The Effectiveness of Youth Financial Education

As a result of the current financial crisis, consumers are more concerned about their personal finances than ever before.  Household confidence in job security and future employment prospects, income stability, and the ability to preserve and build assets is plummeting; meanwhile, high fuel and food prices and tightening credit conditions are placing more pressure on households to maximize their financial decisions. Today's public narrative portrays individuals and families struggling with mounting financial stress due to the declining values of their retirement savings, high rates of indebtedness, diminished incomes, and negligible savings.

While individuals and businesses bear the majority of the economic strain, children and youth are uniquely impacted by their interactions with household finances. Such moments of financial trouble are teachable opportunities for children and youth to learn about personal finance, and to improve their own money management skills.  However, comprehensive strategies for educating children and youth about personal finance so they can successfully navigate a complex financial marketplace have not yet emerged.

Although providing financial education to youth seems like a logical response, the research findings about the effectiveness of youth financial education are mixed.  The Jump$tart Coalition for Personal Financial Literacy has conducted biennial, national surveys measuring the financial literacy of high school seniors since 1997.  The 2008 survey showed students had the lowest score of any survey issued to date, with high school seniors answering just 48.3 percent of the financial literacy questions correctly.  However, other studies (e.g. Danes, et al and Varcoe et al) have demonstrated that financial education leads to knowledge gains and positive financial behaviors.

To better understand the long-term impact of youth financial education, the New America Foundation and the Citi Foundation hosted a meeting in Washington, DC to discuss developing a research agenda about the effectiveness of financial education for youth.  The goal of the meeting was to summarize existing research about the effectiveness of financial education and its relationship to positive financial behavior change.  The meeting also sought to identify and prioritize gaps in knowledge that need to be explored about youth financial education and behavior change. The convening included financial education experts from the public, private, non-profit and academic sectors. A complete participant list is included in the appendix. 

The Effectiveness of Youth Financial Education

In preparation for the meeting, Networks Financial Institute at Indiana University prepared a paper titled "The Effectiveness of Youth Financial Education: A Review of the Literature,"  (as well as a Descriptive Bibliography) which summarized what is known about the effectiveness of financial education.  The comprehensive study revealed a lack of clearly defined or widely accepted standards of excellence for achieving effective youth financial education.  The review found consensus regarding what constitutes best practices for adult financial education, and also noted widespread agreement that these strategies and approaches cannot be easily simplified and made age-appropriate for youth.

Most financial education programs that include an evaluation component do not focus on long-term impact or behavior change.  Instead, most programs that are evaluated focus on measures such as improvements in financial knowledge, satisfaction, or confidence.   For example, the Borden et al study of a seminar-based financial education program for college students shows that students increased their financial knowledge, increased responsible attitudes toward credit and decreased avoidant attitudes towards credit from pre-test to post-test. The paper also reports that most financial education evaluation studies-including Borden, et al-assess vague measures of improvement based on a pre- and post-test model of assessment. These studies generally rely on self-reported data rather than objective data and do not include any longitudinal follow-up to determine the long-term impact of financial education. 

Although more rigorous longitudinal research is needed to assess the effectiveness of financial education, some promising practices were identified in the paper-including the following:

Promising Ideas to Improve Youth Financial Education

During the two-day meeting participants shared their recommendations for making financial education effective for youth.  The group offered ideas that primarily fall into three broad categories: content and timing; in-school and out-of-school interventions; and public policy.   

The content and timing of financial education were referenced throughout the meeting as being critical to the success of financial education for youth.  Participants placed emphasis on ensuring that the content has real-world application for a diverse youth population and takes into consideration the varied learning theories and styles of today's youth.  The application of a lifecycle approach to all elements of financial education development to ensure that content, teaching methods and evaluation are appropriate for various age and income levels was also recommended.

In addition to providing relevant content, delivering the content at the appropriate time is also important to maximize its effectiveness. Several participants stressed the importance of providing financial education to youth as early as possible and suggested delivering it ‘just-in-time' or coupling it with a financial activity (e.g., product acquisition or credit payment). Many underscored the importance of both connecting financial education to financial activity, such as child savings account or bank visits, and making learning this material fun through competitions and youth-friendly mediums.  

Both in-school and out-of-school approaches are needed.  With regard to school-based interventions, participants urged the delivery of financial education through schools and the importance of properly equipping teachers with the knowledge, skills and materials to deliver financial education in the classroom.   Integrating this education with youth-targeted programming occurring outside the classroom, in after-school programs, and at home, were also raised as promising strategies. The group stressed the importance of parental involvement and encouraged efforts to give parents the tools they need to impart financial basics to their children.

Several participants suggested that public policy action might make certain that financial education is implemented and delivered at scale through the schools. Participants suggested that financial education be mandated and that it be provided by competent instructors who have been trained and have access to quality materials.  Federal funding to support more rigorous research and evaluations was also recommended.

A competing theory that was discussed proposes that financial literacy could be a measure of intelligence rather than of knowledge related specifically to finance. This association was found in a Jump$tart survey which showed that interest in pursuing a college education is often predictive of financial competency.  Another notable finding in the Jump$tart research is that science and engineering students scored better than business and economics majors, leading the researcher to infer that high performing students are not necessarily more competent with the content, but may have greater facility in problem-solving, particularly in math.  Further research on the interplay between natural intelligence, ability to problem-solve, aspirations, and financial literacy is necessary to substantiate this theory.

Practitioners Share Financial Education Program Experiences

During the meeting, four practitioners shared evaluation results about the effectiveness of their financial education programs.  The practitioners also drew from their personal beliefs to describe lessons learned about effectiveness.

Operation Hope's Banking on the Future

Measurement Incorporated (MI) has conducted a 10-state evaluation of Operation HOPE's Banking on the Future curriculum, a volunteer-taught curriculum that reached 7,500 pre-college students last year.  MI uses pre- and post- tests that are closely aligned with curriculum content. MI is assessing two treatment groups for the Operation HOPE intervention: a 4-hour program delivered on one day and a 4-hour program delivered over four days during four consecutive weeks. The evaluation captures attitudes, as well as competence in decision-making. The results revealed significant gains in the group that received 4 hours of education in one day.  The group that received education over multiple days did not achieve the same noteworthy gains. 

NEFE High School Planning Program

Through pre-, post-, and follow-up to post testing, independent program evaluators assess whether NEFE's High School Planning Program is achieving behavior change and having an attitudinal impact. NEFE underwrites all of the costs for the High School Planning Program, so they want to insure that their investment is effective.  NEFE focuses their evaluation on understanding behavior change.  A post-test administered 90 days after the program assesses behavior change and has documented a significant jump in positive financial behaviors.  NEFE also supports additional research with college students to review their financial literacy performance, including research focused on whether or not the students' home states had financial education mandates.

Jump$tart High School Survey

Every two years, the Jump$tart Coalition for Personal Financial Literacy measures what is necessary to be financially literate. To date, Jump$tart has assessed 16,000 youth with six surveys. The Jump$tart data is especially valuable because it has consistently used the same sample design through the years. Four key findings were presented that relate to causation and suggest the impact of teacher quality, course duration and dosage.

• 1. No correlation was found (which does not necessarily mean there was a negative correlation) between financial education and test performance.
• 2. Teacher quality matters, suggesting that one approach to making financial education more effective is to promote teacher training and the use of a standard curriculum. The 2002 survey showed that students who were required to take a full semester course taught by teachers with a master's degree in either economics or business administration scored a few percentage points above the mean; yet only 6% of student take a required full-semester course taught by teachers this well-trained.
• 3. Dosage appears to matter, although not in the expected way. Students with less than a full-semester course scored better (repeatedly) than students with a full-semester course.
• 4. Program length may not matter. Longer programs do not appear to have had a differential impact.

Junior Achievement (JA)

Through independent evaluators, Junior Achievement (JA) assesses the impact of their program and teacher perspectives. The information from the evaluations informs their program development process. Their evaluation activities attempt to measure whether the knowledge gain aligns with the objectives of program. Attitudinal and financial self-efficacy outcomes are also included.  JA presented two key learnings from their evaluation: curriculum should be age appropriate and developed with real-world applicability, and students learn most effectively when they have foundational learning integrated with experiential learning.

National Council of Economic Education (NCEE) Financial Fitness for Life

The Financial Fitness 4 Life curriculum targets grades K-12 and offers high quality materials (e.g., website and CDs for teachers and students, a parent guide with tests). The NCEE assessment is primarily knowledge-based, but does collect attitudinal measures related to students' comfort with finances, attitudes toward savings, etc. Through experimental tests with control groups, NCEE observes measurable gains in knowledge across test items and units.  NCEE Representative Bill Walstad emphasized five relevant learnings about financial education:

1. The existing national standards were developed thoughtfully and comprehensively, and while they may require some updating, the underlying content is mostly established.
2. Knowledge is a building block, from which opinion, attitudes and behaviors emerge.
3. Teacher training is critical.
4. Continuous advocacy is needed to create demand for financial literacy.
5. The quality of the NCEE curriculum, its continual updating, and the application of the most cutting-age technology are important activities that ensure the development of effective curriculum.

Areas for Further Exploration

Although a base of information about youth financial education exists, the field currently lacks an understanding of the long-term impact of financial education in helping youth to make positive financial behavior changes.  To this end, convening participants identified six issues areas that merit further consideration.   

Define Elements for Effective Financial Education 

The financial education field currently lacks a definition for what constitutes effective education.  Participants stressed the need to first identify then develop a common understanding of the   content and interventions that constitute effective financial education.  Additionally, the industry needs to reach consensus around the goals and core elements of financial education.  Practitioners expressed desire to know which programs are effective and why, and which elements are the most effective in different situations for different youth audiences.  The group stated a need for national financial education standards (recommending, for instance, what a third grade student should be expected to know).  The standards developed by the Jump$tart Coalition are an excellent starting point and should be utilized more widely by the industry.  

In addition to defining what constitutes effective financial education, there is a need for industry consensus about the appropriate metrics that should be used to assess the effectiveness of financial education.  It is unclear whether metrics should be limited to knowledge gains and attitudinal change or if they should assess long-term behavior change.  It would be helpful to have baseline metrics that would provide common measures so programs could be easily compared. 

Conduct Longitudinal Research to Measure Impact and Behavior Change.

Participants expressed the need to conduct more longitudinal studies that follow individuals beyond their youth years to measure long-term impact. Participants noted that attempting to measure behavior change presents a causality dilemma since it is difficult to pinpoint financial education as the sole cause of a behavior change.

Preferred Learning Styles 

The group agreed that unless information is delivered in a way that engages students and appeals to their preferred learning styles, students are not as likely to absorb the content.  Student preferences research reveals that students prefer technology, games, competitions and rewards, and that they dislike lectures and worksheets. When queried about preferred learning styles, many youth expressed interest in technology, gaming, and iPods.  Although students prefer learning through technology, a participant cautioned against solely delivering programs online because students need the experience of interacting with other people.  Given the questionable effectiveness of the most enjoyable and popular financial education, program development must balance delivery of substance with students learning preferences.

Peer education and social network models are promising delivery channels for youth financial education. While social networks appear promising  the group acknowledged that it is unclear whether, how and to what extent individuals will share private information in each venue (for example, do individuals behave differently in an in-person vs. online forum).

The discussion turned to the role of the media in influencing youth attitudes about money and personal finance. While some participants suggested that media campaigns could help change attitudes about personal finance, most agreed that a better understanding of a media campaign's impact and effectiveness is necessary before proceeding.  The claim that public health campaigns have had little impact, has implications for similar campaigns focusing on financial education.

Community and Family Approaches

Participants discussed when and how financial education should be integrated into non-school activities.  Non-school approaches are particularly important given that a significant number of students are not finishing college and many of them undertake familial obligations, including making important financial decisions.  The field needs more strategies to better educate this group.  

There was widespread consensus among participants that parents are an important resource. However, this approach holds potential for both success and failure. Not done well, parental delivery of financial education might result in the "blind leading the blind" and parents have varying levels of ability and willingness to provide their children with financial education. One suggested approach to explore the effect of parental involvement is to study a self-selected group of underserved parents that are motivated (but lack resources) to work at home with their children, and observe student and parent improvement across a variety of indicators.

Identify Strategies to Provide Financial Advice 

Quality, affordable expert financial advice is not available to many young consumers.  Just as an individual seeks medical attention when they are sick, one should be able to seek trusted financial advice when necessary.  Understanding when to ask for help and who to ask is an important part of financial education.

Explore the Relationship Between Problem Solving and Financial Education

Participants commented that low levels of education, math and problem-solving abilities, and that low overall comprehension levels affect youth performance on financial literacy assessments. The group discussed whether financial education essentially requires problem solving ability, in which case improving the educational system could potentially improve financial literacy levels.

Creating a Research Agenda

The group prioritized the following research areas as necessary to continue assessing and affecting the youth financial education.

Determine the Target Population and Intervention

Determining the target population and possible interventions would serve three purposes: identify focus populations for funder investment; reach segments of the population most in need of financial education; and establish a population for impact evaluation.

The group suggested that target segments should be as specific as possible (include age, location, socio-economic variables), and should be established prior to determining the intervention. The non-college bound population is a largely overlooked segment that may benefit from gaining practical financial skills and the psychological lift of financial empowerment.

Participants converged around the notion that the earlier financial education begins, the better the outcome, with research affirming that by the time youth reach high school, their behavior norms and patterns have already been established and may be more difficult to influence.

Determine the Competencies Youth Need to Know

The group repeatedly suggested the need to define what constitutes financial education, and to identify the most important financial education concepts that every young person should know.  The group discussed creating a taxonomy of skills (based largely on the Jump$tart standards) that identifies the key skills that should be taught at every level.  The Jump$tart standards undergo several dozen reviews and reflect what experts think children should know at different grade levels.

While developing a common set of competencies, it is important to continue teaching basic personal financial principles. Young children can learn at home and in school the principles of spending, saving, borrowing, earning, and sharing. Creative interpretations of the core principles are also encouraged. For instance, rather than limit the ‘sharing' notion to philanthropy and tithing, this topic area could introduce taxes as an example of how money is shared and distributed across the population. 

With regard to older youth, new survey research reveals that Generation Y (18-29 year olds) is no longer making timely bill payments. This suggests that timely bill payment is a curriculum area that needs reinforcing, especially the negative consequences of late payments. Additionally, older youth would benefit from knowing how to appropriately inquire about, assess and negotiate prices, interest rates, and salary levels. Gender differences in financial negotiation content and style should be reflected in the financial education materials and assessments. 

During the convening, the following ten core principles were suggested as essential to increasing knowledge and improving financial behavior change: 1. Spend less than you earn. 2. Be future-minded and plan for the future. 3. Save and invest regularly for both emergencies expenses and longer-term events such as retirement. 4. Protect yourself against large losses. 5. Prevent identity theft and recognize fraud. 6. Follow prudent financial practices, such as on-time bill pay. 7. Build human capital (e.g. invest in education, understand you earn more as you learn more). 8. Understand the power of compound interest. 9. Develop focused optimism. 10. Learn where to turn for information, advice, and help.

Potential Behavior Change to Assess

The group discussed the types of behavior change to realistically expect from youth.  Observing bank account usage was suggested as a possible measure of behavior change; however, several cautioned that very young children are not able to understand the concept of an account, and recommended that financial literacy assessments acknowledge this disconnect for young children. The group generally agreed that children savings accounts make a good compliment to financial education because they make savings possible, and are expected to influence the savings attitudes and behaviors of the child and the family. Youth need appropriate products for responsible financial management and this idea sparked a suggestion that financial literacy should be a prerequisite before youth are able to acquire a financial product; much like driver education and testing is required in order to receive a license.

Data Collection Methods

Several participants suggested capturing account data to assess behavior change. Using school banking accounts, child savings accounts, and other types of accounts, qualitative data on savings habits for youth could be captured.

A second data collection method suggested by the group is to use online tools (e.g., interactive web tools that allow students to set financial goals, measure their progress toward their goal, record earnings, purchases, etc.). The advantage of online data collection is the flexibility to capture a number of measures on an ongoing basis for a large population. This approach could be supplemented with a chat function that connects youth to other youth, and to financial advisors. However, self-reported data is generally not high quality or reliable. Attitudes and personal characteristics, and a host of other qualitative measures, could be captured through pre- and post- testing.

Conclusion

Although a base of information exists about the effectiveness of youth financial education, much is still unknown about its long-term impact.  Meeting participants identified research, policy, and practice initiatives that require further exploration. The Citi Foundation is interested in exploring some of the research questions identified during the convening and will be considering strategies to address some of the current gaps in knowledge.  The New America Foundation will complement the Citi Foundation's research by exploring policy solutions to help expand and improve access to effective youth financial education.

Appendix:  The Effectiveness of Youth Financial Education, Participant List

Jason Alderman
VISA

Ted Beck
National Endowment for Financial Education

Ray Boshara
New America Foundation

Michael Carren
JP Morgan Chase

Elizabeth Coit
Indiana State University

Carla Corina
Measurement Incorporated

Sharon Danes
University of Minnesota

Gina Doynow
Citi

Dara Duguay
Citi

Pamela Erwin
Wells Fargo

Tahira Hira
Iowa State University

Liana Humphrey
CFED

Melissa Koide
New America Foundation

Laura Levine
Jumpstart Coalition

Annika Little
Bank of America

Alejandra Lopez-Fernandini
New America Foundation

Lewis Mandell
The University of Washington

Daria Sheehan
Citi Foundation

Brandee McHale
Citi Foundation

Margaret Miller
The World Bank

Karen Murrell
New America Foundation

Barbara O'Neill
Rutgers University

Nancy Register
Consumer Federation of America

Ellen Seidman
New America Foundation

John Wallace
MDRC

William Walstad
NCEE/University of Nebraska-Lincoln

Shannon Wendt
Junior Achievement