The Interdependence of Economic and Personal Finance Education.

Abstract

IN AN INCREASINGLY COMPLEX financial world, personal finance education is more important today than ever. Nevertheless, number of states incorporating personal finance concepts into their academic standards is not rising significantly, and students are demonstrating few gains, if any, in their knowledge of those concepts. One reason for this paradox is that personal finance education does not have a home in American school curriculum. The natural home for personal finance education is in economics curriculum, which is one of lo core subjects in No Child Left Behind law. Economics provides organizing principles and logic that could be structure for personal finance education, helping to strengthen it so that K-12 students will learn concepts and skills of personal finance they need to make informed choices throughout their lives. Advocacy vs. Results In recent years, many advocates have argued for improving financial literacy of young people. Federal Reserve Chairman Alan Greenspan is prominent today among those who argue that we need strong school programs in personal finance to prepare consumers for making wise choices in a new era. New information technologies and financial products have expanded range of choices available to consumers. Furthermore, people today are called upon increasingly to take responsibility for their financial future. For example, defined-benefit programs are becoming an endangered species as defined-contribution programs, which are directed by individual investors, become more common. This is context for Mr. Greenspan's statement, in his lead essay for this special section, that the importance of basic financial skills underscores need to begin learning process as early as possible. Indeed, improving basic financial literacy at elementary and secondary levels will provide a foundation of financial literacy that can help prevent younger people from making poor decisions that can take years to overcome. (1) The chorus of advocates for more financial literacy grows louder every day More than 14o corporations, government agencies, educational organizations, and nonprofit organizations have formed Jump$tart Coalition for Personal Financial Literacy to advocate for more and better programs. (2) Congress has established Financial Literacy and Education Commission, housed in Department of Treasury, to coordinate federal agencies and federal education efforts on financial literacy The Federal Reserve System has made financial literacy a priority in its educational programs. It appears, however, that this advocacy is not being translated into results. In responding to a survey conducted by Lewis Mandell for Jump$tart Coalition in 2004, students answered only 50.3 percent of questions on personal financial topics correctly Based on a typical scale used by public schools, 65.5 percent of students who took this exam (it was administered to 4,000 students in 215 high schools across 33 states) would have failed it. (3) The 2004 results represented a slight improvement over results from 2002, when students answered only 50.2 percent of questions correctly, but results from both years marked a decline from 1997, when survey was inaugurated. In 1997, students answered 57.3 percent of questions correctly. (4) A Homeless Curriculum Why has widespread advocacy for personal finance education yielded such discouraging results? In large part, problem is that personal finance education has a weak presence and no obvious home in most school programs. A 2004 survey by National Council on Economic Education (NCEE) found that only six states required students to complete a course in personal finance, and number of states with standards in personal finance had fallen from 40 in 2000 to 34 in 2004. (5) These personal finance standards are often embedded in economics standards but in some cases are stand-alone standards. …