Financial literacy is critical for managing money, but how well are states preparing their residents?
Tennessee tops the list of U.S. states that provide the best financial education for its residents, according to a new report by financial-service company OneMain Financial. More than 99% of public high-school students in Tennessee have “gold-access” education, a school where students are required to take a separate personal-finance course as part of their curriculum to graduate.
The report takes into account four things: the number of active bills in the state promoting some form of financial education in public schools, the status of economic education in public high schools, the level of personal-finance education offered and required, and the share of high-school students in gold-access schools.
New York, Utah, Alabama and Virginia ranked after Tennessee. Despite the fact that only 2% of New York’s high-school students have “gold access” education, the state has 11 financial and economic education bills proposed in the state this year. The other three states have over 97% of students with gold-access education.
“‘We think that understanding budgeting, saving, loans and credit cards as well as credit scores can set people up for a lifetime of financial well-being.’”
“We think that understanding budgeting, saving, loans and credit cards as well as credit scores can set people up for a lifetime of financial well-being,” OneMain Financial said in the report. “So we looked closer at the latest legislation and conversations to gauge how we as a nation are giving people access to financial knowledge.”
In total, elected officials introduced 69 bills on financial education this year in 27 states as of late October, according to the Next Gen Personal Finance Financial Education Bill Tracker. NGPF is a nonprofit that aims to bring personal-financial education to all students. Among them, 12 bills have been signed into law in 10 states and 8 bills were still in process in 3 states.
Roughly two dozen states require students to take a personal-finance course, either standalone or integrated into other subjects, toward their high school graduation, according to the Council for Economic Education. A few states, including Florida, passed bills in summer 2022, designating personal-finance courses as an individual requirement.
Alaska, Wyoming, and the District of Columbia do not have any personal-finance education requirements in K-12 schools and haven’t seen any new bills, according to the report by the Council for Economic Education. California does not have any such requirements in place, but passed a bill in July to start a statewide workforce to look at the issue.
(OneMain Financial declined to offer its own assessment of states with the lowest performance in state personal-finance education. However, the researchers did say that 68% of American high-school students do not understand credit scores, and further said that automobile loans rank behind mortgages and student debt for the largest share of household debt among adults. )
Consistent low performance in financial literacy among Americans
U.S. adults have correctly answered just 50% of the personal-finance questions over the past six years, according to the 2022 report by the TIAA Institute, a nonprofit that is part of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, a Fortune 100 company, and the Global Financial Literacy Excellence Center.
Financial literacy tends to be the lowest among the younger Americans, according to the TIAA Institute and GFLEC’s Personal Finance Index, a list of 28 core questions they ask people on an annual basis. Some 54% of baby boomers on average answered all questions correctly, while 42% of Generation Z answered all questions correctly — a 12 percentage-point gap between the two demographics. (The questions cover everything from saving, investing and borrowing to earning, consuming and comprehending risk.)
The level of financial literacy not only remains low, but also has been “stubbornly resistant to progress”, according to analysts at the Milken Institute, a nonprofit think tank based in Santa Monica, Calif. “This result is particularly worrying for young people, who are likely to face greater financial challenges than previous generations,” researchers concluded in this 2021 report.
A time in need of good money management skills
The past two years pushed many states to consider implementing financial literacy lessons as a school requirement. The pandemic disrupted jobs and income for many households, especially low-income families. The push to promote personal finance in schools appears to have reaped rewards in Tennessee: the state’s average credit score increased by 4 points to a “good” FICO FICO score of 701 last year.
Americans face an uncertain economic outlook. Inflation stood at 7.7% in October compared to a year ago, and was down from 8.2% in September, according to the latest government data. The rise in living costs finally showed some signs of cooling after inflation hit a 40-year-high in summer of almost 9% a year ago. However, high inflation has already taken a toll on millions of cash-strapped households.
Federal Reserve Vice Chair Lael Brainard indicated earlier this month that the Fed could slow its rate of interest-rate hikes. It has raised rates six times this year, and raised the key rate by 0.75 percentage points in November for the fourth time. That pushed the short-term borrowing rate to a target range of 3.75% to 4%, making car loans and credit-card debt more expensive.
Consumers also reported having to dip into their emergency savings to help cover monthly bills. At the same time, U.S. households have grown more dependent on credit cards and personal loans. Total bank credit-card balances reached a record $866 billion in the third quarter of 2022, up 19% from a year ago, according to TransUnion
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