Securing Financial Futures: The Impact of School-Level Policies on Financial Literacy in the United States

Abstract

Trends in the financial landscape towards disintermediation place increased responsibility on individuals to be able to make sound financial decisions and necessitate greater financial sophistication of the consumer. Prior research has found a positive correlation, and in some cases a causal link between financial literacy and self-beneficial financial behavior and heightened ability to navigate these complex decisions. However, mounting evidence reveals that Americans, and particularly American youth, possess remarkably low levels of financial literacy and are therefore unequipped to respond to the difficult financial environment. One of the most promising interventions that seeks to mitigate the dearth of financial literacy among youth is the implementation of financial education programs in K-12 education. Though some researchers have attempted to evaluate these programs, there is no consensus in the academic community on their overall effectiveness and best practices for raising financial literacy. Furthermore, while many of the existing studies assess higher-level policies, such as state mandates, or individual programs and curriculums, there is a gap in the literature that analyzes the impacts of school-level policies. Thus, the purpose of this thesis is twofold. First, by employing Ordinary Least Squares (OLS) and Instrumental Variable (IV) regression analysis using the 2012 PISA Financial Literacy Assessment, the first large scale international assessment of financial literacy, it estimates the impact of exposure to financial education as a function of the PISA financial literacy score. Second, it assesses the effect of various school-level policies and practices in raising financial literacy. To answer the second part of this research question, it examines the impact on financial literacy of attending a school that offers financial education as well one that makes financial education compulsory. It also analyzes the effect of various implementation strategies, including curriculum and teaching policies, on financial literacy scores. Although no findings in this analysis are statistically significant at conventional levels, possibly a consequence of having an underpowered sample, the data suggest a positive relationship between financial education and financial literacy. Results reveal a negligible effect of available financial education at a school but suggest a stronger impact when financial education is made compulsory. In terms of implementation strategies, I find cross-curricular financial education to be more effective in raising financial literacy than financial education taught as its own subject. I also find no added effect of hiring external talent from the public sector, private sector or NGOs to teach financial education classes. The implications of this study suggest that educators and policymakers should look towards increasing financial education in schools but must establish implementation strategies based on proven best practices and programs. Further, it suggests the need for further research into integrative approaches to financial education as an effective way to raise financial literacy through classroom learning.