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Financial Education and Financial Access: Lessons Learned from Child Development Account Research
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In the mid-1990s, a small group of academics and financial executives sat around a conference table trying to understand why, in a period of rapid economic growth, personal bankruptcies continued to escalate. Someone suggested that recent financial deregulation had engendered the proliferation of increasingly complex financial products, making it difficult for consumers to understand exactly what they were buying. This led to the hypothesis that the increase in consumer distress during good economic times probably resulted from consumers’ lack of financial literacy.

From this meeting emerged the Jump$tart Coalition, a group of academics, government officials, financial institutions, and NGOs with a shared interest in promoting financial literacy. Since several of us were educators, we naturally felt that the problem of financial illiteracy could be overcome through financial education. The most logical place to begin this type of education would be the high school, where students presumably were old enough to be concerned with this type of problem and also logistically reachable.

The consensus was that financial education, focused on older high school students, could solve the national problem of financial illiteracy in 10 years. We decided to document the magnitude of the current problem and monitor progress toward our goal through a national study of the financial literacy of high school seniors. We developed an age-appropriate test of financial literacy that had 31 questions and decided to administer it every other year for the 10 years we thought it would take to significantly reduce the problem of financial illiteracy.

During the 1997-1998 school year, we completed our first national survey of high school seniors and were not surprised to find that students answered only 57 percent of the questions correctly. Here is an example of the age-appropriate questions we used:

Kelly and Pete just had a baby. They received money as baby gifts and want to put it away for the baby’s education. Which of the following tends to have the highest growth over periods of time as long as 18 years?

  1. a).   A U.S. Govt. savings bond

  2. b).   b) A savings account

  3. c).   c) A checking account

  4. d).   d) Stocks

Only 14.2 percent of students chose the correct answer—that stocks tend to have a higher growth rate than savings accounts, checking accounts, or savings bonds over periods as long as 18 years. In fact, there never has been an 18-year period over the past hundred years when this was not true.

Our dismal findings about the financial literacy of young American adults attracted a great deal of press coverage and resulted (as we had hoped) in promises from educators and politicians to do something about this problem. A number of school systems added courses in personal finance to their high school curriculum, and others that had been offering such a course considered expanding it and making it mandatory.

Unfortunately, successive biennial surveys did not show that we were making any progress and the problem did not go away. Average financial literacy scores fell to 51.9 percent in the 2000 study; in 2008, the last year of the Jump$tart surveys, average scores fell to 47.5 percent. Clearly we had not solved the problem in the allotted 10-year timeframe.

To make matters worse, we were not able to show that semester-long high school courses in personal finance or money management made students more financially literate. Beginning in 2000, we asked the students taking the Jump$tart test whether they had taken such a course in high school. After conducting five national surveys, we found that students who took such a course (about 20 percent of all high school students) were no more financially literate than other students.

Other studies soon began to find similar results. Despite a growing body of evidence that we had not yet found a way to make high school finance courses effective, eager lawmakers and regulators mandated that the ineffective courses be taught in an increasing number of schools. By 2009, 15 states required personal finance to be offered by all high schools and 13 required students to take such a course as a requirement for graduation. This was more than double...

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