Besides being a severe health danger, the coronavirus is just the latest economic challenge Americans face.
Could better personal finance education help them through such challenges?
When the Great Recession was the big economic crisis, it sparked new efforts to increase financial education in America's schools.
With a decade having passed since then, it may be time to ask how well financial literacy education works.
Which States Require Financial Literacy Education?
Educational standards are set at the state level, which can be a drawback when it comes to initiatives like implementing personal finance programs.
As Nan Morrison, President and Chief Executive Officer of the Council for Economic Education (CEE) explained to MoneyRates.com, "Each state has their own unique process for setting their own education goals - and that, by definition, can slow things down."
Some states have personal finance requirements while others don't and, among states that do have personal finance requirements, the nature of the programs differ.
According to the CEE, 21 states now have personal finance coursework requirements in their high schools. A new study by MoneyRates.com found that, among these 21 states, there are sharply different outcomes in terms of the financial behavior of their residents.
States requiring personal finance coursework in 2020:
Alabama, Arizona, Georgia, Idaho, Iowa, Kentucky, Michigan, Mississippi, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Ohio, South Carolina, Tennessee, Texas, Utah, and Virginia.
States that don't require personal finance coursework in 2020:
Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Montana, Nebraska, Nevada, New Mexico, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Vermont, Washington, Wisconsin, and Wyoming.
Methodology: Measuring Personal Finance Education
To get a feel for how these educational programs translate into real world financial behavior, MoneyRates.com divided the 50 states and the District of Columbia into two groups - those that require personal finance coursework in high school and those that do not.
To measure the financial behavior of each group's residents, MoneyRates.com looked at average credit card balances and personal bankruptcy rates. That allowed the averages for each group to be compared.
Finally, the study looked at the range of different results in each group. This may point to ways financial education can be improved, even in states which have not shown great results so far.
Looking for ways to improve is important because personal finance education seems to be getting mixed results. It appears to work better in some states than others.
The statistics indicate that simply putting financial education in place does not guarantee better financial behavior. States need to look at their programs critically, to reinforce what's working and fix what isn't. When it comes to financial education, even the educators still have something to learn.
Personal Finance Report Card - Mixed Results
MoneyRates.com compared average credit card debt levels and personal bankruptcy rates between these states and those that do not have personal finance educational requirements. The credit card data came from Experian, and the bankruptcy data came from the Administrative Office of the U.S. Courts.
The comparison of credit card debt levels between the two groups of states is somewhat encouraging:
On average, people in states with personal finance coursework requirements have less credit card debt than people in states without those requirements. The difference - some $194 between the two average balances - isn't huge, but every little bit helps.
Less encouraging is the comparison of personal bankruptcy rates between the two groups of states:
On average, bankruptcy rates are actually higher in states that require personal finance coursework in high school than those that do not.
So while states with personal finance education requirements seem to benefit from lower credit card debt burdens, they have not yet succeeded in reducing personal bankruptcy rates.
Why Isn't Personal Finance Education More Successful?
Even though states with personal finance programs show mixed results in terms of improving financial behavior, that is no reason to dismiss the value of these programs. Instead, it is reason to take a closer look at how to address the challenges they face.
In fact, those challenges may be what motivated some states to put personal finance education in place.
Challenges affecting success
Judging by the ever-increasing level of debt across the nation, there is still a lot of work to be done to educate people so they learn how to make progress toward their financial goals.
Here are some of the factors that pose challenges for personal finance education programs:
- Personal finance conditions aren't as dire in some states
One possible explanation for the mixed outcomes is that states with the worst personal finance conditions might be the most driven to put personal finance education in place. In other words, personal finance education might be more common in states with the biggest problems to address.
- Personal finance education isn't a quick fix
In addition, it can take time for educational programs to broadly affect behavior in the general population. Several states have only recently added personal finance requirements, while some states have actually dropped such requirements. As a result, just eight states have had personal finance requirements in place since 2009.
- No room in the curriculum
Morrison from the CEE explains the struggle to get states to adopt such requirements: "The biggest obstacle we hear is no room in the curriculum." In response, Morrison says that the CEE tries to help educators fit personal finance topics into their existing curricula by showing them "how to integrate it into everyday life of the classroom in subjects such as math, business, social studies, civics and workplace learning."
- Inconsistent standards produce inconsistent results
Another possible explanation for the mixed results is simply that some states have more effective programs than others. The results certainly do vary.
For example, among states with personal finance requirements in place, average credit card debt rankings range from Iowa, with the lowest average debt in the nation, to New Jersey which has the second highest.
Bankruptcy rates also vary widely among states with personal finance requirements. Here, the rankings range from North Dakota with the fourth lowest personal bankruptcy rate to Alabama, which has the nation's worst bankruptcy rate.
- Perspectives need to change
Perhaps the strongest conclusion to be drawn from all this is that putting personal finance requirements in place is just the start of the journey, not the finish. Educators must continually check the performance of their programs and compare them to the programs in states that are getting better results.
- Inadequate resources
Of course, not all the problems can be solved by the educators themselves. To succeed, personal finance programs need the proper resources.
As Morrison explains, "One of the biggest challenges is [finding] well-trained teachers." While teachers may want additional training when asked to implement a personal finance curriculum, "Legislatures often pass unfunded mandates, meaning that the financial resources are not always there to support teacher professional development."
Why Financial Education Matters
With mixed results from personal finance programs in high schools, is all the effort worthwhile?
Here are some arguments for why Financial Education Matters:
- Individuals face more complex decisions than in recent decades
Says Morrison, "Americans are increasingly responsible for their own financial futures. Employees have seen a dramatic shift from pension plans to 401(k) plans. The rise of the gig economy means individuals must budget and save for healthcare and retirement themselves."
- Debt levels should create a sense of urgency
Americans owe over $1 trillion in credit card debt and car loan debt. They owe more than $1.6 trillion in student loan debt and $10 trillion in residential mortgages.
There is a huge amount at stake. Borrowing has become such a routine part of household finances that it is essential to teach people how to figure out how much debt they can afford to take on, how to get the best terms on their debt, when refinancing makes sense and the consequences of not keeping up with debt payments.
- Learning financial literacy by experience is more expensive than in the classroom
Traditionally, people have gained knowledge about personal finances by experience. They started slowly and gradually made bigger financial decisions as they gained more experience.
Today, though, when it is possible to get hundreds of thousands of dollars in debt before you leave college and credit offers are just a click away on any computer, people can't afford to wait to gain experience before learning about personal finance. The cost of making mistakes is just too high.
- Financial education takes time to pay off
It is likely too soon to judge the results in terms of behavior of the general population. After all, most financial literacy requirements have only been put in place since the Great Recession. So, while most of the adult population was not raised on personal finance education, Morrison says the CEE has seen positive near-term signs from students who have received this type of schooling: "In states with requirements, there is evidence that their students, in the years immediately following high school, have higher credit scores, lower loan default rates, less credit card debt." There are also signs these students are making better decisions about financing college than students who have not had personal finance education.
- The consequences of poor financial knowledge are long-lasting
Another reason why financial education is so important is that, without it, young adults may have to live with the consequences of their mistakes for a long time. Credit can take years to repair, and student loan debt is dogging some graduates for decades. Some well-spent classroom time in high school could save those students many years of regrets later on.
Morrison points out that financial education can help reverse the effects of both long-standing problems like wealth inequality and more recent problems like the economic fallout from the coronavirus: "Financial capability is not the only tool of economic stability, but it is a critical one."
Unfortunately, most states still do not feel personal finance education is worth even a modest investment at the high school level in order to save those students years of future grief and expense.
Key Parts of a Financial Education Program
What exactly does personal finance education mean?
There are many ways to define it, but here are some of the basic topic areas it should cover:
- Borrowing and interest
- How credit scores work
- Bank fees
- Balancing a bank account
- Cybersecurity of financial information
- Retirement-saving basics
- Investment basics
- Scams and rip-offs
That may sound like a long list of topics, but none of the above are specialized subjects relevant only to people interested in financial careers. These are basic skills that most adults will use over and over for decades to come.
Those skills are as essential to modern life as any others taught in school. That's why financial education is not only worth having but is worth expanding and improving to yield better results.
Full Listing: States, Personal Finance Programs and Performance
Below is a summary showing which states require students to take personal finance coursework in high school, and where each state ranks when it comes to controlling credit card debt and maintaining personal solvency.
|State||Personal Finance HS Requirement in 2020|| Rank for Controlling Credit Card Debt|
(1 = lowest debt)
| Financial Solvency Rank|
(1 = lowest personal bankruptcy rate)
|District of Columbia||No||48||7|