2015’s The Most & Least Financially Literate States in America

by John S Kiernan

Wallet Hub Most and Least Financially Literate StatesThe issue of widespread financial illiteracy – not just in this country, but around the world – has rightfully garnered significant attention in the aftermath of the Great Recession.

The housing market collapse and ensuing global financial crisis served as a stark reminder of our societal obsession with debt as well as the dangers of fingertip financial access in the hands of consumers who are marked by a hope-for-the-best, figure-it-out-later attitude and an obvious lack of financial aptitude.

But how much did we really learn, and what are we doing to help future generations avoid repeating our mistakes?

Not enough, it would seem. We’ve collectively racked up roughly $133 billion in new credit card debt since the beginning of 2012, unsurprising given that only two in five adults actually have a budget. Ultimately, there’s really no shortage of statistics that one can quote to illustrate our money management shortcomings – from the 20% of Americans who spend more than they make to the 60% of folks who don’t have a rainy day fund. But where are the problems most pronounced, and which areas of the country are taking the necessary measures to foster a financially prosperous future?

That’s what WalletHub sought to discover by analyzing financial education programs and consumer habits in each of the 50 states as well as the District of Columbia, using 11 key metrics ranging from Champlain University’s High School Financial Literacy Grades to the percentage of residents with a rainy day fund. More information about our methodology as well a complete breakdown of our findings and expert commentary can be found below.

 

Main Findings

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Overall Rank

State

Knowledge & Education Rank

Planning & Daily Habits Rank

1 New Hampshire 2 1
2 Utah 1 7
3 Massachusetts 21 2
4 Maryland 12 4
5 New Jersey 11 9
6 North Dakota 33 3
7 Illinois 14 8
8 Minnesota 8 13
9 Pennsylvania 30 4
10 Virginia 3 20
11 New York 24 10
12 South Dakota 6 15
13 California 38 6
14 Maine 30 11
15 Iowa 20 14
16 Colorado 5 24
17 Wisconsin 13 17
18 Florida 40 11
19 Nebraska 23 16
20 Washington 19 18
21 District of Columbia 10 22
22 Idaho 4 36
23 Montana 14 23
24 Hawaii 29 21
25 Vermont 16 27
26 Wyoming 18 26
27 Delaware 44 19
28 South Carolina 28 28
29 Connecticut 37 25
30 Alaska 35 30
31 Oregon 27 32
32 North Carolina 22 36
33 Missouri 7 44
34 West Virginia 33 33
35 Indiana 45 29
36 Ohio 42 31
37 Tennessee 26 38
38 Georgia 17 40
39 Rhode Island 39 38
40 Michigan 48 34
41 Arizona 25 42
42 Texas 32 40
43 Alabama 50 34
44 Kansas 9 48
45 Oklahoma 35 46
46 Kentucky 46 42
47 New Mexico 47 45
48 Louisiana 43 49
49 Arkansas 51 47
50 Nevada 41 50
51 Mississippi 49 51

 
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Ask The Experts: Fostering Financial Literacy in the U.S.

Financial literacy is a growing area of focus for the academic community – from public school policymakers to university researchers. So, for insight into the current state of financial literacy and what the federal government, states and parents can do to help society improve its money management skills, we turned to a select group of educators who study public policy, education policy, economics, personal finance and financial literacy itself. Their bios and comments can be found below.

  1. What should policymakers do to improve financial literacy?
  2. How can parents equip their kids with financial know-how?
  3. To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?
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  • John Pelletier Director of the Center for Financial Literacy, Champlain College
  • Robert J. Atra Chair and Professor of Finance, Lewis University
  • Julie Heath Director of the Economics Center and Professor, Alpaugh Family Chair in Economics, University of Cincinnati
  • Prakash Dheeriya Professor of Finance at California State University-Dominguez Hills, and Author of the “Finance for Kidz” series, and “Law for Kidz” series
  • Michael J. Collins Associate Professor of Consumer Science, and Faculty Director of the Center for Financial Security, School of Human Ecology, University of Wisconsin
  • Duncan Williams Assistant Professor of Economics, Finance and Global Business at William Paterson University
  • Brenda Campbell Executive Director at Make A Difference – Wisconsin
  • Harold Zhang Professor of Finance, University of Texas at Dallas, Jindal School of Management
  • Stephan Siegel Long Endowed Professor at University of Washington, Michael G. Foster School of Business
  • Karen C.A. Holden Professor Emeritus of Consumer Science and Public Affairs, University of Wisconsin
  • Areerat Lertchaipitak Doctoral Candidate and Associate Instructor of Personal Finance at Texas Tech University

John Pelletier

Director of the Center for Financial Literacy, Champlain College
John Pelletier
What should policymakers do to improve financial literacy?

Studies have shown that financial literacy is linked to positive outcomes like wealth accumulation, stock market participation, retirement planning, and avoiding high-cost alternative financial services like payday lending and auto title loans.

Policymakers need to make sure that personal finance education is included in our K-12 and collegiate school systems. In grades K-8 personal finance topics can easily be incorporated into mathematics courses and social studies instruction. In about a third of the states, personal finance topics are required to be taught in a course that must be taken to graduate from high school. These courses are either standalone one semester personal finance courses or they are part of another required course like economics.

The federal government could require all colleges to provide some level of personal finance training for all students that take out a federal student loan. For example, Virginia requires all public colleges (including community colleges) and universities in the state to make available financial literacy training for undergraduate students. For this policy to be effective, teacher training is required. Educators need to be given the confidence, skills and curriculum tools necessary to bring personal finance into the classroom. Sadly, this type of training is lacking in many states and school districts. Studies show that educators lack the confidence to teach this topic, but their confidence level increases dramatically once they are provided robust training.

Lastly, policymakers should require professional assessment on student personal finance knowledge. Utah is the only state that is currently requiring such testing. This will help all educators understand what instructional methods and curriculum are most effective in the classroom.

How can parents equip their kids with financial know-how?

A Schwab survey from a few years ago indicated that parents are nearly as uncomfortable talking to their children about sex as they are about money.

The “money talk” needs to take place around the dinner table. Parents often avoid talking about their income or savings or the choices they need to make about spending. Children do not understand the debt a family has (credit cards, mortgage, auto loans, student loans, etc.). I am not suggesting that a parent needs to disclose everything to a child, but having a child understand the financial decisions, struggles and mistakes made by the parent is a great way to educate their children. For many young people, learning is being done through personal experience. Making mistakes with your credit is a painful way to learn a life lesson.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

You need to make a distinction between what works in K-8 versus high school and college. In K-8 these topics can be imbedded into mathematics, social studies and language art courses. However this requires teacher training. At high school, more intensive training is required. This could be done in a standalone personal finance course or as part of some other required course like economics. At the college level, before students take on too much student debt, colleges should provide training on the connection between income and careers and students must understand how student loans work.

Robert J. Atra

Chair and Professor of Finance, Lewis University
Robert J. Atra
What should policymakers do to improve financial literacy?

I’m going to be a little cynical here but I’m not sure policymakers who have a tough time controlling their own spending should be in charge of financial literacy. I’m not sure they have much authority on the topic. Financial literacy should be taught by those who can lead by example.

How can parents equip their kids with financial know-how?

Parents first need to equip themselves! Leading by example is a good start. Can the parents describe to the kids why they are driving a used car rather than buying a new one? Can the parents show the kids that they have a “rainy day” fund saved in case of emergencies? Kids will tend to emulate parents’ behavior so parents need to be good role models regarding their finances.

Parents should teach their children about budgeting, which is the first financial decision a child is likely to have to make. Allowing children to only spend a certain percentage of their money is a good beginning. As an example, my nine year old son wanted to purchase a wrestler figure for $10. I asked how much money he had saved and he said $40. He felt he had plenty of money since $40 was so much bigger than $10. I told him he needed to consider if he wanted to spend 25% of his net worth (all that he had) on one item. He decided against buying the figure until he saved more. We now have an informal limit of the kids spending of maybe 20% of what they have saved. They are required to build their account back up prior to spending more.

For older kids – maybe middle school and above – parents need to teach their kids about investing and not just saving. As a child, I used to save quarters in a folder that my bank provided to me. I think back and realize that it was NOT a good way to understand finances. I now explain to students in my principles of finance class that money needs a “job.” It should not sit around and do nothing. It can work at a bank in a savings account or even work for a company by being invested in that company’s stock.

As part of that discussion, kids should be introduced to long-term rates of return on savings accounts, bonds and stocks. Simple examples of how much they can accumulate at different rates of return are very useful. See if kids can guess how much difference there would be, say, if they earned 10% per year vs. 5% per year for 20 years. Many kids will guess they will have twice as much! (By the way, adults often say twice as much, too.)

Even better, have them open up a retirement account as soon as possible. Yes, get them thinking about retirement as soon as they have earned income. Have them take classes in high school about retirement accounts (see below) and demonstrate how beneficial it is to invest for retirement at an early age. Some simple examples work wonders for student to get interested.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

I would like parents to encourage financial literacy through their local school districts. It could be introduced quite easily at early levels – even as young as kindergarten – by teaching kids to budget and save. At higher levels, basic financial examples using ideas such as compounding can be incorporated into traditional math classes. By high school, all students should have an understanding of retirement accounts and Social Security. Financial literacy at the high school level could be incorporated into social studies courses quite easily. The wide range of websites available make the task even more interesting to kids who are constantly using smartphones or surfing the net.

Furthermore, there are numerous financial professionals who would be willing to give basic presentations in any community to assist the schools. As long as the focus is on educating and not selling, they can be quite effective. Also, most universities require professors to have a service component as part of their portfolio at work, so they could speak at high schools as part of fulfilling that obligation.

Julie Heath

Director of the Economics Center and Professor, Alpaugh Family Chair in Economics, University of Cincinnati
Julie Heath
What should policymakers do to improve financial literacy?

The best thing policy makers could do to improve financial literacy is to treat financial education like any other academic subject. No one suggests that a single class in another discipline in high school is sufficient to give students all they need to know about that discipline. Likewise, the notion that a one semester course in financial education is sufficient to prepare our children for the financial decisions they will face is ludicrous.

The second thing policy makers could do is to realize that financial education is not teaching students how to write a check, to balance a register, or what the Rule of 72 is. While important (how much longer will we write checks, anyway?), these are rudimentary skills, and framing financial education in this way reduces the concepts to the lowest common denominator. The instruction then becomes wrapping a course around a vocabulary list — not the stuff of true education, and again, not the approach taken with any other discipline. Financial education is about making good decisions, giving students the tools and critical thinking skills so that they can evaluate a whole host of options, not just those that involve money. When I asked a 4th grader what he had learned from a financial literacy program (Smart Tennessee, a K-8 program I started when I was at Memphis), he told me that he had learned how to make good choices. My follow-up question was if he thought this would help him when he was a grown-up. He said that yes, he thought so — he now knew that he shouldn’t join a gang.

What policymakers need to understand is that the power of financial education is that it meets students wherever they are. For students who have access to allowances, birthday money, etc., it can help them be more thoughtful consumers, savers, etc. For other children — children who may never have birthday money — it also has something to offer them. It gives them a frame of reference for them to make choices within whatever environment they find themselves in. Good decision-making skills are good decision-making skills, regardless of the context. Policymakers also need to understand that this is, of course, an education issue. But it is also an economic development issue. When children understand that their investments in themselves can change their lives, when they are empowered by their own human capital development — that’s transformative for them, but it also transforms communities and states.

How can parents equip their kids with financial know-how?
  1. Model good decision-making. Think out loud when shopping with kids, for example — “if I buy this, that means I can’t get the other one. But this one might be better because…”. Kids need to learn how to evaluate and weigh options. This is not an innate skill. Parents can model how they arrive at decisions.
  2. Let children have access to money, whether it is from doing chores, an allowance — whatever. The means by which children get the money is not as important as what they learn about what to do with it once they have it. There should be parameters around part of the money — x% for saving, y% for charity, for example. The rest is up to the child. They can’t learn to manage money if they don’t have access to any to practice with.
  3. Let them make mistakes. And they will. That doesn’t mean that parents should never bail their children out from bad decisions, but it should be infrequent enough that kids don’t expect it. Learning from mistakes is the best teacher.
  4. For younger children, help them get a frame of reference for the money they’re spending. For example, the value of $10 is really difficult to understand in a vacuum. So when a child is trying to decide whether to buy a toy for $10, it’s helpful if parents frame the decision with what else could be purchased with that money. Children will get a much better sense of what it means to part with that money if parents tell them they could also buy this other thing with the same amount of money. Teaching children about opportunity cost (the next best alternative or what you give up when you choose something) is perhaps the most important thing to mastering financial education.
To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

As stated above, financial education should not be relegated to a one semester, stand-alone course in high school. Taking a broader view of financial education, as imparting good decision making, implies that it can and should be integrated into other core subjects.

At the younger grades, financial education can easily be incorporated into reading, for example. There are many examples of children’s books where the main character(s) make decisions (good and bad), spend money, save, behave as entrepreneurs, invest in education, etc. Rich discussions can revolve around these points, weaving in financial concepts. Math is a natural fit for financial education, and is, in fact, a natural answer to the age-old question that every math teacher gets asked: “why do I need to know this?” Financial education is real-world math.

If we ensure that children receive financial education in elementary and middle school, integrated as appropriate, by the time students get to high school and a stand-alone course, that course can then be a much richer, more meaningful course than a cursory, superficial treatment.

Children are excited to learn about money; they know this is the stuff of grown-ups and come to it already willing and eager to learn about it. The most effective way to teach it? Make sure teachers are comfortable with the topic, confident in their delivery of activity-based material, and the rest is easy.

Prakash Dheeriya

Professor of Finance at California State University-Dominguez Hills, and Author of the “Finance for Kidz” series, and “Law for Kidz” series
Prakash Dheeriya
What should policymakers do to improve financial literacy?

Lawmakers should do the following:
  1. Provide funding from Consumer Financial Protection Bureau to schools to incorporate financial literacy into curriculum of elementary, middle and high schools;
  2. Provide tax breaks to families spending money on financial education;
  3. Reward school districts based on their students' scores on universally accepted financial literacy tests;
  4. Sponsor competitions on financial literacy among schools, with winners going to nationals, much like the national spelling bee championships.
How can parents equip their kids with financial know-how?

Parents can incorporate financial lessons very easily in their daily lives. Right from the time kids get up from bed in the morning, to the time they go to sleep, parents can discuss benefits of comparison shopping (using different places to buy their family toothpaste), budgeting (deciding how much to spend on their toys, games and birthday gifts), credit (deciding whether to pay for groceries using cash or credit card or debit card) and dinner choices (eating out or making food at home - what are the costs of each). Simple daily activities can become teaching moments for children.

Important thing to note is that parents set the tone and standard for their children's attitude towards finances. If they model good 'financial' behavior, then their children are more likely to follow them, and continue that behavior well into adulthood.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Financial literacy should be introduced in the elementary schools. Anything later (middle or high schools) may be too late to change set habits of children. By introducing financial health at the same time physical health is taught in elementary schools, we can create a foundation of healthy behavior that will very well continue into adulthood. I am sure financial literacy can be taught to youths in high schools and adults, but it can be difficult to unravel the bad habits formed in early childhood.

Michael J. Collins

Associate Professor of Consumer Science, and Faculty Director of the Center for Financial Security, School of Human Ecology, University of Wisconsin
Michael J. Collins
What should policymakers do to improve financial literacy?

Improving knowledge of personal finance issues starts early - literally pre-school - and follows us over the entire life course. A simple class in high school is not enough. Parents need to be encouraged to talk about money management at young age (events like MoneySmart week and the Big Read) are examples.

Kids need to have experiences with commerce and banking in primary grades - policies can help there by making custodial accounts easier to access and increasing teacher training standards to include personal finance for all subject areas. Then college age - especially related to student loans - more direct counseling and information requirements can be expanded. Same with mortgage counseling. The real gap now is aging people who need to manage finances in retirement. Here we have more work to do but this could range from library programs to intergenerational strategies.

How can parents equip their kids with financial know-how?

Experience counts for a lot. Talk about the family budget. Show your kids your pay stub, and tax forms. Be open - don't let money be a taboo. If possible, open a custodial account. Even $5 at birthdays and holiday will build up in 3-4 years to be $100 - which seems to get kids attention. Don't get distracted by interest rates -- it is just purely not spending and therefore saving that counts.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

We know from the evidence that it can help young people learn and adopt behaviors. But we don't know the right levels (4th grade? 8th grade? 12th grade?). Some course is probably better than none, but we also realize there are a lot of other demands on schools. The best models are integrated and experiential, and focus on basic economic concepts. Teaching kids about mortgages or retirement planning does not make a lot of sense, but costs-and-benefits and opportunity costs are more generalized.

Duncan Williams

Assistant Professor of Economics, Finance and Global Business at William Paterson University
Duncan Williams
What should policymakers do to improve financial literacy?

The short answer is to systematically build financial literacy into the secondary education curriculum. In order to be effective, this has to include specific mandates, curriculum resources, training for the teachers, and inclusion in standardized testing.

How can parents equip their kids with financial know-how?

In many households, overt conversations about money are more awkward than “the talk” about sex. Parents need to realize that they are sending messages to their children about the power of money, or lack thereof, whether they mean to or not. By not involving them in some way in the financial decision processes, children can develop a sense of entitlement or a sense of shame around money. Every household has to make choices about the chores that need to be done and how to prioritize their purchases. Giving kids the opportunity to model those decisions with their own resources can create awareness of that process within the household.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Even in primary schools, there are lessons that can be taught about delayed gratification and the consequences of choices. But most financial literacy education requires some basic numeracy skills, which is why I suggested beginning in middle school. The most effective ways of teaching are through modeling real world applications that students may already be familiar with. The National Endowment for Financial Education (NEFE) has developed Cash Course, which has a series of online interactive exercises for students.

Brenda Campbell

Executive Director at Make A Difference – Wisconsin
Brenda Campbell
What should policymakers do to improve financial literacy?

Financial literacy should be incorporated into the K-12 system and given the same level of importance as other required subjects. Isn’t the ability to manage your money at least as important as understanding U.S. History or Geometry? A required Personal Finance course is a great addition, but it’s not enough. And not all teachers are comfortable or qualified to teach it.

There are several community-based organizations such as Make A Difference – Wisconsin willing and qualified to help. These evidence-based organizations can help fill the gaps with financial literacy programming with data-informed behavioral-focused outcomes.

How can parents equip their kids with financial know-how?

In my conversations with teens, it’s clear that those who are best prepared for their financial future are those who learned from their parents – by teaching and by example. Parents can start early and model responsible financial decision-making and behavior. Conversations should be age-appropriate, but parents can talk about the household budget, discuss needs versus wants, and be clear about savings expectations.

Parents of teens have some great opportunities to enhance financial literacy and help position them to make smart decisions when they move on to college or start living independently. Some best practices include:
  1. Set up a joint checking account. Let your teen manage the account under your supervision. Small mistakes made at this point may save them from costly mistakes made when they’re out on their own
  2. Let them manage the money. For example, put your teen in charge of the back-to-school shopping with the amount you have budgeted. Give him/her the opportunity to shop within the budget and make it last.
  3. Encourage your teens to pay themselves first by putting a portion of each paycheck, allowance, or gift of money into a savings account.
  4. Help your teen learn how to set savings goals and determine the amount and frequency they’ll need to save in order to meet the goal.
  5. Make sure your teen understands the power of compound interest and how it works. Time is on their side and this is a great time to show them the interest calculators and get them thinking about the “big picture” and the “long term.”
  6. Don’t forget about credit. This is where they’re most likely to get into trouble as young adults. Explain how credit works and the impact of making the minimum payment. You may want to share a credit card with your teen and review the monthly statements.
To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Weaving financial education into multiple subjects at all levels elementary through high school is ideal, and we see the best results when these topics are delivered when they’re relevant and interactive, when they emphasize critical thinking skills, and when they incorporate real-life examples of responsible behaviors and attitudes.

Harold Zhang

Professor of Finance, University of Texas at Dallas, Jindal School of Management
Harold Zhang
What should policymakers do to improve financial literacy?
  1. Policymakers should have a long-term plan to improve financial literacy. This should include a financial planning class in public school curriculum, incentivizing employers to make financial planning workshop mandatory for new employees by providing grants or tax deduction.
  2. Use media and internet to promote financial literacy.
While some of these measures may have some costs at the beginning, it will ultimately reduce people’s reliance on government. Improved financial literacy will help people make better saving and investment decisions and become financially sufficient without having to turn to government welfare programs.

How can parents equip their kids with financial know-how?

  1. Setting a good example in the family on financial planning.
  2. Getting kids involved in family financial decision-making process.
  3. Helping kids with investment games at school by providing references, online resources, etc.
  4. Encourage kids to set up investment simulation accounts.
To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Financial literacy should be an integral part of the K-12 curriculum. The goal is that all high school graduates should have a good sense on why we need financial planning and what the important considerations are for financial planning (expenses on higher education, having a family, retirement, etc.)

In order to encourage students to think long-term financial planning, one may start from middle school. Ask students to set up a financial plan and keep track of this plan throughout high school until graduation. Students who successfully accomplish their financial objectives are awarded a certificate of financial literacy accomplishment.

Stephan Siegel

Long Endowed Professor at University of Washington, Michael G. Foster School of Business
Stephan Siegel
What should policymakers do to improve financial literacy?

First, financial literacy should focus on making people aware of the importance of financial decisions. Instead of trying to teach people too many details, I would encourage policymakers to support the development of safe and simple tools that individuals can use to make or better delegate financial decisions. For example, policymakers could provide simple tools for free and/or set standards for financial advisors based on an expert panel.

How can parents equip their kids with financial know-how?

Our research shows that on average, the effect of parents (beyond the genetic channel) is limited.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

It depends what the costs are. Most likely financial literacy should play a small role, as general skills and critical thinking are likely more important at this point. Explaining the time value of money (i.e., compounding) should be valuable, though.

Karen C.A. Holden

Professor Emeritus of Consumer Science and Public Affairs, University of Wisconsin
Karen C.A. Holden
What should policymakers do to improve financial literacy?

I define financial literacy as the ability to use knowledge, the prerequisite being knowledge. This holds for many skills - reading, math included - for which basic skills can be taught but the use in society can come only from understanding how to use that knowledge in new situations. As with math and reading, while it can be taught in topics specific courses, it is a broad skill that makes one more able to function in all aspects of life. Financial issues pervade our lives. Financial literacy is the ability to think about changing financial issues, these issues changing as individual’s age, as financial responsibility shifts, and as the financial environment and technology changes.

The best role for policy makers is to support broad, excellent education (not only of financial education), encourage the integration of financial issues in all education curriculum (e.g., how to finance a trip to France for language students, to use financial examples in teaching compounding in math courses) and to mandate and guide the understandable reporting of accounts and full disclosure by financial institutions.

How can parents equip their kids with financial know-how?

Best is for parents themselves to be good financial thinkers and doers, making their own choices with some knowledge and setting of their priorities. They should then talk to kids about finances. Be honest about financial constraints. Make it clear that financial choices must be made. Teach kids that finances are about choosing how to use scarce resources that can be used now or later and when something is chosen, others are chosen against. Teach kids about making choices, that they do it all the time and making financial choices are also made all the time.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Surprisingly, schools of education do not teach their students how to convey financial principles to students. Ironically, math teachers, less likely to have had an explicit course on financial issues are more likely to be teaching those skills, they recognize that math skills advance understanding of finances and vice versa.

From a study a colleague and I conducted of financial capabilities of teachers, I concluded that first, teachers untrained in how to teach, thought financial issues were too complex to teach at the elementary level. They are not. Second, that a surprisingly small percentage of teachers ever had a course related in any way to finance or economics. Not surprisingly, they felt unsure about their ability to teach. This is a life skill too important to have only specialized teachers trained to teach, to isolate in a single course. Financial literacy must be recognized as important to all aspects of life and therefore important to integrate into all parts of the curriculum.



Dr. Holden's Bio

Areerat Lertchaipitak

Doctoral Candidate and Associate Instructor of Personal Finance at Texas Tech University
Areerat Lertchaipitak
What should policymakers do to improve financial literacy?

Policymakers should see financial literacy education as life-long learning and should mandate personal finance education. Financial education can help individuals to be informed consumers which helps them make better financial decisions. Financial literacy could be provided through different entities based on different stages of life such as school, college, and the work place. However, policymakers have to ensure that those who provide personal finance education are competent to teach and deliver financial education to the audience based on the audience’s background and needs.

How can parents equip their kids with financial know-how?

Parents can help their children with financial know-how by discussing money with their children. Parents can include their kids in making financial decisions about the household. Moreover, parents are the best teachers for their kids about simple but powerful concepts such as saving. Introducing budgeting at an early age, for example budgeting their allowance or birthday money, will help children become more comfortable with money. Saving should be an item on a budget not an afterthought. When kids want to impulsively buy toys, parents can teach them how to save for a future goal. Building and developing delayed gratification in children will help them to be more future-oriented adults.

It seems everything parents do at home can be a financial lesson for children. When parents are shopping for insurance, they can explain to their kids why they need protection. When parents contribute money to education, retirement, and/or other types of savings, they can tell the kids the importance of saving and investing. The kids may not realize that they are being educated, but money conversations in the family ground children to be ready to easily learn more complex financial concepts in the future.

To what degree should financial literacy be a part of the K-12 curriculum? What are the most effective ways to teach financial concepts in schools?

Several studies find a positive correlation between financial education and positive financial behaviors and outcomes. Therefore, financial literacy should be taught in school and should be a required class in the K-12 curriculum. The most effective way to teach financial concepts in schools is to design the course and content based on student interest and learning capacity. For instance, introducing ‘time value of money’ at elementary or middle school would not help students but actually could hurt them. Instead of teaching complex financial concepts at early age, elementary and middle school students can learn simple concepts. For example, instead of calculating interest, they can learn that money in savings grows. Students can be easily overwhelmed by too much information at an inappropriate time. A suggested plan would be to provide financial education at the time students need that information the most, e.g. introducing student loan and other consumer loan concepts to high school students because this group is soon going to apply this knowledge into their real-life.

Methodology

Two of the biggest hurdles when it comes to evaluating a given area’s financial literacy are defining financial literacy and identifying accessible indicators without mistaking financial hardship for the inability to make sound financial decisions. The past few years have been disproportionately rough on certain demographics and geographies, which means comparing states based on factors such as average credit score or number of bankruptcies per capita would reveal far more about temporary macroeconomic dynamics and the country’s wealth disparity than financial literacy.

Financial literacy ultimately comes down to familiarity with key themes and concepts, the ability to think critically, good judgment and self-restraint. We felt that the following 11 metrics, which we separated into two main categories – Planning & Daily Habits and Knowledge & Education – were indicative of those qualities and ideals, revealing the resources that are being put toward financial education in each state as well as behavioral characteristics that are indicative of not only how well those programs are working, but also how well local values mesh with the tents of responsible money management.

The specific metrics that we used and the weights that we assigned each in constructing our overall rankings of state financial literacy can be found below.

Planning & Daily Habits = 10

  • Percentage of People Who Spend More Than They Make: Double Weight
  • Percentage of People with a Rainy Day Fund: Double Weight
  • Percentage of Unbanked Households: Full Weight
  • Percentage of People Borrowing from Non-Bank Lenders: Full Weight
  • Percentage Paying Only Minimum on Credit Card: Full Weight
  • Percentage Comparing Credit Cards Before Applying: Full Weight

Knowledge & Education = 5

  • Champlain University High School Financial Literacy Grade: Double Weight
  • High School Dropout Rate: Full Weight
  • FINRA Financial Literacy Survey: Double Weight
  • Percentage of Residents with a Bachelor’s Degree or Higher: Full Weight
  • Number of Library Branches per 100,000 Library Service Population: Half Weight

 

Sources: The data used to compile this report is courtesy of the U.S. Census Bureau, the National Center for Education Statistics, the Federal Deposit Insurance Corporation, the Institute of Museum and Library Services, the FINRA Investor Education Foundation, the Center for Financial Literacy - Champlain College, US Department of Commerce - Bureau of Economic Analysis and WalletHub research.

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John Kiernan is Senior Writer & Editor at Evolution Finance. He graduated from the University of Maryland with a BA in Journalism, a minor in Sport Commerce & Culture,…
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Discussion

 
By: Afbobb1
Apr 7, 2015
Very nice research by Wallethub. Unfortunately, no one has been exposed at Wallethub to the fact that in the United States, when the Truth in Lending Act (1968) was being considered in the 1960s, the mathematically-UNTRUE, SIMPLE INTEREST method of expressing an Annual Percentage was chosen ... possibly based on 1967 advice of the Assistant Treasurer of the United States (Joseph W Barr) and his statement that the true method was the Nominal [Simple-Interest] method, read more
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By: EuroPer
Aug 31, 2014
Another GREAT report! Thank you for sharing; most helpful. It's FREE too! AWESOME!
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