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(State of financial education: Many money problems Americans face could have been avoided if financial literacy was taught earlier in school. That knowledge helps create a foundation for students to build strong money habits early and avoid many mistakes that lead to a lifelong of money struggles. This story is part of a series looking at the current financial education landscape in this country.)
The lack of personal finance education in this country has proven to be devastating.
It has led to many people racking up credit card and student loan debt, living paycheck to paycheck, and not saving enough for retirement. It has resulted in people not being able to buy a home or, in some cases, not able to put enough food on the table.
As a country, we’ve seen millions of Americans, with a general lack of financial planning, struggle every day with their money, only to wind up deep in debt.
Various industry research found that 2 on 3 families lack any type of emergency savings; 78% of adults live paycheck to paycheck, and 3 in 5 adults do not maintain a monthly budget.
Additionally, on average, U.S. adults correctly answered only 50% of the questions on the TIAA Institute-GFLEC Personal Finance Index in 2021.
That’s why it is so crucial to start teaching kids personal finance in high school, financial literacy advocates say.
However, what many researchers have found is that far too few students — particularly those from low-income backgrounds — receive any personal finance education during high school. Yet they are expected to make big financial decisions about student loans and budgeting for living expenses after graduation.
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“If we are going to make sure everyone in this country has food to eat and a roof over their heads, we have to teach them how to manage their money,” said Nan Morrison, president and CEO of the Council for Economic Education (CEE) and a member of the CNBC Invest in You Financial Wellness Council.
However, only five states require high school students to take a separate finance class, according to the CEE. A sixth, Missouri, also requires a stand-alone class, according to an analysis by Next Gen Personal Finance, a non-profit group that creates free courses and funds training for high school teachers.
Fifteen states that require some coursework integrate it into another class, and another five mandate a personal finance course be offered, but not required for graduation.
There may be some additional positive changes ahead, however, as 25 states and the District of Columbia have introduced bills in their 2021 legislative sessions to increase access in financial education. These bills range from forming task forces and commissions to developing standards for what should be taught in a course to ensuring that every high school student takes a course prior to graduation, according to Tim Ranzetta, CEO and co-founder of Next Gen Personal Finance.
To be sure, financial literacy advocates stress that early education is essential.
“How can we expect people to make complex [money] decisions without an education?” said Annamaria Lusardi, a professor at George Washington University School of Business and the founder and academic director of GWSB’s Global Financial Literacy Excellence Center.
“My students come in and they don’t even know how credit cards work,” she added. “Many of them didn’t know how student loans work.”
Even integrating the coursework into another class comes with the danger of it not being taught at all, Ranzetta said. Only about 36% of schools in states that have embedded topic mandates actually require the coursework, an April 2020 research paper found.
However, it doesn’t have to be that way, advocates say. Many of the financial problems Americans face could have been mitigated if financial literacy was taught earlier, in school, they say.
To that point, financial literacy advocates point to a mountain of research they say proves a financial education results in better outcomes for the lives of students.
One study that compared three mandate states with three that…