Many states now require financial literacy courses for high school students that cover topics such as budgeting, saving and debt management.
Only seven states — Alabama, Iowa, Mississippi, Missouri, Tennessee, Utah and Virginia — received an “A” grade, meaning students must take a semester-long personal finance course or its equivalent “Testimony” from the Center for Financial Literacy at Champlain College in Vermont. Five states received a grade of “F,” meaning they have “virtually no requirements” for high school personal finance education.
However, according to the report, 23 states are expected to receive an A grade in 2028 if additional programs recently approved by state legislatures are in place.
The increase in supply is partly a response to the pandemic, which has drawn attention to precarious household finances and glaring income inequality. “After the pandemic, everything kicked into high gear,” said John Pelletier, the center’s director. Higher inflation has also put a strain on consumers’ budgets, and the resumption of student loan payments has renewed concerns about student debt.
Financial inequalities between racial and ethnic groups are also increasing. While about a third of American adults say they have “too much” debt, the percentage is higher among Black adults — 39 percent — according to a major survey conducted in 2021 by the FINRA Investor Education Foundation. (The foundation — an arm of the Financial Industry Regulatory Authority, a nongovernmental regulator that oversees brokerage firms — conducts the survey every three years.)
The survey found that Black and Hispanic adults are less likely to have an emergency fund to cover three months’ worth of expenses in the event of a job loss or illness. And while about a third of adults have “high” financial literacy, as evidenced by their ability to correctly answer four out of five financial questions on topics like compound interest, inflation and risk, the percentages are much lower among black and Hispanic adults.
Requiring all students to take a financial literacy course can help reduce this inequality, Pelletier said.
Carly Urban, an economics professor at Montana State University who studies financial literacy, said discussions about what topics should be taught in classrooms are often fiercely contentious, but state lawmakers appear to have found common ground in support of the measure financial lessons in high schools. According to a 2022 survey by the National Endowment for Financial Education, most American adults said they wanted their states to require a semester or year-long finance course for high school graduation. And most said they wished they had had to take such a course.
Over the years, questions have arisen about whether financial literacy courses in high schools are effective. But current research results from Dr. Urban and others cited in Champlain College’s new report shed light on what works. She said financial education in high schools “overwhelmingly” improves credit scores, lowers loan default rates and reduces the use of risky services such as short-term loans. It also encourages more students to switch to low-interest student financing and turn away from high-interest loans, and increases repayment rates for first-generation students and those from low-income families.
However, a recent study she co-authored with Melody Harvey, an assistant professor at the University of Wisconsin-Madison, found no impact on eventual retirement savings. Maybe, she said, for teenagers going to college or just entering the workforce, the idea of retirement is too far away.
“Young people may be fixated on the moment,” Dr. Urban. The study recommended that lessons focus on topics that are “immediately relevant” to teens, such as budgeting, long-term debt and credit.
Christopher Jackson, who teaches a personal finance course for seniors at Da Vinci Communications High School, a socioeconomically and racially diverse public charter school in El Segundo, California, said he has found that students are enthusiastic about investing in individual Roths -Retirement accounts once they understood the concept of compound interest and how investments grow over time.
He advises them to open Roth IRAs at age 18 instead of waiting until they graduate college and start a career. One of his students has already saved $14,000, he said.
Mr. Jackson bases his lessons on a curriculum from Next Gen Personal Finance, a nonprofit that works to teach universal personal finance in high schools, and supplements it with books on relevant topics, he said.
“You can’t play the money game if you don’t know the rules,” Mr. Jackson said. “I teach them the rules of the game.”
Sebastian Torres, 19, a 2022 Da Vinci Communications graduate, said Mr. Jackson’s course, which includes a unit on the psychology of financial decision-making, helped him plan for both college and retirement.
“I really didn’t know anything about 401(k)s before Mr. Jackson talked about it,” he said. “I 100 percent believe it was worth it,” he said of the high school course.
According to the Center for Financial Literacy report, personal finance topics were most relevant in 11th or 12th grade, just before students begin managing their own living expenses. It was recommended that students be taught these concepts just before they are pushed toward financial independence, whether they get a job or go to college.
Here are some financial literacy questions and answers:
How financially literate are Americans in general?
American adults have “generally poor” levels of financial literacy, according to the 2023 Personal Financial Index report from the TIAA Institute and the Global Financial Literacy Excellence Center.
The report serves as an annual barometer of financial literacy in the United States. The survey asks 28 personal finance questions, including income, budgets, spending, saving, investing, borrowing, debt management, insurance, understanding risk and finding reliable sources of information and advice.
On average, adults answered about half of the index’s 28 questions correctly in 2023, consistent with results since 2017. Americans in particular have difficulty understanding risk. The low level of financial resources is “concerning,” the report said, as the index measures a “working knowledge” of everyday financial situations.
Improving financial literacy is important, the report says, because people with very low levels of financial knowledge are more than four times as likely to struggle to make ends meet in a typical month as people with very high levels of knowledge.
Where can I test my own financial knowledge?
FINRA offers a seven-question financial quiz online. Want more? Try a 10-question personal finance quiz from the Council for Economic Education.
Where can I find information about financial literacy curricula?
Next Gen Personal Finance offers free curriculum materials and teacher lessons. Other resources include the JumpStart Coalition for Personal Financial Literacy, a nonprofit organization dedicated to improving young people’s financial literacy; the University of Chicago Financial Education Initiative; and the Consumer Financial Protection Bureau.