Ann Baddour is the vice chair of our Consumer Advisory Board. I want to thank her and her organization, Texas Appleseed, for hosting us here in the Lone Star state. Today we are pleased to announce two new pieces of work in the field of financial education. First, we are issuing a new report discussing a development model that identifies the building blocks our young people need to achieve financial capability at different stages of their growth and maturity. Second, we are releasing a teaching tool that we call a “personal finance pedagogy.” This tool will help support teachers in more effectively delivering financial education to their students. The Consumer Bureau believes that these new resources will prove valuable for anyone working to promote youth financial education.
Each year as summer turns to fall, millions of young people are back in class and settling into the routines of a new school year. That is true, in fact, of my own high-school-age twins. Students across the country are navigating new class schedules, homework loads, and after-school activities. And many others, for the first time, are confronting the new reality that they are not going back to class because they have finally finished school. Instead, they are now standing on their own two feet, expected to navigate a financial marketplace that requires people to make increasingly complex decisions.
Those of you here today include financial education practitioners, bankers, parents, and many others. You know the challenges people face when they lack a solid foundation of financial know-how and decision-making skills. We also must face the fact that our country has done a remarkably poor job of providing financial education in our schools. That represents an unfortunate failure for our society. It puts many of our people at risk and exposes them to needless harm. It is a situation that needs to change – one that we and many of you are dedicated to changing.
Studies show that nearly 90 percent of parents and teachers believe that financial education should be taught in our schools. Yet only 17 states – Texas among them – currently require high school students to take a personal finance course in order to graduate. A recent study explored the credit outcomes of young adults who had taken a personal finance course in high school and compared them to the outcomes of young adults in similar states with less rigorous financial education. It found that students who had taken a personal finance course had improved credit scores and less likelihood of delinquency later in life.
That comes as no surprise to me and probably to many of you. We have all seen other research raising doubts about the effectiveness of financial education. I have never found it convincing. To me, all it says is that we simply have not yet been at this work long enough or hard enough, and we are still trying to figure out how to do it more effectively. The same was true of the general project of public education going back more than a century. Yet nobody today doubts that good education improves people’s lives. Nor should we doubt that good financial education will improve people’s financial lives. So when we see positive results like these linked to financial education courses, it tells me that this type of instruction should be just as fundamental as the education we all receive in reading, writing, and arithmetic. And we should focus keenly on how we can continue to improve on our methods and approach.
One cornerstone of our mission at the Consumer Bureau is to do exactly this kind of work: to study how we can improve financial education for people of all ages. One of the things we all recognize is that what we teach to our young people can vary significantly at different stages of their development. So we have been considering this question: Where and when during childhood and adolescence do people acquire the foundations of financial capability?
This question led to the creation of our new evidence-based developmental framework. Through it, we are seeking to understand how young people learn and how they develop the building blocks of financial capability. Our report, released today, includes recommendations about how to apply this developmental model to financial education programs, policies, and initiatives.
In particular, our recommendations identify three key building blocks. The first, which begins to be primarily developed in early childhood around ages 3 to 5, is a focus on developing executive function. This refers to a basic sense of self control that people draw upon to set goals, save for the future, and stick to a budget. The next, which begins to be primarily developed during the pre-teen years around ages 6 to 12, is a focus on encouraging parents and caregivers to help instill positive financial habits and norms in the child. The third building block is a focus on financial knowledge and decision-making skills, which is primarily developed as children approach maturity, around ages 13 to 21. At this point, children are ready and able to learn from actual experiences, such as shopping, and through their own financial research. These three building blocks reflect what we have found previously, that financial capability is not the same as financial knowledge. We have seen that financial capability goes well beyond just learning facts and is shaped by this broader set of attributes that are developed throughout childhood.
Earlier today, we saw one of these building blocks in action during a “Reality Fair” at Lake Highlands Junior High School. This program provides a unique forum for students to begin to experience some of the same financial challenges they will face when they start life on their own. Personally, I have been an enormous fan of this approach since I first ran across it in Ohio more than a decade ago. I commend credit unions for embracing it to help educate many thousands of young people each year. My children’s high school operates the same type of program, which they call “Reality Days,” and every student participates at some point during their high school years. Activities like these make a big impression on young people. Students deepen their financial knowledge and build financial capability in a more lasting way through such hands-on activities, which can also include school banking programs, entrepreneurship training, and financial games or simulations.
For many teachers, personal finance is a relatively new area of study. Although most parents want their children to learn about personal finance in the classroom, many teachers do not feel empowered to provide this instruction. Their lack of familiarity translates into a lack of confidence. So we have expanded on the research we are doing on building blocks to develop something we call a “personal finance pedagogy” for use by teachers. That is a fancy-sounding name for what essentially is a teaching tool. The pedagogy has been condensed into what is called a personal finance wheel for use by teachers and practitioners. Divided among the three building blocks that we just discussed, the wheel directs teachers to the kinds of techniques and learning strategies that are appropriate to help youth gain these skills during different phases of their development.
The Consumer Bureau also offers a curriculum review tool for youth financial education. It offers criteria to help teachers and financial educators analyze and select appropriate financial education material for their students.
We face serious challenges in achieving our goal of financial capability for young people. These challenges are varied and complex. But as more public, private, and nonprofit organizations join in making the commitment to advance youth financial capability, we can and will make progress together.
One of our most promising partnerships has us engaging with a large and growing number of libraries across the country, including the Texas Library Association with whom we have strong ties. And we are working with social service providers, community groups, state and local policymakers – anyone, really – who may be interested in pursuing these same goals. We also are well aware that many credit unions share this interest and are willing to find ways to partner with us, including the Cornerstone Credit Union League, the Credit Union of Texas, and the National Credit Union Foundation.
We have a great opportunity today to discuss how we can give young people the foundation, the information, and the experience they need to make responsible financial decisions. Together we are striving to see that every young American can gain the knowledge, skills, and resources they need to build a healthy financial future. We will remain focused on this important way to strengthen our economy and our country, and I look forward to our conversation. Thank you.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.