For the first time, new U.S. research finds that mandatory financial education in public schools leads to concrete improvement in financial behaviours.
The U.S. Federal Reserve Board released a staff working paper today that examines the impact of mandatory state education on financial behaviours, and it finds some positive effects; at least in terms of borrowing behaviour. Until now, it notes that, “despite the growth of financial and economic education provided in public schools, little is known about the effect of these programs on the credit behaviors of young adults.”
The research uses credit report data to examine young adults in three states where personal financial education mandates were implemented in 2007: Georgia, Idaho, and Texas. It compares the credit scores and delinquency rates of young adults in each of these states pre- and post-implementation with those of students in a synthetic control state, and with bordering states without financial education; and finds positive effects to this sort of education.
“We find that young people who are in school after the implementation of a financial education requirement have higher relative credit scores and lower relative delinquency rates,” it reports.
For example, it finds that a student exposed to personal finance education three years following implementation had, on average, a 29 point higher credit score in Georgia, a seven point higher credit score in Idaho, and a 13 point higher score in Texas; along with reductions in the incidence of delinquency of 3.6 percentage points in Georgia, one percentage point in Idaho, and 3.3 percentage points in Texas for those exposed to the education three years post-implementation.
The paper also finds that the magnitude of these effects increases with each additional year after the mandate was initially implemented. “This is in stark contrast to the results from models where the year in which a mandate is initially enacted is used as the treatment, which show little effect of financial education on subsequent outcomes,” it notes.
“Overall, we demonstrate that a these three standardized and relatively rigorous education programs do appear to alter credit behavior in early adulthood, and that the effects are increasing, consistent with schools refining and improving implementation,” says the paper.
At the same time, the paper says the results also raise important questions. “Given that there is a finite amount of time in the school curriculum, an expansion of financial education courses invariably comes at the cost of less time devoted to other subjects. Thus, we cannot evaluate the overall effects of expanded financial education without knowing the specific trade-offs involved,” it says. “We leave it to subsequent research to determine whether these positive effects persist further into adulthood, and to weigh the costs of providing financial education in school relative to its benefits.”
“If the goal of policymakers is to influence debt repayment behavior, and the opportunity costs of providing this form of education are relatively low, then mandating financial education may prove to be a reasonable strategy,” it concludes.