Financial literacy is key to managing money, but how well are states preparing their residents?
Tennessee tops the list of US states that offer the best financial education to its residents, according to a new report from financial services firm OneMain Financial. More than 99% of Tennessee public high school students have a “gold-access” education, a school where students are required to take a separate personal finance course as part of their curriculum to graduate. .
The report considers four things: the number of active bills in the state promoting some form of financial education in public schools, the status of economic education in public high schools, the level of education in personal finance offered and required; and the share of high school students in schools for access to gold.
New York, Utah, Alabama and Virginia rank after Tennessee. Despite the fact that only 2% of New York City high school students have a “gold access” education, the state has 11 proposed financial and economic education bills in the state this year. The other three states have over 97% of students with access to gold.
““We believe that understanding budgeting, saving, loans and credit cards as well as credit scores can prepare people for a life of financial well-being.””
“We believe that understanding budgeting, savings, loans, and credit cards and credit scores can prepare people for a life of financial well-being,” OneMain Financial said in the report. “So we took a closer look at the most recent legislation and conversations to assess how we as a nation are giving people access to financial knowledge.”
In total, elected officials introduced 69 financial education bills this year in 27 states by the end of October, according to the Next Gen Personal Finance Financial Education Bill Tracker. NGPF is a non-profit organization that aims to bring personal financial education to all students. Among them, 12 bills were enacted in 10 states and 8 bills were still pending in 3 states.
About two dozen states require students to take a personal finance course, either on its own or integrated with other subjects, toward graduating from high school, according to the Council for Economic Education. A few states, including Florida, passed bills in the summer of 2022 designating personal finance courses as an individual requirement.
Alaska, Wyoming and the District of Columbia have no personal finance education requirements in K-12 schools and have not seen any new bills, according to the Council for Economic Education report. California has no such requirements in place, but passed a bill in July to create a statewide workforce to look into the matter.
(OneMain Financial declined to offer its own rating of the states with the lowest performance in state personal finance education. However, the researchers said that 68% of US high school students did not understand the ratings. credit, and further stated that auto loans rank behind mortgages and student debt for the largest share of adult household debt.)
Consistently low performance in financial literacy among Americans
American adults have only answered 50% of personal finance questions correctly over the past six years, according to the 2022 report from the TIAA Institute, a nonprofit that is part of Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, a Fortune 100 company and the Global Financial Literacy Excellence Center.
Financial literacy tends to be lowest among young Americans, according to the TIAA Institute and GFLEC. Personal Finance Index, a list of 28 basic questions they ask people on a yearly basis. On average, some 54% of baby boomers answered all questions correctly, while 42% of Gen Z answered all questions correctly, a difference of 12 percentage points between the two demographic groups. (The questions cover everything from saving, investing, and borrowing to earning, consuming, and understanding risk.)
Financial literacy not only remains low, but has also been “stubbornly resistant to progress,” according to analysts at the Milken Institute, a nonprofit think tank based in Santa Monica, Calif. “This finding is particularly concerning for young people, who are likely to face greater financial challenges than previous generations,” the researchers concluded in this 2021 report.
A period requiring good money management skills
The past two years have prompted many states to consider implementing financial literacy classes as an academic requirement. The pandemic has disrupted jobs and incomes for many households, especially low-income families. The push to promote personal finance in schools appears to have paid off in Tennessee: The state’s average credit score rose 4 points to a “good” FICO score of 701 last year.
Americans face an uncertain economic outlook. Inflation stood at 7.7% in October from a year ago, down from 8.2% in September, according to the latest government data. The rise in the cost of living has finally shown signs of slowing down after inflation hit a 40-year high in the summer of nearly 9% a year ago. However, high inflation has already taken its toll on millions of cash-strapped households.
Federal Reserve Vice Chairman Lael Brainard indicated earlier this month that the Fed may slow its pace of raising interest rates. It has raised rates six times this year and raised its policy rate by 0.75 percentage points in November for the fourth time. That pushed the short-term borrowing rate into a target range of 3.75% to 4%, making car loans and credit card debt more expensive.
Consumers also said they had to dip into their emergency savings to cover their monthly bills. At the same time, American households have become more dependent on credit cards and personal loans. Total bank credit card balances hit a record $866 billion in the third quarter of 2022, up 19% from a year ago, according to TransUnion TRU,
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