The Impact of Financial Education

By Mary Suiter, Assistant Vice President, and Erin Yetter, Economic Education Specialist

April marks Financial Literacy Month, giving us an opportunity to reflect on the state of financial education in the U.S. One thing that becomes quickly apparent is the differing requirements regarding financial education in schools, or even whether it is required at all. This is unfortunate, as the literature on the effectiveness of financial education, while still developing, is showing promising returns from such education, especially as teachers become more experienced with financial education instruction.

Previous Studies

Over the past few years, several studies have attempted to gauge the link between financial literacy and financial behaviors. For example, lower levels of measured financial literacy have been associated with:

• Lower rates of planning for retirement¹
• Lower rates of asset accumulation²
• Using higher-cost financial services³
• Lower participation in the stock market⁴
• Higher levels of debt⁵

Another study released earlier this year looked at students over a dozen years in Georgia, Idaho and Texas, starting in 2000.⁶ Each state implemented significant personal finance course requirements in 2007, so researchers were able to see the effects not only before and after implementation, but also after teachers became more familiar with the curriculum.

The researchers found that credit scores improved and credit account delinquency rates fell in each state. Moreover, few positive effects were measured after the first year of implementation, but results were consistently positive by the second year. The authors wrote, “Given the time that elapses between the enactment of a personal financial education mandate and when schools across the state have a well-developed curriculum in place and instructors are trained to teach the material, we would expect some lag from when a mandate passes to when students are actually exposed to its full effects.”

Our Study

These results mirror our own experiences with implementing a personal finance curriculum. Through the Econ Lowdown program, the St. Louis Fed produces free classroom resources for K-16 educators to teach about personal finance and economics. In fall 2013, we conducted a study, in which an urban community college added a financial literacy curriculum unit across its six 16 campuses using some of these resources. Two-thirds of its first-year experience course sections received the personal finance curriculum, while the remaining sections served as the control group.

We found that students who received personal finance instruction scored 5-to-7 percentage points higher on financial literacy tests than students who weren't offered the curriculum.

Year Two

A follow-up test in the fall of 2014 showed similar jumps, with students participating in the financial literacy curriculum scoring 10 percentage points higher on post-course tests than students not receiving instruction. This time, however, there was a twist. Some teachers were ones that taught the curriculum the previous year, and were thus more experienced with the material. Students who were taught by an experienced instructor scored 15 percentage points higher than those not offered the curriculum.

Notes and References

¹ Lusardi, Annamaria; and Mitchell, Olivia S. “Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy and Housing Wealth.” Journal of Monetary Economics, January 2007, Vol. 54, Issue 1, pp. 206-24.

² Lusardi, Annamaria; Mitchell, Olivia S.; and Curto, Vilsa. “Financial Literacy among the Young: Evidence and Implications for Consumer Policy.” Journal of Consumer Affairs, Summer 2010, Vol. 44, Issue 2, pp. 358-80.

³ Lusardi, Annamaria; and Tufano, Peter. “Debt Literacy, Financial Experiences and Overindebtedness.” National Bureau of Economic Research Working Paper No. 14808, March 2009.

⁴ Meier, Stephan; and Sprenger, Charles. “Present-Biased Preferences and Credit Card Borrowing.” American Economic Journal: Applied Economics, January 2010, Vol. 2, Issue 1, pp. 193-210.

⁵ van Rooij, Maarten; Lusardi, Annamaria; and Alessie, Rob. “Financial Literacy, Retirement Planning and Household Wealth.”  National Bureau of Economic Research Working Paper No. 17339, August 2011.

⁶ Brown, Alexandra; Collins, J. Michael; Schmeiser, Maximilian; and Urban, Carly. “State Mandated Financial Education and the Credit Behavior of Young Adults.” FINRA Investor Education Foundation, 2015.

Additional Resources

• Econ Lowdown: Economics and Personal Finance Education Resources
• On the Economy: Five Simple Questions That Reveal Your Financial Health
• On the Economy: Why Do Households Borrow (or Save)?