David Braaten, business education teacher at Hopkins High School, recalled how one of his students came to him in tears after a personal finance class. The girl's good grades had earned her a scholarship to college, but she told him that a close relative had put her name on several credit cards without her knowledge.
With what she had learned in his class, she was concerned about the potential impact on her credit score. He helped her contact credit bureaus and develop a strategy for talking to the relative. "It was a messy situation," he said.
After years of teaching personal finance to high school students, the incident illustrates to Braaten that there's not necessarily a connection between high academic achievement and being financially savvy.
Teenagers live intensely in the here and now, where school activities and friends can dominate their busy lives. So it's no surprise that credit scores, budgeting, or the miracle of compound interest are not what teens are texting about. A recent study found more than 1 in 5 U.S. teenagers lack the rudimentary knowledge necessary to manage basic personal finances, and U.S. teens overall show a financial literacy deficit compared with many peers among 15 developed and developing countries.
The study, conducted by the Program for International Student Assessment (PISA), evaluated 15-year olds in 15 countries on their understanding of everyday financial concepts, financial products and risks, and how to apply that knowledge to real-life decisions. The study ranked students at five different levels of increasing financial literacy with 22 percent globally, the same as in the U.S., scoring in the lowest category as financially illiterate, while 12 percent scored in the top category, compared to 10 percent in the U.S. The average score of U.S. teens ranked behind peers tested in China, Belgium, Canada, Russia, the Netherlands and Australia.
The sobering results were recently released by the National Center for Education Statistics (NCES), an arm of the U.S. Department of Education. Despite efforts to improve financial literacy, such as national competitions, development of curriculum materials and teacher training, the recent PISA study showed no improvement in overall financial literacy among U.S. teens compared with a similar study in 2012 and revealed significant differences in performance based on economic status.
Peggy Carr, acting commissioner of NCES, described "sizable gaps" in financial literacy among students in the United States based on income. The NCES reported 38 percent of students in low-income schools (as measured by the proportion of students eligible for free or subsidized lunches) scored in the lowest bracket, compared to 16 percent in higher-income schools. Only 3 percent of students attending low-income schools were in the top scoring group, compared to 45 percent of students in high-income schools.
One step to improving financial literacy would be to require students to pass a personal finance course in order to graduate. A 2015 study reported by the nonprofit Council for Economic Education found that students in states requiring personal finance in high school had higher credit scores and developed better credit behaviors by age 22 than their peers in states without the requirement. Only 17 states have such a requirement. While Minnesota requires statewide standards for personal finance courses, the course itself is considered an elective.
Like many schools in Minnesota, Hopkins had offered personal finance as an elective for years. Beginning with the class of 2015, it became a required course. That change grew out of discussions at the district's strategic planning meeting following the financial market meltdown of 2008. With the financial crisis on everyone's mind, Braaten pointed out that there was no mention in the strategic plan for teaching students how to manage money.
"It was sort of an 'aha' moment," he recalled. Hopkins now requires students to earn a half-credit in 9th grade and a full credit in either junior or senior year, placing it among only a handful of Minnesota school districts that require personal finance in order to graduate. Students can earn three college credits within the Minnesota State Colleges and Universities System, and Braaten has seen his students successfully transfer the credit to schools outside of the Minnesota State system as well.
Now that personal finance is a requirement, the topic has gained importance in students' eyes, Braaten said, and as they begin to draw their own W-2s through after-school jobs, class discussions on saving, taxes, credit and investing "start coming to life for them. … We hammer home the cost of every decision."
Braaten knows the class is making a difference when former students proudly let him know they've opened a Roth IRA. And, as he promises new students each year, it's one class where they won't complain: "I'll never use this when I leave here."
Brad Allen is a freelance journalist and former investor relations executive for companies including Imation Corp. and Cray Research. His e-mail is brad@bdallen.com.
