Skip to main content

In the first half of 2022, three states — Florida, Georgia, and Michigan — signed legislation requiring all high school students to complete a self-contained course in personal finance.

With interest in personal finance undergraduate courses on the rise across states, let’s dive into the research in this area and ask: What personal finance topics have a measurable and lasting impact on student behavior?

Research has consistently found that requiring personal finance in high schools improves student perceptions of credit, which is commonly included in high school personal finance courses. In particular, courses often teach how to compare credit options, how credit card debt arises, how credit scores are determined, and what credit scores are used for.

This appears to be paying off as research has found that financial literacy is required in high school increases creditworthinessespecially through reducing the likelihood falling behind on accounts.

In addition to improving credit management, the demand for financial literacy is also changing how students view short-term debt. Personal finance courses often cover financing unexpected expenses, such as B. a necessary car repair, a health emergency or the loss of a job.

The content also explains how to prepare for unforeseen needs with insurance, budgeting and cash savings, as well as the most cost-effective way to fund a shock when the magnitude of the financial shock exceeds an individual’s savings.

A discussion of possible long-term consequences of different borrowing methods (eg, credit card balances, payday loans, family networks) is often included. The evidence shows that personal finance courses are needed reduces dependency on expensive alternative financial serviceslike payday loans.

What about long-term debt? Government education programs often include content comparing long-term debt obligations in terms of total costs and repayment rates. Some use topics like car loans or mortgages to convey this content, while others deal with financing post-secondary education.

Research on long-term debt shows that financial literacy is required in high school shifts student loan borrowers from lower-interest financing methods to lower-interest methods: from credit card balances and personal student loans to low-interest federal student loans. It also improves repayment Awards for students who have attended public universities and students from low-income families.

However, it doesn’t change the odds of getting a mortgage: High School Financial Education does not change the likelihood that someone is a homeowner until the 40th

An important foundational lesson in personal finance courses is that establishing short-term liquid savings to prepare for emergencies is essential to smart personal finance. This is often tied to budgeting, so people save every month. Research shows that financial literacy is required in high school increases subjective financial well-beingdefined as the ability to keep up with daily and monthly finances while staying on track with future financial goals by age 40.

Long-term saving and investing are also important topics to teach students, and many states actually require content that emphasizes saving for retirement.

While the value of saving early to take advantage of compound interest is often debated, it does not seem to require high school financial training has a significant impact on retirement savings up to the age of 40. Additionally, high school financial literacy must not alter the likelihood of having a retirement account (through an employer, personal account, or through a spouse’s or partner’s account). It also doesn’t change the likelihood of having a taxable investment account.

Although more research is needed, it appears that required financial literacy in high school is most likely to influence behaviors directly relevant to young adults on the verge of achieving financial independence: borrowing, debt, budgeting, and emergency saving.

Little research suggests an effect on long-term saving and investing based on high school courses. Other topics covered in personal finance courses are yet to be explored such as: B. Filing taxes, buying cryptocurrency, insuring, taking out cheap mortgages and seeking financial advice.

Carly Urban is Professor of Economics at Montana State University and Research Fellow at the Institute for Labor Economics (IZA). Melody Harvey is an assistant professor of consumer science at the University of Wisconsin-Madison.

This column is published with permission from the Pension Research Council and the Wharton School of the University of Pennsylvania.