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More States Now Require Financial Literacy Classes in High Schools

A flurry of states now require financial literacy classes for top school students, covering topics like budgeting, saving and managing debt.

Just seven states — Alabama, Iowa, Mississippi, Missouri, Tennessee, Utah and Virginia — earned an A grade, meaning they require students to take a semester-long personal finance course, or its equivalent, on a “report card” from the Center for Financial Literacy at Champlain College in Vermont. Five states got an F, meaning they’ve “virtually no requirements” for private finance education in highschool.

But, the report said, 23 states are projected to receive an A grade in 2028, when additional programs recently approved by state legislatures are in place.

The surge in offerings is partly a response to the pandemic, which focused attention on precarious household funds and glaring income inequality. “Things got turbocharged after the pandemic,” said John Pelletier, the middle’s director. Higher inflation has also strained consumers’ budgets, and the resumption of student loan payments has renewed worries about student debt.

Concern can also be growing about financial disparities amongst racial and ethnic groups. While a couple of third of American adults reported having “an excessive amount of” debt, the share is higher — 39 percent — for Black adults, based on a large survey conducted in 2021 by the FINRA Investor Education Foundation. (The foundation — which is an arm of the Financial Industry Regulatory Authority, a nongovernment regulator that oversees brokerage firms — conducts the survey every three years.)

Black and Hispanic adults are less more likely to have an emergency fund to cover three months of expenses in case of a job loss or illness, the survey found. And while a couple of third of adults have “high” financial knowledge, as shown by their ability to appropriately answer 4 out of 5 financial questions on topics like compound interest, inflation and risk, the odds are much lower for Black and Hispanic adults.

Requiring all students to take a financial literacy course will help reduce such inequality, Mr. Pelletier said.

Carly Urban, a professor of economics at Montana State University who studies financial literacy, said discussions about what topics ought to be taught in classrooms were often bitterly divisive, but state legislators look like finding common ground supporting highschool financial instruction. Most American adults said they wanted their states to require a semester- or yearlong financial course to graduate from highschool, based on a 2022 poll from the National Endowment for Financial Education. And most said they wished that they had been required to take such a course.

Over the years, questions have arisen about whether highschool financial literacy classes are effective. But recent research by Dr. Urban and others, cited in the brand new Champlain College report, sheds light on what works. High school financial instruction, she said, “overwhelmingly” improves credit scores, lowers loan delinquency rates and reduces the usage of dangerous services like payday lending. It also leads more students to low-interest college financing and away from high-interest loans, and increases repayment rates for first-generation students and people from low-income families.

But a recent study she wrote with Melody Harvey, an assistant professor on the University of Wisconsin-Madison, found no impact on eventual retirement savings. Perhaps, she said, for teenagers heading to school or simply entering the work force, the thought of retiring is simply too distant.

“Young people could also be fixated on ‘straight away,’” Dr. Urban said. The study really useful that classes put a priority on topics more “immediately relevant” to teenagers, like budgeting, long-term debt and credit.

Christopher Jackson, who teaches a private finance course to seniors at Da Vinci Communications highschool, a socioeconomically and racially diverse public charter school in El Segundo, Calif., said he found that students were obsessed with saving in Roth individual retirement accounts once they understood the concept of compound interest and the way investments grow over time.

He advises them to open Roth I.R.A.s at 18, quite than waiting until they graduate from college and begin a profession. One of his students has already saved $14,000, he said.

Mr. Jackson uses a curriculum from Next Gen Personal Finance, a nonprofit that pushes for teaching universal personal finance in highschool, as a base for his instruction and supplements it with books on relevant topics, he said.

“You can’t play the cash game when you don’t know the principles,” Mr. Jackson said. “I teach them the principles of the sport.”

Sebastian Torres, 19, a 2022 graduate of Da Vinci Communications, said Mr. Jackson’s class, which incorporates a unit on the psychology of monetary decision-making, helped him plan for each college and retirement.

“I actually didn’t learn about 401(k)s before Mr. Jackson spoke about it,” he said. “I one hundred pc think it was worthwhile,” he said of the highschool course.

The report from the Center for Financial Literacy said personal finance topics were most relevant in eleventh or twelfth grade, just before students begin managing their very own living expenses. It really useful that students be taught these concepts shortly before they’re thrust into financial independence, whether or not they get jobs or go to school.

Here are some questions and answers about financial literacy:

American adults have shown a “generally poor” level of monetary literacy, based on 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 monetary literacy within the United States. The survey asks 28 personal finance questions, including on earnings, budgets, spending, saving, investing, borrowing, managing debt, insurance, understanding risk, and finding reliable sources of data and advice.

On average, adults appropriately answered about half of the index’s 28 questions in 2023, consistent with the outcomes since 2017. Americans struggle particularly with understanding risk. The low level of monetary wherewithal is “troubling,” the report said, since the index measures a “working knowledge” related to financial situations encountered in on a regular basis life.

Improving financial literacy is very important, the report said, because individuals with a really low level of monetary savvy are greater than 4 times as likely as those with a really high level to have difficulty making ends meet in a typical month.

FINRA offers a seven-question financial literacy quiz online. Want more? Try a 10-question personal finance quiz from the Council for Economic Education.

Next Gen Personal Finance offers free curriculum materials and teacher instruction. Other sources include the JumpStart Coalition for Personal Financial Literacy, a nonprofit that seeks to enhance financial literacy among the many young; the University of Chicago Financial Education Initiative; and the Consumer Financial Protection Bureau.

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