Financial Ed Results in Higher Savings

"The study also finds that taking high school finance courses tends to boost the net worth (or wealth) of those individuals as adults."


Teach a youth to save, and he or she will save more as an adult. That's the key finding of an NBER study on the impact of courses that teach high school students about household financial decisionmaking, from budgeting, credit management, the adequacy of savings, and balancing checkbooks to compound interest, prudent portfolio allocation, and other investment principles. Between 1957 and 1985, 29 states adopted legislation mandating some form of "consumer" education in secondary schools. In Education and Saving: the Long-Term Effects of High School Financial Curriculum Mandates (NBER Working Paper No. 6085) , NBER Research Associate Douglas Bernheim and co-authors Daniel Garrett and Dean Maki find that the new courses do work, at least in regard to saving. "Education may be a powerful tool for stimulating saving," the authors conclude.

The study uses data from a unique household survey taken by telephone in the fall of 1995 by Merrill Lynch, the nation's largest brokerage house. The 2,000 respondents, between the ages of 30 and 49, were asked, among other things, in which state they attended high school, and what they remembered about financial education. The fact that some states do not mandate courses on consumer education gave the authors a means to compare the savings rates of people based on where and when they attended high school.

In 1995, savings rates did not differ in a systematic way among people who went to high school in a state that never had a mandate versus those who went to high school in a state that eventually had a mandate, but not at the time that they attended. As adults, those who attended high school in states with mandates in place saved significantly more than those who attended high school in states without mandated courses. But these course effects were gradual rather than immediate -- a probable reflection of a lag in implementation of the courses, the authors write. States at first often lacked sufficient teachers qualified to give the courses. Thus teacher workshops on financial education were initiated.

The study also finds that taking high school finance courses tends to boost the net worth (or wealth) of those individuals as adults. That result would be anticipated over time since this group is saving and accumulating more assets. The median net worth of those who attended school in states with mandates is higher by about an entire year of (their) earnings than the median net worth of those who attended school in non-mandate states.

The survey found that roughly 15 percent of the respondents were exposed to general consumer education mandates, and that 10 percent came under financial education mandates. Over time, mandates appear to have significantly increased the fraction of individuals in a specific state taking either generic consumer education courses or courses covering household financial topics. Women and African-Americans were far more likely to receive consumer/financial education. The first of these patterns may reflect the greater likelihood that women who attended high school in the 1960s and 1970s took courses in home economics, the authors speculate. The second suggests that schools serving lower income and/or African-American communities may put greater emphasis on practical skills. There appears to be little difference in the exposure to financial education between whites and other minorities.

The self-reported savings rate also rises with education and earnings, results not surprising to economists. Married individuals save more than singles. And savings rates rise moderately with age. The decision to mandate, the authors find, most likely occurred because of the political activism of narrow interest groups, including consumer advocates, or from the idiosyncratic interests and concerns of legislators, rather than from the insistence of the general public.


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