Association for Public Policy Analysis & Management

Financial literacy is a critical component for making sound life decisions. However, vulnerable populations tend to have lower financial literacy. One policy response has been to mandate financial education in schools, which has substantial political and stakeholder buy-in. However, we do not know if financial education mandates really work.

The impact of financial education mandates has been extensively debated in the public policy and economics fields, with scholars such as Bernheim et al. (2001) and Brown et al. (2013) finding that financial education mandates induce positive financial behaviors, and Cole et al. (2014) finding that financial education mandates have no effect on financial behaviors. However, these works have not adequately addressed if financial education mandates may work more specifically among younger, financially vulnerable populations and their debt decisions.

My paper addresses the issue of financial education mandates with special attention to financially vulnerable populations, including credit-constrained consumers, and decisions they are likely to face such as borrowing high-cost loans. Alternative financial services (AFS), which include payday loans, auto title loans, pawn shop loans, refund anticipation loans, and rent-to-own products, are highly costly and terms of borrowing are easily misunderstood.

Particularly, this paper looks at the impact of mandated high school personal finance courses on younger credit-constrained consumers’ alternative financial services use. I use individual-level survey data on consumer characteristics and financial behaviors from the 2012 National Financial Capability Study. I use state-level legislative data on high school financial education mandates from Urban and Schmeiser (2015) and on payday lending statutes from the National Conference of State Legislatures. I link state-level legislation data to individual-level survey data to examine impacts of financial education mandates on alternative financial services use. I use a difference-in-difference model with state fixed effects to investigate if high school financial education mandates limit the number of different alternative financial services used and the frequency of alternative financial services use. My empirical strategy identifies the impact of high school financial education mandates on alternative financial services use by age. My empirical approach exploits variation across consumers within the same state before and after the mandate was implemented, and across consumers in states with mandates and states without mandates within the same age. Preliminary results suggest that financial education mandates have no effect on alternative financial services use when controlling for consumers’ demographics and financial characteristics.

Results from my paper will provide concrete evidence for policymakers on whether financial education can help people and if so, to what extent and for whom financial education should be prioritized or emphasized in public policy. When designing financial education curricula, policymakers may also consider incorporating lessons that directly apply to financial products that young adults and financially vulnerable populations tend to use.