BOZEMAN – A Montana State University economist recently presented research findings to federal policymakers that showed how high school students who were required to take financial education courses had better credit scores as young adults than their peers who were not required to take the courses.
The U.S. Department of the Treasury invited Carly Urban to present the study at the Financial Literacy and Education Commission committee’s May meeting, where the focus was on the financial literacy of the nation’s youth and implications of required financial education in high school.
“The growing complexity of financial decisions facing young Americans has policymakers emphasizing financial education at all stages of life,” said Urban, assistant professor in the Department of Agricultural Economics and Economics in MSU’s College of Agriculture and College of Letters and Science.
Secretary of the Treasury Steve Mnuchin and Richard Cordray, director of the Consumer Financial Protection Bureau, both chair the commission whose purpose is to develop a national strategy on financial education. Both attended the committee meeting coordinated by the Treasury Department’s Office of Financial Security. Committee members represent 19 federal agencies.
At the meeting, Urban presented results from a recent study that examined financial education around the country and found that state-required financial education at the high school level directly impacts the financial behavior of young adults. The study, “State Financial Mandates: It’s all in the Implementation,” was sponsored by the Financial Industry Regulatory Authority.
For the study, Urban and colleagues from the University of Wisconsin-Madison and the Federal Reserve Board reviewed three states that require a financial education curriculum at the high school level: Georgia, Idaho and Texas. The study looked at credit report data before and after 2007, when each state required students to complete a rigorous personal finance curriculum prior to high school graduation, according to Urban.
The authors compared credit scores of youth ages 18 to 21 graduating before and after the 2007 requirement in Georgia, Idaho and Texas, and further compared similarly aged youth in each of these states to a demographically similar bordering state without financial education. The study revealed that students in those three states had better credit scores and were less likely to be delinquent on their loans after the program took effect.
“Ultimately, we were able to demonstrate that a rigorous, state-mandated curriculum has a direct effect on the financial well-being of young adults,” Urban said. “In fact, we found the more rigorous the curriculum, the better the credit scores and overall financial behavior — and hopefully, a lasting effect on their overall financial well-being.”
“Rigorous” curriculum, Urban added, refers to well-trained teachers, the creation of sample curricula and the development of specific standards and testing.
Urban said the study also found value when the financial curriculum was tied to real-life examples, such as managing a bank account ledger, applying for financial aid and studying career choices. Mandating financial education in high school could have major implications as policymakers focus on better educating younger generations on financial behavior, especially as more post-secondary students struggle to afford higher education.
“There’s capacity for states to determine their own program by designing an effective curriculum, which would deliver a greater benefit to the student,” Urban said. “We found that if a program is rigorous, if it’s carefully implemented and applicable to the student’s future, there are positive outcomes for students who have a sound understanding of financial knowledge as they look to college or the workforce.”
The committee also discussed the Program for International Student Assessment, or PISA, a 2015 study sponsored by the Consumer Financial Protection Bureau, the Organization for Economic Cooperation and the U.S. Department of Education. The study gauged the financial literacy of 15-year-olds in the U.S. compared to those in 10 other OECD-member countries.
According to the study, the U.S. came in fifth out of 10 for financial literacy in a robust understanding of financial concepts. Five additional non-member OECD countries also participated in the study, and the U.S. was ranked third out of those five. The PISA results also found no measureable change in the U.S. score compared to a 2012 study and found significant discrepancies of financial knowledge between socioeconomic statuses of schools. Students from higher-income schools were better performers than those from lower-income schools, according to the data.
“The PISA results are relevant to what’s happening nationally in terms of state-mandated financial education programs between well-to-do public schools and those schools with lower socioeconomic demographics,” Urban said. “Our job is to rationalize the data for policymakers and to help them understand the implications of the research, so that they can adopt some of the context into programs that make a difference in the financial security and behavior of all young adults.”
Nicol Rae, dean of the MSU College of Letters and Science, said Urban is engaging at the federal level in a subject that affects all walks of life and that financial knowledge is critical for young adults across the country, especially those entering higher education.
“We’re pleased to support the important and meaningful research and federal-level conversations Dr. Urban is a lead participant in,” Rae said. “The ability for young adults to understand complex financial decisions and learn financially sound behavior — most especially as they navigate the cost of higher education — continues to be a critically important skill that can ensure bright futures.”
Carly Urban, firstname.lastname@example.org or 406-994-2005