Studies have long shown that high school students are woefully uninformed about personal finances and how to manage them. But the COVID-19 pandemic, which revealed how many American adults live on the financial edge, has boosted ongoing efforts to make financial literacy lessons a school requirement.
Seven states now require a stand-alone financial literacy course as a high school graduation requirement, and five additional states' requirements take effect in the next year or two. About 25 mandate at least some financial training, sometimes as part of an existing course. This year, another 20 states or so have considered setting or expanding similar rules.
Opponents of the state mandates say the requirements, while laudable, can infringe on limited time available for other high school electives and would impose costly teacher training or hiring requirements.
Nonetheless, the financial literacy courses are catching on.
“I think there’s a lot of momentum now; a lot more states have legislation in progress,” said Carly Urban, an economics professor at Montana State University who has studied financial literacy. In seven states—Alabama, Iowa, Missouri, Mississippi, Tennessee, Utah and Virginia—“almost every school requires it,” she said, though some graduation prerequisites don’t take effect until 2023.
In the past couple of years, Nebraska, Ohio, Rhode Island and, most recently, Florida, have passed laws making financial literacy a must in high schools in the next year or two. In North Carolina, graduation requirements take effect in 2023.
Thirty-four states and the District of Columbia have had bills addressing financial literacy in the 2021-22 legislative sessions, according to the National Conference of State Legislatures. Of those, about 20 focus on high schools.
Bills in Kentucky and the District of Columbia appear to take into account that student-athletes now are allowed to earn money for the use of their name, image or likeness. Neither of the measures mandates that high schools teach financial literacy. But the Kentucky bill, which the governor signed, requires colleges to set up financial literacy workshops for student-athletes. The D.C. bill would encourage colleges with student-athletes to teach financial literacy.
Last month, Florida Republican Gov. Ron DeSantis signed a bill calling for students who enter high school in the 2023-24 school year to take a financial literacy course as a graduation requirement. The new law calls for a half-credit course in personal money management, including how to set up and use a bank account, the meaning of credit and credit scores, types of savings and investments and how to get a loan.
In a signing ceremony, DeSantis touted the law as something that will “help improve students’ ability in financial management, for when they end up in the real world.”
Financial literacy is one issue that is remarkably bipartisan. Rhode Island Gov. Dan McKee, a Democrat, sounded a lot like DeSantis when he signed Rhode Island’s requirement for financial literacy education in high schools last year.
"Financial literacy is key to a young person's future success," McKee said. “This legislation paves the way for our public high schools to provide young people with the skills they need to achieve their financial goals.”
Montana State’s Urban said the state policies that require stand-alone financial literacy courses help students the most, particularly if the states set standards on the subjects that must be included in the curriculum. Most of the courses go for a half-year.
Some states use materials provided by the nonprofit Next Gen Personal Finance—which offers a free study guide and classroom materials for teaching financial literacy—to help set the standards, while others have expanded units already included in economics, math or social studies courses.
Next Gen’s free courses include tutorials for teachers, along with classroom study guides on subjects such as managing credit, opening checking and savings accounts, budgeting, paying for college, investing, paying taxes and developing consumer skills.
In a 2018 study, only one-third of adults could answer at least four of five financial literacy questions on concepts such as mortgages, interest rates, inflation and risk, according to the Financial Industry Regulatory Authority's investor education foundation. Financial literacy was lower among people of color and younger people.
About 16% of 15-year-old U.S. students surveyed in 2018 did not reach the baseline level of financial literacy proficiency, according to the Organization for Economic Cooperation and Development.
But with some education, those numbers can improve, according to Urban’s studies.
“The findings are stark,” she said in a phone interview. “Credit scores go up and delinquency rates fall. If you are a student loan borrower, you shift to low interest from high, and you don’t rack up credit card debt, and you don’t use private loans, which are more expensive.” In addition, her research revealed that young people who have taken some financial literacy courses are less likely to use expensive payday loans.
Even the teachers who lead the courses tend to experience an uptick in savings.
“If access remains limited—particularly for students who have the most to gain from the education—state policy may be the only option for guaranteeing all students have access to personal finance prior to becoming financially independent,” Urban wrote in a 2022 study of high school personal finance courses.
The California Assembly Committee on Education unanimously approved a high school financial literacy bill last week. Committee Chair Patrick O’Donnell, a Democrat and a former high school economics teacher, said financial concepts such as Individual Retirement Accounts, Roth IRAs, loan terms and other things are “difficult to get … in their heads.”
Educators need resources to teach those concepts, he said, noting that when he was a teacher, he wrote his own course materials for financial literacy instruction.
The COVID-19 pandemic has underscored how few Americans are prepared for financial emergencies, giving financial literacy requirements new momentum, according to John Pelletier, director of the Center for Financial Literacy at Champlain College in Vermont. “COVID woke people up,” he said in a phone interview.
He cited a 2020 study by the Federal Reserve that showed many Americans couldn’t come up with $2,000 in an emergency, and “it really hit home when people were forced to stop working and drawing a paycheck. If policymakers didn’t find a way to get people cash, we’re dealing with more than just paying the rent; we’re dealing with hunger and homelessness.”
Pelletier estimates about 30% of public school kids now have access to financial literacy courses.
But not every financial literacy bill has sailed through the legislative process. A bill in Wisconsin this year died after objections from the Wisconsin Association of School Boards.
Ben Niehaus, director of member services for the association, said his group agreed with the intent, but was concerned about the quick timeline of a year and the possible “compromising of elective choices.”
The sponsor of the bill, Republican state Rep. Alex Dallman, said in a phone interview he hopes to reintroduce the bill next session, possibly with just a half-credit course.
“In our economy right now, we’re taking out massive loans, we are not repaying them, and we have to be smarter about how we handle money,” he said. He added that technical schools in the state like the idea of teaching about finances, as it may lead more students to conclude that they should forgo an expensive college education for a lucrative career in the trades.
But Niehaus said a financial literacy requirement might take time away from the career-training electives, such as courses in manufacturing fabrication, that many Wisconsin high schools have begun offering.
“We are trying to add these experiences to meet the needs of the labor market with more than a high school diploma and less than a four-year degree. There are only so many hours in a day,” Niehaus said.
“Yes, it’s important, but career and tech education are important too, and we believe local school boards should decide.”