of those who have not; 32% of those who have taken a class have invested money vs. 17 % of those who have not.
Click here for a summary of recent research that supports these findings, outlines the ongoing knowledge gap, and discusses the implications for public policy initiatives geared toward improving economic and financial literacy education in the classroom.