Financial education standards are failing, and advisors say that hurts their clients

Financial literacy education has increasingly garnered political attention in recent years, but a new report from the National Financial Educators Council (NFEC) argues that current school mandates are still failing to meet basic education standards.

Vince Shorb, the CEO of the NFEC, said that state-mandated financial education courses fail to provide students with properly trained teachers, course funding, and academic rigor. As a result, even the minority of students who receive financial literacy education are still poorly prepared for future financial decisions.

The legislative wave
This month, Louisiana passed legislation making it the 22nd state to require a semester-long personal finance course in high school in order to graduate. The Bayou state is the latest in a recent wave of state legislation mandating financial literacy education.

Half of all states with such mandates have passed their laws in the last year and a half, according to Next Gen Personal Finance. Still, simply passing a mandate is not enough, Shorb said.

Some states require that students complete financial literacy coursework integrated into the established curriculum, but they are not required to take a separate course on the subject. In New York, high school students are required to take a one-half credit economics course that contains half of a module on personal finance concepts in order to graduate.

"A lot of state standards will say you need to teach 10 or 15 hours of personal finance," Shorb said. "You can't learn enough in 10 to 15 hours. Imagine trying to speak a foreign language in 15 hours. It's like all these people sit around and clap, [saying] 'Oh, it's great, the state's adopted standards, they're teaching financial literacy,' but 10 hours is nothing."

New York state senator Leroy Comrie introduced a bill in 2021 that would require high school students to complete a pass/fail course on financial literacy to graduate, but the bill has yet to pass.

"It was time to try to get the state to take on some responsibility to make sure that people are taught the basic building blocks to developing a budget, to have an understanding of credit and how to use money," Comrie said to CityLimits.

A worsening trend
Researchers at the TIAA Institute and the George Washington University School of Business found that Generation Z scores the lowest in financial literacy of all the generations surveyed. Gen Zers are age 11-26 and number around 69 million individuals. Two-thirds of Gen Zers tested, who were ages ranging from 18-23 at the time of the study, could answer only 50% or less of the personal finance questions correctly.

Across generations, U.S. adults on average have answered only about 50% of the test questions correctly over the first five years of the project.

Financial advisors say this gap in knowledge is an issue when they are trying to advise their clients. 

"I find a lack of financial literacy most affects my clients when it comes to risk tolerance," said Dan Wood, a financial advisor at Zimmerman Wealth Management in Evanston, Illinois. "It is natural to fear what we don't understand, and a lack of understanding can lead to suboptimal decisions such as insufficient investing, too little risk in a portfolio, avoidance of 'good debt' like a mortgage, etc."

Risk-related concepts are particularly difficult for American adults. Those taking the TIAA's financial literacy test correctly answered risk-related questions 37% of the time, the worst performance of any financial concept on the test. By comparison, test-takers were nearly twice as likely to answer borrowing-related questions correctly.

"In those cases, my first job becomes education so my client can understand the importance of our recommendations and feel better about staying the course through market or life volatility," Wood said."

Julie Hall, who currently serves on the board of the Financial Planning Association of Michigan as its advocacy director and president-elect, said financial literacy is "more critical than ever.""Many financial advisors are interested in seeing financial literacy education instituted more broadly in U.S. schools," Hall said. "It will help the public seek quality financial advice and will also grow the number of financial planners, including women."

Last year, Michigan became the 14th state to pass legislation requiring high schoolers to take a half-credit personal finance course before graduating. Hall and her team recently met with the Michigan Department of Education to discuss the financial literacy requirement.

"We would like to partner with MDE in any way to assist with the curriculum and provide outreach to schools in our local communities," she said.

Personal finance isn't math
Shorb of NFEC said that states need to think seriously about how they construct course curricula in order to empower students with relevant knowledge to make near-term financial decisions. In Florida, where last year Governor Ron Desantis signed a bill into law mandating a half-credit personal finance course for high school students, the curriculum includes topics such as balancing a checkbook and the implications of receiving an inheritance.

Supporters are quick to celebrate such laws, Shorb said. "Then you really read what's in that bill, and it's writing checks, right? Outdated."

Students not only need to receive timely, relevant information from their personal finance classes, but also need to learn more broadly what financial wellness means in their lives. Personal finance is not a math class, Shorb said.

"In personal finance, every single kid in that classroom has a different experience, different habits, different socioeconomic status, different goals and different situations coming up in the near term," he said."

Ramona Maior, a financial advisor at Priority Financial Group in Phoenix, said that clients can often get bogged down in financial details without having a "full understanding of what financial wellness means."

"It goes beyond a portfolio rate of return, it's understanding how you make money decisions, what money means to you, and ensuring there aren't any major gaps in your financial situation," Maior said.

Beyond grade school
Ian Norris, a professor of marketing and psychology at Berea College in Berea, Kentucky, teaches a financial literacy course to students that takes a more holistic approach.

"This is a course about the psychology of money, the psychology of financial decision-making — it's not finance," said Norris, who recently published a financial literacy textbook with fellow Berea professor Nancy Sowers.

Berea College students largely come from low-income backgrounds, with 96% of the student body eligible for Pell Grants. "The Berea College population is a unique population," Norris said. "So when we developed the course, we were very intentional about who the students are, where they're coming from, and what their knowledge base is."

Kentucky passed legislation in 2018 requiring the "completion of [a] course or program on financial literacy" in order for a student to graduate high school. Still, Norris said the immediacy of his course is important for students as they begin to make more financial decisions – opening a bank account, learning to read a pay stub, renting vs. buying and analyzing job benefits.

"Students have more life experience to draw on, and the decisions matter — you're sort of semi-living on your own for the first time. And so you have much more of a stake in the content," Norris said.

Financial advisors tend to agree.

"The concepts that are relevant to a teenager will not be the same as the ones for an older adult," said Desiree Kaul, a financial advisor at MainStreet Financial Planning in Satellite Beach, Florida. "Financial literacy is and should continue to be important throughout a person's whole life, not just in high school."