Behavioral Finance Presentation
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Fin3600GroupPresentations.pptxHandbook of Consumer Finance Research Chapter 11:
Financial Literacy and Financial Education in High School
By William B. Walstad, Ashley Tharayil, and Jamie Wagner
Caleb Margison, Joshua Cherney, and Johnny Rodriguez
Introduction
There has been an increase in desire for personal financial education.
Today we can see it evidenced by media such as CNBC Make it, Dave Ramsey, Graham Stephan, etc. as well as a wide variety of books from writers, such as, Dave Ramsey (Total Money Makeover, 2003), Thomas J. Stanley (The Millionaire Next Door, 1996), Robert Kiyosaki (Rich Dad, Poor Dad, 1997), Napoleon Hill (Think and Grow Rich, 1937), Vicki Robin (Your Money or Your Life, 1992), and many more writers.
Braunstein & Welch, in their 2002 paper, “Financial Literacy: An Overview of Practice, Research, and Policy”, cite “attention of a wide range of major banking companies, government agencies, grass-roots consumer and community groups, and other organizations” as evidence of this trend.
Introduction (Continued)
Why has this topic drawn so much attention?
Walstad, Tharayil, and Wagner cite the fact that people are expected to handle their finances to a greater degree today more than ever.
They also note that the 2008 economic crisis drew more attention towards this topic, particularly in regards to debt.
Debt seems to be one of the more important topic that brought people to the overarching topic of Personal Finance.
Introduction (Continued)
Where this leads?
The authors of this chapter believe that it is increasingly important to focus on this education in high school, noting that “it can increase financial literacy among youth, which in turn can be useful to people throughout their adult lives”.
They also emphasize the importance of true financial literacy rather than just good grades, saying, “Some attention is too devoted to testing and assessing financial literacy among high school students”.
This chapter will explain why it is important to start this eduction young, the states’ roles in financial education, the curriculum, and the effectiveness of these state mandated education programs.
Rationale
Financial literacy is one of the most valuable things for someone to learn in their life. However, currently it is very difficult for the average person to become financially literate.
Most people will not attend college and even those who do may not ever take a finance class. For most adults, highschool is the only place they might get any financial education.
Rationale (Continued)
There is evidence to support more support towards financial education in high school. In an economic model by Lusardi and Mitchell, results show that “providing financial knowledge the least educated before they enter the labor market increases their well being by about 82% of their initial wealth.” College graduates produce a change of around 56%.
This model indicates that regardless of if someone is interested in financial literacy, it is beneficial for everyone if we improve financial literacy early life especially in high school.
Coursework
The number of schools teaching some form of financial education has increased dramatically over the course of 1998 to 2016. The number of schools requiring some form of a financed education course increased from 21% to 45%.
While the increase has doubled, it is not enough and should be something that is standardized.
Weak standardization of financial education material raises concerns on whether or not students in these schools are even getting a proper financial education. Evidence shows that many schools that require financial education in some form don’t even require a finance or economics course.
Coursework (Continued)
There are unknowns on how to teach financial education. Content in books and finance courses can vary widely. It has been found that “it is likely to vary considerably by state, school district, or even high schools within a school district (Loibil & Fischer)”.
Finance is different from math or science. The it taught can vary not only book to book, but also teacher to teacher. There is a lot of personal influence that comes with Finance. It is impossible to know what each teacher is emphasizing in their classrooms.
Content Standards and Curricula
Content guides for K-12 students are published by nonprofit organizations
( JumpStart Coalition, Council for Economic Education, NEFE, and Junior Achievement )
Describe to teachers, administration, and educational developers the knowledge and skills essential for students to know regarding personal finance by the time of graduation
Topics covered: Spending & Saving, Credit & Debt, Employment & Income, Investing, Risk & Insurance, and Financial Decision-Making
Content Standards and Curricula (Continued)
Educators believe a more compact version of the written standards is needed
Incorporated into lesson on standards is a three-part framework
1. Planning & Goal Setting
2. Making a Decision
3. Assessing outcomes
Currently the amount of material is overwhelming for K-12 to learn
-93 knowledge statements, 26 standards, 6 sections, 350 benchmarks
Educators indicate that instructional problems is not due to lack of resources, but instead is deciding what content to teach using what specific resources to best introduce and imprint the financial information.
Content Standards and Curricula (Continued)
Consumer Application
Individuals can utilize high school finance knowledge as a basis for their personal finance planning.
Incorporate the lesson framework to plan and set goals, decide, and assess outcomes into their professional aspirations.
Get involved and improve in local education practices based on experience and professional assessment.
Content Standards and Curricula (Continued)
Professional Application
Financial planners can better work with Individual who are well versed in basic financial management.
Anticipate where clients will need assistance based on the lacking standards of the curriculum.
Recommended practices based on state guidelines for consumers can help guide professionals create a suitable financial plan for clients..
Testing and Assessment
Used to learn what students know or don’t know regarding personal finance, the curricular programs are overseen by the US dept. of education, such as the National Assessment of Educational Progress (NAEP), determine the knowledge level needed at 4th, 8th, and 12th grade.
In 2006, the first NAEP economics testing was administered, then again in 2012
Given the financial testing void, the Jumpstart Coalition created a 31 question survey tracking US student financial literacy overtime.
Results showed US students could only answer half of the questions and showed little improvement thereafter.
Testing and Assessment (Continued)
In 2012, the Programme for International Student Assessment (PISA) was administered in 13 countries testing about 29,000 students, the USA came in 9th.
Testing is not only for determining financial literacy levels, but also used to determine research standards and flexible testing programs.
Results are used to compare with other nations as well as what is effective in the classroom.
Testing and Assessment (Continued)
Consumer Application
Research schools and districts that score higher on financial literacy exams for family planning.
Identify areas where supplemental education is needed based on US averages.
Advocate for additional funding for improved testing
Professional Application
Partner with local education entities to reform financial testing.
Incorporate standards from other countries that US consumers would not be familiar with to enhance planning.
Analyze assessment results to determine what areas of financial literacy are in demand.
Research on State Mandates for Instruction
As it is evident from the previous slides, it appears that early financial education is of utmost importance—however, the data about the effectiveness of state mandated education has mixed results.
One would think that if financial education in youth was so important, then logically one would think that these state mandated programs would have a beneficial impact on the finances of individuals that went through these programs.
A 2001 study cited in the chapter, concluded that state mandated programs did in fact have a positive effect on savings and investment rates.
A 2013 study also cited, refuted that claim, indicating that these programs have no effect.
Research on State Mandates for Instruction (Continued)
A 2014 study appears to back-up the first study and in the three states that they studied, “students exposed to financial education in the mandated states had higher credit scores and lower delinquency rates”.
A 2001 Jump$tart study said that it depends on the curriculum because, “more specific course mandates for personal finance education had a more positive effect on student financial knowledge whereas those mandates that were broadbased did not”.
A 2000–2006 study of Jump$tart testing scores found no significant increase in test scores from students who took a state mandated finance class and those that did not.
Research on State Mandates for Instruction (Continued)
These studies show differing result, the authors note that these differences could be do to a number of factors.
Lag between the periods where it is mandated, developed, and implemented.
The quality of education, “unlike most high school courses in mathematics or science, there can be widespread national differences in the content taught in personal finance courses”.
Inconsistent testing standards produce inconsistent results.
Curriculum Studies
Due to the inconsistency of the different studies, the authors decided to examine four different studies that focused on particular curriculum to better control variables and understand the research.
The four curriculum they examined were:
High School Financial Planning Program (HSFPP)
Financial Fitness for Life (FFL)
Junior Achievement (JA) Finance Park
Finance Your Future (FYF)
Curriculum Studies (Continued)
High School Financial Planning Program (HSFPP):
HSFPP focuses on 6 different topics to help student gain a better understanding of personal finance. Those 6 topics are:
Money Management– Control Your Cash Flow
Borrowing– Credit: Use—Don’t Abuse
Earning Power– More Than a Paycheck
Investing– Money Working For You
Financial Services– Care for Your Cash
Insurance– Protect What You Have
Source: HSFPP.org
Module 1: Money Management - Control Your Cash Flow
Manage spending to meet financial goals and minimize the impact of financial obstacles.
Module 2: Borrowing - Credit: Use--Don't Abuse
Control personal credit and debt.
Module 3: Earning Power - More Than a Paycheck
Boost personal earning capability.
Module 4: Investing - Money Working for You
Put personal assets to work to build wealth.
Module 5: Financial Services - Care for Your Cash
Use financial services in a sensible and wary manner.
Module 6: Insurance - Protect What You Have
Protect personal property, financial resources and personal information.
Curriculum Studies (Continued)
The High School Financial Planning Program (HSFPP) Study and Results:
A study of HSFPP tested student before and after taking this program and found that it did in fact improve students’ financial literacy. As part of this study they controlled for variables and also found that the “the learning context within and between classrooms influenced improvement in financial behavior”. This is clear evidence that this program did in fact have a positive effect on student. It should be noted, however, that they did not make any conclusions on the long term effect of this program on students.
Curriculum Studies (Continued)
Financial Fitness for Life (FFL):
FFL focuses on providing education for a wide variety of students and organizations. They have lessons ranging from K–12 as well as business solutions to help employees and employers understand personal finance—each catering to the different needs and education of the various groups. This helps provide the student with the foundation they need as well as providing them with practical skills to improve financial education and life. Their goal is help educate children starting in kindergarten and continue that education even into adulthood. They also provide resources to help parents get involved in their children's education.
Source: fffl.councilforeconed.org
Curriculum Studies (Continued)
The Financial Fitness for Life (FFL) Study and Results:
Similarly to HSFPP, there were a few studies done on the effect of the FFL program. The first study focused on the effect of students who had gone through the program, compared to those who had not. This was done by testing both sets of students, adjusting for variables—such as race, gender, and income—then comparing the results; which found that FFL had a positive impact on the students.
The second study done, compared the effects of FFL compared to other programs. First they had teachers that used a different program, tested the students before and after taking the class. Then, they trained the teachers with FFL and had them teach classes using it, tested the student in the same manner as the control group, and found positive results.
Curriculum Studies (Continued)
Junior Achievement (JA) Finance Park:
JA Finance Park both teaches a curriculum and creates simulations where students put their education into practice. Their entry level program begins in middle school and focuses on “Income, Debit and Credit, Savings, Investing and Risk Management, and Budget”. After students build a foundation, JA has a more advanced program for high school students, which focuses on “Earning and Income; Financial Goals; Insurance; Spending and Saving; Credit; Investing”. It is clear that they desire to provide children with the basic financial literacy they need to help them prepare them for adult life and make good financial decisions.
Mission Statement “Junior Achievement's Purpose is to inspire and prepare young people to succeed in a global economy”.
Source: jausa.ja.org
Curriculum Studies (Continued)
The Junior Achievement (JA) Finance Park Study and Results:
As part of this study, they had two sets of children experience the simulation, where they could go budget and make plans. They found that students that had undergone training behaved in a more responsible manner. They budgeted better, used less credit, were more likely to make higher payments to avoid financing costs, and they planned for their future better.
The writers default to the original conductors of the study for an explanation and say, “this outcome occurs most likely because financial education primes students to act on the advice or it recalls past training”.
Curriculum Studies (Continued)
Finance Your Future (FYF):
FYF is a program, developed by the Florida Department of Financial Services, that allows people of all ages to learn about personal finances. It covers a wide range of topics, ranging from budgeting and savings to insurance and financial scams. Previously, it was a set of DVD lessons that teachers could use to help teach subjects and curate lessons according to their classroom needs. Now, it is a free, app based learning software and, similarly, teachers can use it to curate lesson to teach their classes, as well as monitor student progress and financial literacy.
Sources:
financeyourfuture.myfloridacfo.com
fla-schoolcounselor.org
Curriculum Studies (Continued)
The Finance Your Future (FYF) Study and Results:
For the purpose of the study they focused on, teachers used the DVD curriculum from FYF and were all instructed to teach in the same manner. Similarly to other studies they pre-tested, post-tested, and used a control group to see the results of the study. They found a positive effect of the students financial literacy after they controlled for different variables.
Curriculum Studies (Continued)
Conclusion of the Studies:
The authors recognize that all of these studies had positive results and acknowledge that they have unique advantages. They also recognize some weaknesses, and they note that the primary one is that these studies only focus on 4 different programs and are limited in scope—which means that they may not actually be representative of the population.
The last point they make is that the goal of financial education should be about improving students’ financial literacy, rather than influencing their behavior in a particular manner. This point shifts the goal in a way that shows why the previous studies they cited in “Research on State Mandates for Instruction” did not properly assess the outcomes of state mandated programs—because they focused on the economic and financial outcomes of people, rather than focusing on their financial literacy.
Summary and Implication
It is clear that the topic of personal finance is on the rise and with this growing interest, it is important to provide people with the quality education that they need.
It also is evident that people who learn about personal finance at a younger age tend to be better off than those that learn it later.
In regards to high school education, it is often one of the only times that people will be educated on the topic, which makes it extremely important to ensure that they are getting a quality education.
Unfortunately, high school education is often poorly developed. There is not a good, universal standard for financial education in high school—leading to contradictory results.
Summary and Implication (Continued)
Without clear guidelines to help children get the education they need, they can be misinformed or under informed—leading to poor financial literacy and poor decision making—and this is especially true for more vulnerable populations.
Fortunately, there are a few examples of quality curriculums that show promising results—and those in charge of education would be smart to take note of this and change the way we educate children in regards to finances.
Summary and Implication (Continued)
What can be done from a professional standpoint?
Keep in mind that most people have either no financial education, or poor financial education.
Help educate people while working with clients.
Most people don’t understand risk.
Most people don’t understand the time-value of money.
Most people don’t understand the importance of budgeting or even how to do it properly.
Most people don’t know how to take control of their personal finances.
Work with education professional to help improve financial literacy at a young age.
Summary and Implication (Continued)
What can be done from the consumer standpoint?
Take education into their own hands.
Help educate children from a young age.
Teach them about the importance of saving and investing.
Teach them how to budget and plan for expenses.
Teach them about the importance of planning for your future.
Teach them how to improve their education and why it is so important.
Be involved with your children’s education.
