The call for better financial education in public schools is amplifying as financial literacy in the United States seems stuck at a dismal rate. However, questions linger about how financial subjects should be taught despite the intentions behind the push.
For more than a decade now, the financial education movement has been gaining momentum. With a set of recommendations for teaching financial topics to all grade level, the Consumer Financial Protection Bureau added its considerable weight to the movement in 2013.
“We are deeply committed to a vision of an America where everyone is financially educated,” said CFPB Director Richard Cordray in the white paper outlining the bureau’s recommendations. “We should start where all good education starts, with our children.”
The organization recommended that schools teach personal finance at every grade level, include the material on standardized tests, and require students to take a stand-alone personal finance class before graduation. Such actions are already being mandated in the UK and Australia.
The President’s Council’s advice on Financial Capability, which recommended in January of 2013 that states incorporate personal finance into the Common Core Standards for English and math, was echoed by the bureau. Adopted by 45 states spelling out what K-12 students should know at the end of each grade, the Common Core is a set of academic benchmarks that advocates feel could be intertwined sensibly with finance.
As Yasmin Ghahremani of Yahoo! Finance writes, since states that control education policy are inconsistent in their approaches, the feds could push for financial literacy. Compared to only 21 in the 1990s, 46 states now include personal finance in their educational standards. However, only 17 states require high school students to take a personal finance class and five require testing on economic topics.
“When the law does not require implementation of specific education standards, they become voluntary and less effective, tending to take a back seat to the required education standards,” says the CFPB’s white paper.
However, problems arise as there’s not much evidence that formal education in financial concepts works for children. As shown by the results of a 2008 survey by Jump$tart Coalition for Personal Financial Literacy, students who took a personal finance class in high school scored no differently than those who didn’t.
Nonetheless, it’s better to wait to teach financial information until just before it’s needed, Mandell argues.
“If you measure the amount they’ve learned by their scores on the final and contrast it with what they knew going into it, they will show incredible learning,” he admits. “But if you ask them a year later, they’ll have no recollection of it because there’s no real reason why the material should be sticky.”
The co-director of the household finance working group for the National Bureau of Economic Research, Harvard professor Brigitte Madrian, agreed.
“There’s only so much we could expect of any initiative to increase financial literacy in the public schools just because a lot of what you’d like people to know how to do, you’re going to have a hard time teaching successfully because the decisions aren’t relevant,” she says.
Additionally, pre-need financial education is not just ineffective, it’s unethical, according to Mandell.
“To waste very scarce educational resources on something that we know is just going to be of interest and advantage to those who are already holding all the marbles, just strikes me as very pathetic and very, very unfair,” he says.