by Hank Bitten, NJCSS Executive Director
The new state mandate to teach financial literacy in middle schools was passed on January 3, 2019 and becomes required instruction in September. The law passed 38-0 in our State Senate and 76-1 in the New Jersey Assembly. The most likely reason for an almost unanimous vote is the multiple financial crises affecting all income areas of residents in our state. Although New Jersey has the fifth highest per capita income in the United States at $67,609 and some of the highest property values, residents are struggling with debt at $62,300 per capita.
Figure 1: Per capita personal income in the United States in 2018, by state (in U.S. dollars) (https://www.statista.com/statistics/303555/us-per-capita-personal-income/ )
Reasons for the New Financial Literacy Law
The alarm was sounded by a report in July 2014 from the Federal Reserve Bank that perhaps 52% of Americans have less than $400 in emergency savings: “Only 48 percent of respondents said that they would completely cover a hypothetical emergency expense costing $400 without selling something or borrowing money.”
Although statistics can be distorted, they are still important and helpful. The data supports the need for financial education in grades K-12. Retirement savings are low and almost non-existent by younger workers, identified as “Millennials” (1980-2000) who are likely the parents of our students. According to a 2019 survey by Merrill Lynch 7 out of 10 millennials ages 18-34 received financial support from their parents in the last year. The primary reason for this is personal debt.
As a retired baby boomer, I remember when
• the owner of the corner grocery store would total the prices on a paper bag
• my parents received S&H green stamps as a reward for shopping
• my grandparents did not have a checking account and kept their savings in the basement
• only male students on my college campus had credit cards
• leaving school during my lunch hour to bring my pay check to the bank.
Financial matters were simpler, the line to deposit or cash a check was long, and money changed hands less frequently than it does today.
The technology of the ATM, direct deposit, PayPal, Apple Pay and a host of other fee-based services takes our money with its “invisible hand.” We are faced with up to 20 automatic deductions from our salaries within hours or days from earning it. For example, a person who uses an ATM machine with a fee of $3.00 a transaction is likely to pay more than $150 on weekly withdrawals over a year. If an organization collects $40,000 through PayPal or another provider, they will pay 2.9% per transaction or almost $1,200 in fees! New Jersey required the teaching of financial literacy K-12 in the 2009 Learning Outcomes and mandated a semester course as a requirement for high school graduation. New Jersey has 117 Learning Outcomes for teaching financial literacy in Grades K-12 in seven content areas of income and careers, money management, credit and debt, planning, saving, and investing, being a critical consumer, civic financial responsibility, and insuring and protecting.
Based on a survey of 65,000 college students administered by USA Today in 2014: “Students who took a class did better on the survey’s financial knowledge questions, were found to be more averse to debt, more likely to pay credit card bills on time, and less likely to go over their credit limit…The study, which is in its second year, is the first comprehensive analysis of the impact of high school financial literacy education on not only knowledge but attitudes and behaviors.”
The National Financial Literacy Report compiled by Champlain College (2017) identified only five states with a requirement of a ‘stand alone’ semester course and an effective curriculum that includes activities, relevance, and specific benchmarks. New Jersey received a grade of “B” while 27 states and the District of Columbia, a majority, received grades of C, D, and F.
As you will see in this report (https://www.champlain.edu/centers-of-experience/center-for-financial-literacy/report-national-high-school-financial-literacy ), a B grade does not necessarily mean that a state requires an adequate level of instruction. The Center estimates that half of “Grade B” states allocated less than one-quarter of a half-year course in high school to personal finance topics. This means that students in 8 of these “Grade B” states received between 7 and 13 hours of personal finance instruction in four years of high school. The report identified only11 states that required 15 or more hours of personal finance education in high school.
What Does the New Financial Literacy Law Require?
The legislation mandates that students receive instruction based on the NJ Learning Outcomes for Financial Literacy (9.1) in Grades 6, 7, and 8. The new mandate does not quantify the number of hours of instruction and it specifically requires instruction in each grade level rather than a semester or year course in any one grade. Schools should embrace this as an opportunity to establish positive student behaviors and engage students in decision-making and problem solving. In a school with a curriculum focusing on the application of real life situations, students in Grades K-5 are learning to respect money and understanding how our economy functions, middle school students are applying personal financial lessons to what they are studying in social studies and math and using the tools of technology to analyze their decisions and solutions to problems, and high school students are demonstrating competence as financial planners using scenarios and presentations.
Where Should Financial Literacy be Taught?
Many districts teach financial literacy in social studies, business or family and consumer science courses, math classes, or computer technology courses. The new law suggests a fragmented approach by requiring instruction for a few days or weeks in Grades 6, 7, and 8 without identifying the courses where it will be implemented or the amount of instructional time that is appropriate. Another perspective on this limited approach is to translate five days of instruction in 40-minute periods to about three hours of instruction. The research suggests that effective instruction is best taught in a semester course with 15 or more hours of instruction. There are currently 58 mandated Learning Outcomes for teaching financial literacy in Grades 6-8 and if one class period was allocated for each Learning Outcome, students would need over 30 hours of instruction, instead of 9 hours over three years! The National Financial Literacy Report is critical of instruction that is limited to one quarter or less, or the equivalent of 30 hours of instruction.
A study by The Financial Industry Regulatory Authority (FINRA) in January 2015 of three states (Georgia, Texas, Idaho) cited evidence of changes in financial decision-making by students in Texas and Georgia which required a half-year course for graduation, teacher training, clearly stated learning outcomes, and state and/or national assessments:
Based on our analysis, we conclude that exposure to the types of high school personal financial education mandated by these three states improves credit scores and reduces delinquency rates for young adults.
The research strongly indicates that it is important to talk about money with students, provide activities that encourage problem solving and decision-making, application of math skills, and relevance to what is taught or a student’s personal situation. Although credit cards, auto insurance, college loans, savings, and developing a personal budget are the most likely financial decisions for high school students in the next five years, there are also opportunities for personal application in a history or economics course which includes lessons on inflation, trade, national debt, and the inequality of income. Their parents are likely discussing banking, budgeting, mortgages, college expenses, investments and their grandparents are concerned with Social Security, retirement planning, and insurance. Even if students are not directly involved with these personal matters, they are aware of them.
How Should Financial Literacy be Taught?
After accepting the importance of financial education and its relationship to your district’s mission statement, the first step is for the curriculum team in your district and school to decide the best way to effectively deliver instruction on the required NJ Learning Outcomes. Piaget’s theories provide a significant understanding that middle school students are exploring and challenging theories about how the world works. Effective instruction leading to changed behaviors must be relevant, make applications to their prior knowledge and provide opportunities for inquiry, research, debate, and presentation. Instead of a checklist based on core content or the completion of a number of activity sheets, consider how scenarios, simulations, speakers, decision-making, and problem-solving impact enduring understandings and new behaviors regarding saving, spending, investing, and planning.
The second step is to identify the resources for these strategies. Consider planning your curriculum with the assistance of college professors, professional organizations, local banks and entrepreneurs. They require discernment, planning and customizing to your student population. Although there are many resources available on the internet and from banks, investment firms, and entrepreneurs, a serious concern is that some of these resources are simply not effective, do not support student inquiry and are missing applications to prior knowledge. The Council on Economic Education has developed lessons with application to economics and history that are also adaptable to financial literacy concepts. An organization in New York City, Working in Support of Educators (W!SE) has developed a best practices curriculum with assessments. A benefit of the W!SE program is that its effectiveness is demonstrated in many different states and in urban and suburban districts. The New Jersey Council on Economic Education offers professional development programs, webinars, and assistance. See the Works Cited section at the end of this article for their websites.
The third step is to provide meaningful and effective professional development for your teachers. When possible, professional development opportunities should be offered to every teacher in the district. Professional development is affordable and practical by using experienced teachers of financial literacy and economics in your district. Also, banks are required under the Community Reinvestment Act to support financial education in the areas where they are located and colleges and investment firms (real estate, insurance, Chamber of Commerce, etc.) have extensive experience and resources that can lead to a best practices model curriculum for your students. Consider a partnership or collaborative dialogue to get started.
The Importance of Assessments
A critical part of a best practice curriculum on financial literacy includes assessments that engage students in demonstrating their level of competency in addressing problems relating to financial decision making. One concern of the critics who are opposed to requiring financial literacy in schools is that it is not effective and has not produced significant changes in student’s behavior because it lacks relevance to the decisions that make in middle school and high school. A recent article in the Washington Post (April 23, 2019) stated that financial literacy is a “waste of time” and a poor financial decision:
“That’s because financial education simply doesn’t work. It doesn’t change behavior — as numerous studies have shown. Indeed, the fact that giving people information does not, by itself, change how they act is one of the most firmly established in social science, whether the subject is the dangers of drug use, the value of getting vaccinated or the calories in a restaurant’s bacon cheeseburger. The same is true of finance.”
Assessments can provide important answers to the debate on the efficacy of financial literacy instruction in grades K-12, especially when assessments involve more than one classroom or school and are validated by an outside professional organization or college faculty. Questions requiring an explanation are best for assessing what students have learned and how they are thinking. An example that includes multiple scenarios is: Select three (3) scenarios below and answer the question with a complete explanation as to which type of insurance policy (if any) is covered and a detailed explanation of the reasons. •
Scenario No. 1: A fire from another apartment destroys much of your apartment and your belongings. Whose insurance (yours of your landlord’s) pays for what? •
Scenario No. 2: You are negligent and leave food on your hot stove, starting a fire. Whose policy pays and what is covered? Are you liable for damage to the apartment building? •
Scenario No. 3: Your landlord is negligent in not repairing a plumbing problem you’ve been reporting, and a pipe bursts. Whose insurance (yours or your landlord’s) pays and what is covered?
Scenario No. 4: Someone trips and falls in your apartment and is injured. Does you renter’s liability pay for the injury, or your landlord’s?
• Scenario No. 5: Your apartment is broken into and your computer, television, and some jewelry are stolen. Are you covered?
• Scenario No. 6: Your landlord claims you have damaged the apartment and is keeping part of your security deposit. Will the renter’s insurance cover this loss?
• Scenario No. 7: Your washing machine overflows, flooding the basement.
Although multiple choice questions may not always represent higher cognitive skills, Working in Support of Educators (W!SE) provides valuable multiple choice assessments as part of their financial literacy certification test for students. The depth of learning comes with their rich data base of practice questions because the choices lead to deeper student inquiry and research. One benefit of using their multiple choice assessments is that these questions have been tested for reliability and validity and can be used objectively to measure local performance with other classes, schools or states.
Educators should also think about the importance of a longitudinal study of students taking financial literacy classes over time. Even if the evidence collected is anecdotal, it is helpful to collect data about financial decisions while students are still in school. For example, if financial literacy is taught in Grades 9 or 10, students in Grades 11 and 12 might be administered some of the questions they answered in Grades 9 or 10 to see if their answers remained consistent or if they improved or regressed.
Federal Reserve Bank. (2014) Report on the economic well-being of U.S. households in 2013. Retrieved from https://www.federalreserve.gov/econresdata/2013-report-economic-well-being-us-households-201407.pdf
Consumer Debt in New Jersey. (2015). Debt – $62,300. Retrieved from https://www.debt.org/faqs/americans-in-debt/consumer-new-jersey/
Malcolm, H. (2014). Financial literacy education has lasting impact. USA Today. Retrieved from https://www.usatoday.com/story/money/personalfinance/2014/04/08/financial-literacy-college-students/7296185/
Champlain College (2017). National Financial Literacy Report. Retrieved from https://www.champlain.edu/centers-of-experience/center-for-financial-literacy/report-national-high-school-financial-literacy
FINRA Investor Education Foundation. (2015). State financial education mandates: It’s all in the implementation. Retrieved from http://www.finra.org/sites/default/files/investoreducationfoundation.pdf
Herron, J. (2019). Millennials still lean on parents for money but want financial independence, survey says. USA Today. Retrieved from https://www.usatoday.com/story/money/2019/04/18/millennial-money-why-young-adults-still-need-support-parents/3500346002/
Apartment Hunters. (2019). Renter’s insurance policy scenarios. Retrieved from http://www.apartmenthunters.com/Content/Eight-Renter-Scenarios.aspx
Working in Support of Education. (2019). Financial literacy. Retrieved from https://www.wise-ny.org/programs-services/financial-literacy/
Council on Economic Education. (2019). K-12 resources. Retrieved from https://www.councilforeconed.org/k-12-resources/
New Jersey Council on Economic Education. (2019). Personal finance for New Jersey middle school teachers. Retrieved from https://njeconomics.org/
Ogden, T. (2019). More states are forcing students to study personal finance. It’s a waste of time.
Ogden, T. (2019). More states are forcing students to study personal finance. It’s a waste of time. Washington Post. Retrieved from https://www.washingtonpost.com/outlook/2019/04/23/more-states-are-forcing-students-study-personal-finance-its-waste-time/?utm_term=.3d40fff669f6