This Advanced Project will study the effectiveness of financial literacy programs that target under-served youth. Financial literacy and cognitive capabilities are convincingly linked to the quality of financial decision-making. Yet, there is little evidence that education intended to improve financial decision-making is successful (Cole, S., Paulson, A., & Shastry, G. K. 2016). The financial crisis of 2008 focused a spotlight on household financial decision-making with many policymakers arguing that poor decision-making exacerbated the crisis as borrowers took out mortgages they could not repay. The Dodd-Frank Act established an “Office of Financial Education” within the Consumer Financial Protection Bureau to develop and implement a strategy to improve the financial literacy of consumers (Dodd-Frank Act, Title X, Section 1013). This federal effort comes in addition to state initiatives requiring high schools to include personal finance in their standard curriculums. High school provides an opportunity to offer programs that can achieve near-universal coverage. As of 2009, 44 U.S. states included “personal finance” in their standard high school curriculum (Council for Economic Education 2010) ;(Cole, S., Paulson, A., & Shastry, G. K. 2016).
My research and examination of the articles and sources about this issue lead me to believe that the traditional methods of financial literacy education have not been very effective. But there are some interesting and promising methods that I was able to identify and will go into detail about. In December 2015 I started a nonprofit organization (Greenwood Project) to introduce minority students from under-served communities to the financial industry. I was particularly interested to learn what the long-term impact and effect of my organization’s curriculum have been.
Financial literacy education is seen by many as the magic bullet to save people who reside in under-served communities. It is often assumed that if only these people knew how to better manage and plan their finances, they would lift themselves out of poverty. However, evidence that financial education has a causal effect on financial outcomes is at best mixed. Financially illiterate households are likely to be poorer and less educated than financially literate households making it difficult to isolate the impact of financial literacy from other factors associated with poor financial outcomes (Cole, S., Paulson, A., & Shastry, G. K. 2016). Mandell (2007) finds that students who earn high scores on financial literacy tests tend to come from well-off, well-educated households.
The Greenwood Project high school juniors and seniors are immersed in an intensive 6-week program during the summer. The curriculum includes financial literacy, educational field trips, simulated trading, soft skills training, leadership and professional development workshops, and tons of exposure to the financial services and tech industry. Greenwood’s financial literacy curriculum focuses on connecting the curriculum with experiential learning via job shadowing and a day-in-the-life of experiences. Students are taught basic real-world skills such as check writing, understanding taxes, budgeting, wealth building, the basics of the stock market via a methodology we call investing in what you use. Students are encouraged to examine the brands they use every day and to do research into the publicly traded companies behind those products. In 2018 my organization (The Greenwood Project) gave each student a funded online brokerage account. It will be interesting as we begin to track how this impacted the engagement of our students in the financial markets. There are multiple ways The Greenwood Project will seek to measure the effectiveness of our programs using assessment tools such as surveys and questionnaires. Over the past three years, the Greenwood Project has collected a lot of data on the goals and desired outcomes of our programs, but we are yet to compile and properly analyze that data to see how effective our programs are.
Although some effective strategies have emerged for adult financial education, these strategies and approaches cannot simply be re-engineered down to more age-appropriate versions and imposed on a K-12 educational system (McCormick, M. 2013). Adult financial education is largely a remedy imposed to fix specific critical breakdowns in how adults use (or misuse) money; it tends to be designed and delivered to target demographic groups and is frequently, though not always, intended to compensate for already-existing financial ordeals (McCormick, M.). Childhood financial education needs to be prescriptive, preventative, developmental, and delivered on a massive scale. Therefore, the pedagogies and strategies that are appropriate for adult financial education cannot transfer effectively onto efforts by the American school system to train children to be financially literate (McCormick, M. 2013).
It is unknown how much knowledge is retained in the long-term by students who complete our program. We found that financial literacy has less effect in low-income samples; the financial behavior of the poor is arguably more controlled by circumstances independent of intention (Bertrand, Mullainathan, and Shafir 2006). The Greenwood Project program participants will be contacted every month to find out how often they are interacting with their online brokerage account. Measures should demonstrate behavior change, molding, and/or modification based on data-driven outcomes (i.e. savings rate, debt load, credit scores, brokerage account interactions, etc.) The effectiveness of financial literacy education targeting underserved youth must be measured and evaluated differently given the many socio-economic challenges these students face. In my organization, we have taken steps to conduct post-program surveys and to also track financial market engagement by our students over time (at least 3 years). Another often overlooked factor is the lack of support and resources at home for underserved youth when it comes to financial education, in my organization the work we do is an attempt to break a cycle of financial illiteracy which has spanned many generations. This has caused us to start exploring the creation of programs to educate parents as well. Youth living in poverty-stricken communities are exposed to numerous risks, in part because their caregivers, who are also affected by family-level poverty, often find it difficult to effectively monitor and care for their children. Further, children transitioning from adolescence to adulthood have basic developmental and psychosocial needs, including receiving family support, acquiring coping skills to adapt to everyday life, and believing in a future with real opportunities (Annunziata et al., 2006, Beautrais, 2001, Kotchick et al., 2006, Samuolis et al., 2001, Wild et al., 2004). Youth who enter adolescence under adverse circumstances, such as living in poverty-impacted households, are often ill-prepared to cope effectively with these normative challenges, making this period one that is particularly difficult and potentially associated with poor educational outcomes and risk-taking behaviors, including early and risky sexual behavior and drug abuse (Ssewamala, F., Sperber, E., Blake, C., & Ilic, V. 2012).
Certain institutions exist to protect and educate consumers and investors, one such institution is the Financial Industry Regulatory Authority (FINRA). FINRA is dedicated to investor protection and market integrity through effective and efficient regulation of broker-dealers. It is important to note that FINRA is not part of the government, they are a not-for-profit organization authorized by Congress to protect America’s investors by making sure the broker-dealer industry operates fairly and honestly. FINRA found that respondents correctly answered, on average, only three out of five questions on basic financial topics. Low levels of financial literacy are prevalent among adults, particularly among disadvantaged groups, and are associated with poor financial choices that can lead to economic insecurity. Increased financial literacy could help individuals understand their saving situations better, save more, and attain higher economic status and more economic security. Widespread financial literacy might also provide broad social and economic gains as vulnerable households make better financial decisions. and possibly increase capital stock as saving rates increase (Gale, W. G.; Harris, B. H.; Levine, R. 2012). Comment by: Bevon… this sentence is pulled directly from FINRA’s website. You can do so without using it as a quote and citing it. And a quote cannot begin a paragraph. Comment by: This one too…
My interactions over the past four years with students and parents from lower socio-economic backgrounds have allowed me to gain another perspective on financial education. I have learned that a lack of financial education is not always a result of a person’s socio-economic conditions/environment. There are many cases where people may value other things over money, such as having close bonds to their community by donating their time to mentor youths. It may also be as simple as they do not subscribe to things such as the stock market and financial institutions. According to Gallup, 52 percent of U.S. adults owned stock in 2016. Since Gallup started measuring this in 1998, that’s only the second time ownership has been this low. These figures include ownership of an individual stock, a stock mutual fund, or a self-directed 401(k) or IRA, see Figure 1.
As you see in Figure 2 households with an income of less than $30,000 represent a shrinking segment of the US population who are invested in the stock market. Many people in the lower socio-economic rung of society simply are not financially capable to participate in the stock market, and in many cases, they simply do not believe in putting their hard-earned money into something they have little or no faith in.
Asset-building is increasingly viewed as a critical factor for poverty reduction that positively impacts attitudes and behaviors, improving psychosocial functioning as a result of greater financial security. Asset-building and ownership are not only a means of escaping poverty, but they also generate positive social and psychological outcomes (Ssewamala, F., Sperber, E., Blake, C., & Ilic, V. 2012). Asset theorists assert that when people – including disadvantaged adolescents – have assets (even in small amounts), their behavior, attitudes, and hopes for the future are affected (Sherraden, 1990). Humans are forward-looking, and current well-being depends in part on expected future well-being. People with more assets in the present expect to have more resources in the future… Not only do [people with assets] think differently, but others also treat them differently. Also, owning assets as a young adult is positively associated with employment ten years later (Bynner & Paxton, 2001).
Financial education mixed with some form of asset-building does act as a catalyst for short and long-term financial behavior in youth. I have seen this first-hand in my organization’s programming. The youth who received funded brokerage with mentoring and continuing education about the markets have remained engaged and shifted their mindset when it comes to careers post-college, financial education mixed with experiential learning is another tried and proven effective method to engage and motivate students in our program. Simulated experiential learning about personal finance shows promise as a relatively efficient mechanism to build financial capability among elementary-school students and could serve as an important component of a comprehensive effort to promote financial well-being in schools (Experiential Financial Literacy, 2017). I have seen the results of having curriculum content that has real-world scenarios that appeal to under-served youth. It is important to consider that youth from under-served communities may have different learning styles. The application of a lifecycle approach to all elements of financial education development ensures that content, teaching methods, and evaluation are appropriate for various age and income levels (The Effectiveness of Youth Financial Education. 2019).
Over the last forty years, many states have adopted consumer education policies, and a sizable minority has specifically mandated that high school students receive instruction on topics related to household financial decision-making (budgeting so forth) (Bernheim, B., Garrett, D., Maki, D. 1997). As of 2015, nearly half of states in the United States included some form of a personal finance course as part of their high school curriculum. The public policy motivation for school-based financial education requirements is typically to improve the financial behavior of individuals (Urban, C., Schmeiser, M., Michael Collins, J., & Brown, A. 2018). High school students may not see the relevance of financial education without context. Proper teacher preparation and training are also critical to the effective delivery of the curriculum. The experiences of Georgia, Idaho, and Texas are instructive for education policy. All three states had some level of curriculum coordination, supplemental teaching resources, teacher training, and certification requirements. However, Georgia’s program had extensive and continuous teacher training, additional certification incentives, and student testing. Georgia also had the largest improvements in credit outcomes across the three focal states. Georgia’s enhanced implementation efforts may be part of the reason the state’s financial education program appears to have relatively stronger effects on young people (Urban, C., Schmeiser, M., Michael Collins, J., & Brown, A. 2018).
The Center for Financial Literacy at Champlain College has graded all 50 states and the District of Columbia on their efforts to teach the ABCs of financial literacy to high school students. Georgia was one of seven states to receive an ‘A’ from Champlain College’s Center for Financial Literacy for teaching financial literacy to high school students. States with the “A” grade designation require personal finance instruction as a graduation requirement that is equal to a one-semester, half-year course (minimum of 60 hours of personal finance instruction in an academic year). Most states identify a specific course that must be taken to graduate from high school that includes financial literacy instruction. Other states have very specific standards that must be taught as a graduation requirement but leave how the instruction is implemented up to local school districts. These states require that personal finance topics be taught and embedded in economics, civics, family and consumer sciences, business, life skills, career readiness, or mathematics courses (Center for Financial Literacy 2019).
High school students overall are graduating having taken some form of financial education (in many cases mandatory) but they are not being tracked long-term to see what the effect of this education is on their financial behavior. In some cases, exposure to financial education in high school can also have a negative effect. At least one study finds negative effects of school-based financial education on some behaviors. In a randomized trial in Brazil, where financial education included three semesters of high school coursework, teacher training, interactive learning, and take-home assignments that involved parents, Bruhn, de Souza Leao, Legovini, Marchetti, and Zia (2016) found improvements in student financial knowledge, as well as positive behaviors such as savings. However, they also found that students in the program were more likely to use high-cost credit (Urban, C., Schmeiser, M., Michael Collins, J., & Brown, A. 2018) Chicago Public Schools (CPS) developed and implemented an 11-12th-grade Personal Finance Course from 2012-2016. This course has been offered in approximately 75 CPS high schools across the city, serving nearly 15,000 students over the last four years. Students learn how the economy works as well as their role as a consumer. They also learn how to make informed money decisions by developing a budget and engaging in wealth-building skills and activities. Students learn how to protect their financial and personal assets, and behaviors, and strategies to minimize and transfer risk, prevent identity theft, and evaluate insurance needs. Students are taught decision-making processes in choosing a career. They also analyze the long-term costs and benefits of obtaining or foregoing a college education and career choices.
Financial education, when targeted to under-served youth, needs to be customized and must be delivered with context. Context means that a focus must be placed on the financial capability of the students and families from under-served communities. It cannot be assumed that educating students about the stock market will mean that they can now start investing. These students and their families may not have the money required to open and fund an online brokerage account.
Financial education curriculum teachers should undergo ongoing training and should incorporate experiential learning as well. Connecting the curriculum to the real world is key for short and long-term effectiveness. Adding some form of asset-building can help to make education stick as well. That asset-building can be a funded brokerage account or stock trading competition with paper money for example. Financial education for under-served youth should also involve the parents of the youth to help reinforce what is learned in the classroom. Getting parents involved will also arm them (parents) with the tools necessary to teach the financial fundamentals to their children.
There is not enough data to say that long-term, financial education changes the fiscal behavior of under-served youth, but based on my experience with the Greenwood Project and research for this Advanced Project, I have identified methods to deliver and measure the effectiveness of financial education. Long-term tracking of youth who matriculate through Greenwood programs will tell us more about how effective our financial literacy curriculum is. There is also enough evidence to state that not everyone from a low socio-economic believes that financial education will lead to greater income being earned in the short or long term.
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