A new study suggests that children need to learn more math, not finance, to be better with money.
For decades, studies have extolled the benefits of financial education, pointing out that students who take finance classes score well on tests of financial knowledge—and higher financial literacy leads to better financial behavior.
Conclusions like these have led to a growing consensus that schools should teach children about managing their finances, with 43 states now mandating some kind of training.
Shawn Cole found this troubling. Not because the studies aren’t true: Many, he says, do show a correlation between financial education and good financial behavior. But few studies demonstrated a strong causal link.
Mandated financial education did not lead to improved personal financial outcomes.
So, the professor of finance at Harvard Business School wondered, if widespread financial education were really effective, why are so many young people struggling with debt, foreclosure and low asset accumulation? He and a group of researchers set out to find an answer. They looked at the states that mandated personal-finance curriculums in high school, and compared the financial health of students who graduated before the mandates to those who graduated after. Their hypothesis: If personal-finance education worked, the students who graduated after the programs were implemented would be better off financially.
They weren’t. After controlling for state, age, race, time and sex, and analyzing a huge pool of historical financial data, the group found that there was no statistically significant difference between people who graduated within a 15-year span either before or after the personal-finance programs were implemented. Graduates’ asset accumulation and credit management were the same, with or without mandated financial education.
But better math skills lead to better personal financial outcomes.
But the study, issued last year and currently under revision for publication, did find one school subject that does have an impact on students’ financial outcomes: math. Students required by states to take additional math courses practiced better credit management than other students, had a greater percentage of investment income as part of their total income, reported $3,000 higher home equity and were better able to avoid both home foreclosure and credit-card delinquency.
Well, this seems obvious.
“A lot of decisions in finance are just easier if you’re more comfortable with numbers and making numeric comparisons,” says Mr. Cole.
The lesson here is to focus more on better math instruction.
A new magazine from Jean Chatzky wants to teach children financial lessons.
Last month, Ms. Chatzky and Time for Kids, a division of Time Inc., introduced a magazine intended to teach financial literacy to fourth, fifth and sixth graders. The PwC Charitable Foundation, which was started by the giant financial consulting firm PwC, is backing the publication.
“Kids are very interested in money,” Ms. Chatzky said. “What we’re trying to get across to them is money is a tool that they need to know how to manage to succeed in life.”
… Each four-page issue will cover an aspect of finance, like budgeting, investing and taxes.
Perhaps this new magazine should include a section on math instruction.