The Effects of State‐Mandated Financial Education on College Financing Behaviors

Abstract

Students entering college have limited financial experience while making complex borrowing decisions. This paper examines a policy lever that may improve these decisions: high school personal finance graduation requirements. We use a difference-in-difference strategy to determine their effects on financial aid decisions of incoming freshmen at 4-year institutions. Our results suggest financial education shifts students from high-cost to low-cost financing. The requirements increase aid applications and acceptance of federal loans, while decreasing the likelihood of holding credit card balances. Students from less affluent family backgrounds reduce their likelihoods of working and borrowers from more affluent backgrounds reduce private loan amounts.JEL codes: A20, D14, D12, I22

Do High Schools Choose Financial Education Policies Based on Their Neighbors?

“…This suggests that potentially popular policies can spread across school networks within a state. Recent research finds that required personal finance in high school can improve credit scores (Urban et al, 2020;Brown et al, 2016), reduce delinquency (Urban et al, 2020;Brown et al, 2016), shift postsecondary education financing from higher to lower cost methods (Stoddard and Urban, 2020a), improve student loan repayment for first generation and low-income students (Mangrum, 2019), reduce alternative financial services borrowing (Harvey, 2019). Thus, understanding how to expand these course requirements, particularly in states without personal finance course mandates, can be important for improving the financial capability of young adults.…”

“…An additional literature considers quasi-experimental variation in graduation requirements by state and year. This research finds overwhelmingly positive effects of financial education on financial behaviors, including credit scores, delinquencies, payday borrowing, methods of financing postsecondary education, and student loan repayment (Mangrum, 2019;Urban et al, 2020;Stoddard and Urban, 2020b;Brown et al, 2016;Harvey, 2019). Though some states require personal finance instruction in high school, schools in the US largely operate with local control.…”

Does Financial Education in High School Affect Retirement Savings in Adulthood?

“…While less than half of states have ultimately been successful, the interest comes from both political parties and is not limited to a specific set of states. Third, previous research has shown that there are no clear economic conditions correlated with the implementation of financial education graduation requirements (Stoddard and Urban 2020).…”

“…We build upon prior work that estimates the effects of personal finance graduation requirements in high school on the credit, debt, and savings decisions of adults (Brown et al 2016;Harvey 2019;Stoddard and Urban 2020;Urban et al 2020;Harvey 2020;Mangrum 2021). While we use a strategy similar to Stoddard and Urban (2020), we rely upon updates to the state policy data from Burke et al (2020).…”

“…Previous work shows that state-mandated financial education reduces non-student debt (Brown et al 2016), improves credit scores (Brown et al 2016;Urban et al 2020), reduces delinquency (Brown et al 2016; Urban et al 2020), reduces alternative financial service use (Harvey 2019), improves postsecondary financing behavior (Stoddard and Urban 2020), increases liquid savings among those who never continue on to college (Harvey 2020), and improves student loan repayment for first-generation students (Mangrum 2021). Thus, financial education may reduce the likelihood young adults get into financial trouble.…”