IN AN INCREASINGLY COMPLEX financial world, personal finance education is more important today than ever. Nevertheless, the number of states incorporating personal finance concepts into their academic standards is not rising significantly, and students are demonstrating few gains, if any, in their knowledge of those concepts. One reason for this paradox is that personal finance education does not have a home in the American school curriculum. The natural home for personal finance education is in the economics curriculum, which is one of lo core subjects in the No Child Left Behind law. Economics provides the organizing principles and logic that could be the structure for personal finance education, helping to strengthen it so that K-12 students will learn the concepts and skills of personal finance they need to make informed choices throughout their lives.
Advocacy vs. Results
In recent years, many advocates have argued for improving the financial literacy of young people. Federal Reserve Chairman Alan Greenspan is prominent today among those who argue that we need strong school programs in personal finance to prepare consumers for making wise choices in a new era. New information technologies and financial products have expanded the range of choices available to consumers. Furthermore, people today are called upon increasingly to take responsibility for their financial future. For example, defined-benefit programs are becoming an endangered species as defined-contribution programs, which are directed by individual investors, become more common. This is the context for Mr. Greenspan's statement, in his lead essay for this special section, that "the importance of basic financial skills underscores the need to begin the learning process as early as possible. Indeed, improving basic financial literacy at the elementary and secondary levels will provide a foundation of financial literacy that can help prevent younger people from making poor decisions that can take years to overcome." (1)
The chorus of advocates for more financial literacy grows louder every day More than 14o corporations, government agencies, educational organizations, and nonprofit organizations have formed the Jump$tart Coalition for Personal Financial Literacy to advocate for more and better programs. (2) Congress has established the Financial Literacy and Education Commission, housed in the Department of the Treasury, to coordinate federal agencies and federal education efforts on financial literacy The Federal Reserve System has made financial literacy a priority in its educational programs.
It appears, however, that this advocacy is not being translated into results. In responding to a survey conducted by Lewis Mandell for the Jump$tart Coalition in 2004, students answered only 50.3 percent of the questions on personal financial topics correctly Based on a typical scale used by public schools, 65.5 percent of students who took this exam (it was administered to 4,000 students in 215 high schools across 33 states) would have failed it. (3) The 2004 results represented a slight improvement over results from 2002, when students answered only 50.2 percent of the questions correctly, but results from both years marked a decline from 1997, when the survey was inaugurated. In 1997, students answered 57.3 percent of the questions correctly. (4)
A Homeless Curriculum
Why has widespread advocacy for personal finance education yielded such discouraging results? In large part, the problem is that personal finance education has a weak presence and no obvious home in most school programs. A 2004 survey by the National Council on Economic Education (NCEE) found that only six states required students to complete a course in personal finance, and the number of states with standards in personal finance had fallen from 40 in 2000 to 34 in 2004. (5) These personal finance standards are often embedded in the economics standards but in some cases are stand-alone standards. …