Panel Paper: Impacts of State-Mandated High School Financial Education on Savings By Low-Income Households

Saturday, November 9, 2019
Plaza Building: Concourse Level, Plaza Ballroom E (Sheraton Denver Downtown)

*Names in bold indicate Presenter

Melody Harvey, University of Wisconsin, Madison


States are increasingly requiring their public high school students to take personal finance courses as a core prerequisite for graduation. The intent is similar across states; the Texas Education Agency, for example, says that “the concepts of personal financial literacy are to be mastered by students in order that they may become self-supporting adults who can make informed decisions relating to personal financial matters.” Personal finance courses cover areas such as debt management, financial planning (e.g. budgeting, saving, investing), and banking and financial services. Accordingly, I hypothesize that these mandates increase propensities to save.

This study examines the impacts of state public schooling policies on young adults’ financial outcomes, through a quasi-experimental difference-in-differences design based on graduation cohort and policy implementation year:

  • Does state-mandated financial education impact outcomes such as having any savings or saving at selected thresholds?
  • Do these effects vary by demographic subgroups such as poverty or income level?

This study uses the 2008 and 2014 panels of the Survey of Income and Program Participation (SIPP) and exposure to state education policies based on prior work by Stoddard and Urban (2019). Constructed outcome variables include saving at selected thresholds (>$0, $400, and $2,000) and saving enough to cover one month’s income shortage. The analytic sample size is 10,585 young adults ages 18-27. The sample is restricted to young adults who hold at least a regular high school diploma. I estimate impacts using multivariate models with basic demographic characteristics as covariates, and state of current residence, age, and panel years as fixed effects.

Policy Significance

Young adults are prone to mismanaging their finances because they are often financially inexperienced and are far less financially knowledgeable than their older counterparts (e.g. Lusardi, Mitchell and Curto 2010). For example, they are more likely to use alternative financial services, more likely to engage in suboptimal or expensive credit behaviors, and less likely to save (e.g. Chatterjee 2013; Lusardi and de Bassa Scheresberg 2013; FINRA Investor Education Foundation 2016). Mandating personal finance courses in high school could prevent these adverse behaviors.

Financial education mandates are state policies that require teaching personal finance in public schools with the goal to improve emerging adults’ financial capability. Schools are one avenue through which information can be disseminated at scale to a heterogeneous population.

Economically disadvantaged youth and young adults may have even fewer avenues to learn about personal finance. Given that the SIPP oversamples low- and moderate-income individuals, I can especially assess impacts of the policy on those who may be most likely to rely on its lessons. This may imply for whom the policy works best and what tweaks may be needed to ensure that it is inclusive for all youth and young adults.