Measuring the Positive Impact of Financial Education for K-12 Students

A recent study finds K-12 students benefit from financial education programs that focus on modern personal finance and money management skills.

In recent years, several states have enacted financial education requirements for K-12 students.

In the past, financial education initiatives taught outmoded financial habits to 21st-century students. (For example, calculating compound interest by hand.)

These studies did little to encourage the spread of K-12 financial education programs as most encouraging results were marginal.

However, according to researcher Carly Urban, Ph.D., states are starting to implement programs that focus on modern personal finance skills. A recent study now finds that students are benefitting from the updated approach.

Financial education initiatives reduce student loan burdens.

If you want to see the tangible results of financial education, Urban and her team found you don’t have to look further than student loan debt for 17- to 19-year-olds in their freshman year of college.

A paper sponsored by the National Endowment for Financial Education (NEFE) and conducted by Urban and her peers at Montana State University, found that financial education requirements have led to a decrease in the amount students borrow as they head to college.

These exciting findings could serve to support and further fuel the rise of financial education in K-12 settings.

Financial education reduces the number of hours low-income students spend at work.

In addition to student loan debt, the Montana State study also evaluated several other aspects of participants’ lives after they left for the halls of higher education.

Another noticeable metric that decreased was the number of hours low-income students spend at work during their studies. Urban notes this is a positive trend as prior studies have shown that when students from low-income homes reduce the number of hours they’re working – even down to zero – their academic performance goes up. Not only that, but they’re also more likely to stay in school.

The hours at work likely go down because when students are taught about the Free Application for Federal Student Aid (FAFSA) in high school, receiving instruction about deadlines and the proper way to fill it out, they are more likely to qualify for and claim needs-based aid. Examples of this aid include Pell Grants, FSEOGs and state-issued grants – all of which do not have to be repaid upon graduation.

A Pell Grant alone often covers the entirety of community college tuition, fees and book costs with a little leftover. Extra aid, including scholarships denoted as refundable, can often be returned to the student to use for their day-to-day needs, like rent, food, and transport. Some state schools are even affordable using this method depending on where you live.

With lower tuition bills and a little extra money in their pocket, these students can afford to focus more on their studies and building a better long-term economic future.

Credit card debt and private student loan balances go down with financial education.

After you’ve paid for tuition, the cost of living doesn’t stop. Students who forget this and fail to budget before heading off to school tend to take on additional debt outside of federal student loans. Urban says these students tend to come from either end of the spectrum: High-income households or low-income households.

As they buy food, go out with friends and travel home for the holidays or the weekends, these unbudgeted students are likely to hit financial upsets. When this happens, students from higher-income households tend to lean on private student loans. Students from lower-income households tend to rely on even worse, higher-interest credit card debt to get by.

Urban notes that it is highly likely that access to credit markets has more to do with the type of debt taken on by students who are struggling than financial education. Lower-income students almost never qualify for private student loans as it’s difficult to prove that you’ll actually be able to repay the debt.

However, financial education does come into play in terms of nipping that debt in the bud – regardless of its status as a revolving line of credit or an installment loan. The NEFE-sponsored study showed that when students received financial education as a part of their K-12 curriculum, the amount of debt they took on went down, both across credit cards for students from lower-income homes and private student loans for students from higher-income homes.

Benefits of financial education beyond student loan reductions.

It’s great that financial education immediately helps students after transitioning from high school to college. College financing presents some of the biggest financial decisions they’ll make in their lives. Because it is so difficult to get student loans discharged in bankruptcy, these are decisions that are likely to follow them to the grave.

But will that education help as they buy homes and start families and save for retirement over the next couple of decades?

In one of Urban’s prior studies, she and her team found that high school financial education programs – when implemented by prepared and trained educators – had the potential to bring credit scores up and bring defaults down. This demonstrated stronger financial health as students were apparently budgeting and paying their bills on time, opening up less-expensive credit opportunities for themselves down the road by building a positive credit history.

Watch Gen Z for the long-term benefits of financial education.

But as for those mortgages, 529 plans, and early-career investing habits? The answer is we just don’t know. We could reasonably assume those educated under modern curriculum administered by professional educators with the proper resources at their disposal would result in better financial habits and therefore outcomes throughout life when controlling for other socioeconomic variables.

But studies of earlier, outmoded curricula showed that the effects of financial education were short-lived. Essentially, over time, people forgot what they learned.

We don’t know if new mandates implemented at the state level will result in more positive outcomes for these students over the long term. At least, not yet. As Gen Z ages, we’ll potentially be able to observe their economic obstacles and behaviors to see if those lessons stick or even remain applicable.

But financial education programs are successful even if their only benefit is students with smaller student loan burdens and lower auxiliary debt.

One that NEFE and Montana State have said more than justifies the upfront cost of the education. They did the math.

Brynne Conroy

Brynne Conroy

Motivation for women in business & on the homefront. Smart money management for success & true wealth. Author of The Feminist Financial Handbook.

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