Why  High  Schools  Must  Nationally  Require    Financial  Literacy

By Victor J. Lau American teenagers are financially illiterate; specifically, many students currently have trouble saving and managing their money, let alone investing and earning. To make matters worse, teenagers do not even seek or learn about financial education until they think they actually need it — when they are in debt. As a result, though teenagers may excel academically in school or in other areas, financial illiteracy will hinder their chances of succeeding in the future. Accordingly, some states have already required financial literacy courses for graduation. Figure 1. above, depicts the 15 states (blue states) that require financial literacy courses.1 With only 30 percent of the nation mandating financial literacy courses, students, as economic experts and journalists suggest, are becoming more financially illiterate on a national scale. In order to help students succeed, high schools must nationally require students to learn financial literacy as a graduation requirement. Needless to say, altering a high school curriculum involves long debates, and most often small changes rarely get passed. Nevertheless, financial

specialists and professional economic counselors have advocated that financial literacy appear in high school education due to the following: (1) Financial literacy is an essential skill. (2) Relative to other countries, our nation’s future generation is financially illiterate. (3) Regarding results, financial literacy influences certain characteristics such as financial behavior.

Figure  1.    Mandatory  Financial  Education  Across  U.S.A

Source  1:    USNews.com  (College  Students  Become  Less  Financially  Responsible)

Source  2:      FINRAFoundation.org  (The  Financial  Capability  of  Young  Adults)

Financial Literacy is an Essential Skill An essential skill our future generation must learn is basic financial literacy. Understanding financial literacy enables students to (1) complete daily activities in a responsible manner, (2) accomplish their professional and personal goals, and (3) adapt to financial hardships. Financial Literacy Involves Everyday Situations Financial literacy is incorporated in all our daily activities – saving money, paying bills, investing in ideas, buying and selling goods, and etc. When most people do activities on a daily basis, they would normally want to know how to accomplish what they are doing correctly and safely. For example, no state in its right mind will allow people without basic driving education to drive. Students learning financial literacy is no different from learning how to drive. Logically speaking, for example, when students obtain their first credit card, they normally want to understand how to responsibly use it – their first reaction is not “How can I max out my credit and go into debt?” Since people use financial literacy in almost everything they do, they should first understand the concept of financial literacy. Financial Literacy Helps Accomplish Goals Individuals who understand financial literacy have better chances to accomplish their goals. Florida’s state Chief Financial Officer, Jeff Atwater, assures that when students learn financial literacy, they will have the skills to succeed in both their professional and personal lives.2 For example, in his World’s Largest Financial Literacy Education Event, former President Bill Clinton praised financial literacy for helping him to achieve his aspirations to be president.3 Without people understanding financial literacy, we may never have

had inspirational leaders. According to former President Bill Clinton, financial literacy is “a very fancy term for saying spend it smart, don’t blow it, save what you can, and know how the economy works.”6 Students can Adapt to Financial Hardships America’s economy is constantly changing – from war, politics, disasters, and etc. –, and consumers’ financial behaviors are indirectly affected by economic events. Gary Mottola from the National Financial Capability Study (NFCS) states that The Great Recession may not affect our future generation’s financial behavior, but many other future challenges like the 2016 United States Presidential Election can affect how they financially react.4 As a result, each generation has their own financial problems to deal with, and each generation responds differently to financial situations. However, younger generations are still financially illiterate when compared to older generations. Figure 2, below, shows the results of financial knowledge over different generations. The 2012 survey, conducted by the NCFS (State-by-State Survey), shows that Millennials generally scored 12 percent less than Boomers.5 Although the trend of financial illiteracy over generations is subtly

Country Mean  Score RankShanghai-­‐China 603 1

Flemish  Community  (Belgium) 541 2Estonia 529 3Australia 526 4

New  Zealand 520 5Czech  Republic 513 6

Poland 510 7Latvia 501 8

United  States 492 9Russian  Federation   486 10

France 486 11Slovenia 485 12Spain 484 13Croatia 480 14Israel   476 15

Slovack  Republic 470 16Italy 466 17

Columbia 379 18OECD  Average 500 N/A

Average  Performance  in  Financial  Literacy

Table  1.    Students’  Financial  Literacy  According  to  Countries  

Source  3:    OECD.org  (Results  from  PISA  2012  Financial  Literacy)  

decreasing, more students will eventually be affected over time. If this trend continues, students will eventually have trouble understanding basic financial knowledge, which older generations can easily comprehend. Fortunately, learning financial literacy can help students be on par or even better with their older generations. Students can learn what financial mistakes older generations made, so students can avoid any similar disasters. Therefore, by incorporating financial literacy courses, educational policy makers can make a difference in students’ careers and financial lives. To prepare our students to succeed in the future is our duty, not only for their sake but also for our nation’s future. Our Nation’s Future Generation Lack Financial Literacy As mentioned above, former President Bill Clinton stated that financial literacy is understanding how the economy works. Though America is economically strong, its future generation lacks the financial skills to lead it. America has a Strong Economy The United States has one of the greatest economies in the world. With economies, measured by Gross Domestic Product (GDP), United States comes first with $17.9 trillion, followed by China with $11.4 trillion and Japan with $4.1 trillion.7 However, other countries will inevitably surpass the United States economically if our students don’t even understand basic financial literacy. Our Students Lack Financial Literacy As a matter of fact, in the financial literacy assessment conducted by the Paris-based Organization for Economic Cooperation and Development (OECD), researchers have found that students in the United States are relatively average in terms of financial literacy when compared to other national powerhouses.8 Table 1, to the right, shows the ranks of students’ financial literacy according to their respective country; the United States ranks in the 60th

percentile in terms of financial literacy.9 While countries like China, Australia, and Poland are improving their students’ financial literacy, United States’ students’ are falling behind. The United States cannot settle with average financial literacy scores, and even U.S. Education Secretary Arne Duncan agrees with this. According to Duncan, our economy has been drastically changing over the past few decades, and future generations must be able to apply their financial knowledge to current events.10 Consequently, students’ lack of financial literacy will negatively affect their nation’s future.

Financial literacy involves everyday decisions and is essential for one’s success. When individuals are financially literate, their communities generally become financially literate; and when communities continually make financially responsible decisions, their economy will thrive. Financial literacy, therefore, is essential not only for students’ success but also for their nation’s future. Now the question persists: Given that our students are financially illiterate compared to other countries’ students, does financial literacy accurately measure up with financial success?

Financial Literacy Influences Financial Behavior Now the question persists: Do financial literacy programs create financially successful students? Specifically, does financial literacy accurately measure up with financial success?

The answer is no. However, financial literacy enables students to make wise financial decisions. Financial Literacy Programs Don’t Measure Financial Success According to Harvard’s and USC’s business journal articles on financial literacy, high levels of financial literacy don’t indicate financial success or failure – and that’s okay.11 New America RSS economic expert, Alejandra Karen, states that financial literacy programs cannot measure its impact on students’ future success since most evaluations focus on abstract measurements such as financial knowledge, satisfaction, or confidence.12

In any financial literacy experiment, individuals have different levels of prior financial knowledge due to many external factors, such as their environment or culture. In addition, measuring satisfaction and confidence is entirely subjective. Therefore, financial literacy programs are not meant to measure financial success, as the dean of the University at Buffalo School of Management, Lewis Mandell, affirmed.13 In other words, financial literacy programs are evaluating the wrong effects of financial literacy.

Rather than comparing students’ financial literacy with financial success, we should evaluate financial literacy with financial behavior. Financial behavior involves how people responsibly react to a certain financial situation and wisely make a sound decision. Furthermore, measuring financial behavior is objective, since a decision is either made or not. Financial Literacy Programs Change Students’ Financial Behavior Financial literacy ultimately plays an important role when individuals make proper financial decisions. As a result, proper financial decisions lead to proper financial behavior. For example, in her Insights: Financial Capability survey, Annamaria Lusardi found the following: Regardless of their economic characteristics and circumstances, people who are financially literate are more likely to have retirement and private pension plans.14 Financial literacy does not discriminate the effects of financial behavior. In a partnership study between USA TODAY by EverFi and Higher One, students with financial literacy were more inclined to pay credit card bills on time and less likely to go over their credit card limit.15 When students are financially educated, they can properly handle financial situations, or at least have a general understanding of what’s going on. As such, financial literacy programs teaches students to behave responsibly in financial situations.

Source  4:      DailyFinance.com  (Financial  Literacy  and  Financial  Success)

Source  5:    DecisionPartners.org    (Benefits  of  Financial  Literacy)  

Conclusion Generally, students’ success relies on their education. Policymakers and educational leaders must nationally require financial literacy courses since understanding financial literacy is an essential skill. Financial literacy can both help students succeed in their professional and personal lives and teach students how to deal with any financial crisis. Furthermore, our nation’s

future economy depends on the financially responsible choices we make as individuals and as communities. Even though financial literacy does not affect financial success, financial literacy plays a crucial role in financial behavior – appropriate financial behavior leads to wiser financial decisions, such as paying credit card bills on time. Once educational leaders nationally require financial literacy courses, their students will thank them for it.

Endnotes    1. Bidwell, Allie. 2015. Survey: College Students

Becoming Less Financially Responsible. Retrieved February 23, 2016, from U.S. News & World Report. http://www.usnews.com/news/blogs/data-mine/2015/04/02/college-students-becoming-less-financially-responsible-study-says

2. Atwater, Jeff. 2013. The Importance of Financial Literacy. Retrieved February 23, 2016, from Council For Economic Education. http://councilforeconed.org/2013/04/19/the-importance-of-financial-literacy/

3. Klein, Asher & Giordano, Jackie. 2014. Bill Clinton

Visits USC to Teach Kids Value of Financial Literacy. Retrieved February 23, 2016, from NBC Los Angeles. http://www.nbclosangeles.com/news/local/Bill-Clinton-Visits-USC-to-Host-Financial-Literacy-Event-282070241.html

4. Mottola, Gary R. 2014. The Financial Capability of

Young Adults—A Generational View. Retrieved February 19, 2016, from US Financial Capability. http://www.usfinancialcapability.org/downloads/FinancialCapabilityofYoungAdults.pdf

5. IBID 6. Champlain College. 2015. The Case for High

School Financial Literacy. Retrieved February 23, 2016, from Champlain College. http://www.champlain.edu/centers-of-excellence/center-for-financial-literacy/report-making-the-grade/the-case-for-high-school-financial-literacy

7. Knoema. 2015. World GDP Ranking 2015.

Retrieved February 23, 2016, from Knoema. http://knoema.com/nwnfkne/world-gdp-ranking-2015-data-and-charts

8. Programme For International Student Assessment

(PISA). 2012. Results From PISA 2012 Financial Literacy. Retrieved February 23, 2016, from Organization for Economic Cooperation and Development (OECD). http://www.oecd.org/unitedstates/PISA-2012-results-finlit-usa.pdf

9. IBID

10. Kerr, Jennifer C. 2014. Study: U.S. Students Lagging on Financial Literacy. Retrieved February 23, 2016, from The Ledger. http://search.proquest.com/docview/1543953544/8FEAF123D263440CPQ/8?accountid=4488

11. Cole, Shawn; Paulson, Anna; and Shastry, Gauri.

2014. High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses. 31-35, retrieved February 23, 2016, from Harvard Business School. http://www.hbs.edu/faculty/Publication%20Files/13-064_c7b52fa0-1242-4420-b9b6-73d32c639826.pdf

12. Karen, Alejandra. 2008. The Effectiveness of

Youth Financial Education. Retrieved February 23, 2016, from New America RSS. https://www.newamerica.org/asset-building/the-effectiveness-of-youth-financial-education/

13. Mandell, Lewis. 2009. The Impact of Financial

Education in High School and College On Financial Literacy and Subsequent Financial Decision Making. 16-17, retrieved February 23, 2016, from Penn State University. http://www.cstsforum.org/assets/media/documents/MandellL_ImpactFinancialLitEduonSubFinancialBehavior_2009.pdf

14. Lusardi, Annamaria. 2013. Insights: Financial

Capability. Retrieved February 23, 2016, from FINRA Investor Education. http://www.finrafoundation.org/web/groups/foundation/@foundation/documents/foundation/p240590.pdf

15. Malcolm, Hadley. 2014. Financial Literacy

Education has Lasting Impact. Retrieved February 23, 2016, from USA Today. http://www.usatoday.com/story/money/personalfinance/2014/04/08/financial-literacy-college-students/7296185/