Not All Financial Education Is Effective. Here Are 4 Ideas That Work
Part of NPR's Your Money And Your Life series
"How many of you guys have $1,200 in your pocket right now?"
Victor Robertson's voice echoes through the auditorium at Ballou High School in Washington, D.C., where 700 students are taking their seats.
Robertson is from the city's Summer Youth Employment Program, which connects 13,500 young adults with summer jobs at places like CVS and the Department of Parks and Recreation.
Robertson explains the difference between a checking account, a savings account and a prepaid debit card.
"If you open a bank account, that's establishing a relationship with a bank," Robertson says. "Your money is safe in a bank. It's safe and it's insured."
For many of these students, this summer is the first time they'll get a paycheck. So, Robertson says it's time to talk money.
Robertson has seen the surveys and heard the statistics that show how woefully uniformed Americans are about their finances. This situation has prompted both federal and state efforts to increase financial education.
But there's a problem: Research suggests financial education may not lead to better financial choices.
That doesn't mean we should stop teaching about money. It just means we need to do it better.
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Gregory Hoey says nobody ever sat down "and talked to me about having an account until I got into the program."
He's standing off to one side in the auditorium. Gregory did the Summer Youth Employment Program a few years ago. He was a camp counselor at basketball camp.
"I learned a lot. How to basically be a young adult," the 18-year-old says. "Like if there are some shoes or something coming out, I got bigger priorities now."
Gregory's not buying shoes because he wants to buy a car. But he says he's still figuring out exactly how to budget and set financial goals.
Across town, Richard Cordray wants to help.
He's the director of the U.S. Consumer Financial Protection Bureau, and he's pushing for more people to talk about money.
"Often families are reluctant to talk about money issues. And, so, if not in the home then where?" he says. "School is the natural answer."
Seventeen states require students to take some sort of personal finance course, and five states require a semester of financial education.
Research commissioned by Cordray's office looks at many studies that evaluate this type of education.
In the short term, personal finance classes sometimes lead to better scores when students are quizzed on subjects like credit, debt and banking.
But these classes don't necessarily lead to better financial decisions. There's no clear link between taking personal finance classes and saving more, paying off debts or raising your credit score.
But there are techniques that seem to work.
First, "people have to understand where they may need to go and get more information," Cordray explains.
Since financial products are always changing and people are prone to forget the specifics from class lessons, researchers suggest it might make sense to focus on teaching high schoolers how to find the financial facts they'll one day need.
Second, students should get out there and practice.
"Experiential learning," Cordray says, "has been shown to be very effective at reaching young people."
Researchers suggest lessons such as following the stock market or getting lots of credit card offers and comparing them.
Third, good old math class.
Other research has found that requiring high schoolers to take more math leads to better credit, higher returns on investments, and fewer foreclosures.
Cordray says math teachers could also make more assignments about money, such as budgeting or calculating compound interest.
Finally, many experts recommend "just-in-time" financial education. This is when you learn about a very specific topic, just before you do it.
So teaching high schoolers about mortgages is not very helpful. But a class on college loans is useful. And a class on credit scores just before a young adult gets a credit card could make a big difference.
That's the model D,C.'s Summer Youth Employment Program is following. Just before this auditorium full of high schoolers starts earning money, they talk about bank accounts, credit scores and taxes.
Tyandra Ames is appreciative. "I've heard credit score before but nobody has explained it to me" before today, she says.
Tyandra is a senior at Ballou High School. She has 13 siblings and says that alone has taught her about saving money.
"I learned how to not want so much and not to need so much."
Tyandra is now getting ready for college. She's about to open her first account and will be living on her own for the first time. She says all of this makes her a bit nervous.
She wishes there was a class to explain it all: "This is what to do. This is what not to do. This is a credit card. This is a debit card. That is your credit score. Like break it down, a little bit."
Tyandra Ames wants a class about money — and she wants one that is actually effective.
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