Young people drive our economies – and our future – but most of them have never learned to save, manage, and invest their money. A financial education program is one of the most effective ways to teach money management at an early age and lay a foundation on which they can find success later in life.
Think of average U.S. teenagers today. In the course of their lifetimes, a lot of money will pass through their hands. They will face a multitude of financial decisions and countless opportunities to save, spend, or invest. It is crucial that young people receive the education and skills they need before they are overwhelmed with responsibilities.
Financial education is the path to financial literacy. It is the learning process that introduces and deepens the knowledge needed to manage personal finances. Simply put, financial education can give students a brighter future.
Growing research around the world shows that well-designed financial education programs can have an impressive effect on financial literacy and behavior. Many people are taking notice, including policy makers. The number of countries that have or are in the process of implementing national financial education strategies has doubled in just five years. Read the OECD/INFE highlights here.
Mounting research shows that financial education has a positive influence on the financial decisions people make. Here are just a couple of highlights illustrating this:
One study looked at three states where financial education was required for high school graduation. It found higher credit scores and more frequent on-time loan payments for young adults who had taken a required financial literacy course than for those in states with no such requirement. The report also found that fundamental improvements in people’s behavior do not happen overnight, but they will manifest over time. Click below to read the research published by FINRA Investor Education Foundation.
Peru saw a big improvement in students’ financial knowledge, and even in teachers’ knowledge, after a financial education course was conducted at the high school level. This research revealed other improvements, too, such as better self-control and consumer habits. Click below to read about the research from Dr. Verónica Frisancho.
State Financial Education Mandates: It’s All in the Implementation
By Veronica Frisancho
Using data from a randomized controlled trial in 300 public high schools in Peru, this paper studies the potential of school-based financial education programs for youth.
Financial education is critically important and is best taught in school. However the Council for Economic Education’s Survey of the States finds that only 17 states require a high school course that includes personal finance concepts. We want this to change. We know that financial education in the schools can
Every three years, the Programme for International Student Assessment (PISA)—an initiative of the Organisation for Economic Co-operation and Development (OECD)—surveys 15-year-olds around the world. Since 2012, this survey has measured, among other things, their financial literacy with an eye on one simple question: How well-prepared are young people for the new economic environments that are becoming more global and more complex?
The answer received every three years is troubling. Many teenagers are not prepared. As for U.S. students, they do about average compared to other young people around the world. But average isn’t good enough.
The PISA results are broken down into five levels of financial literacy proficiency. Students at Level 1 lack even the most basic financial literacy skills. That’s where 18 percent of U.S. students were found in 2012. This means that about one of every five teenagers is not equipped to understand the complex world they face.
Young people can do much better than that. From 2012 to 2015, there was no improvement in how much U.S. teens know about personal finance across all levels of proficiency.
Pioneers in the field of financial literacy designed three simple questions that measure the ABC’s of financial literacy, known as the Big Three. Many people find the questions challenging. How about you?