Abstract
Low levels of financial literacy are prevalent in the United States, with high school students consistently performing poorly on tests that assess knowledge of financial concepts. Upon entering adulthood, many individuals are ill prepared to make important financial decisions that affect their future well-being. I explore government’s role in addressing this problem by analyzing the relationship between state-level requirements for personal finance instruction in high school and financial literacy levels of young adults after high school graduation. Using results from a nationally representative survey administered by the FINRA Investor Education Foundation in 2009, I focused on respondents ages 18-24 who had exposure to personal finance requirements implemented as late as 2002. I conducted a correlation analysis and regression analyses to explore how well requirements predicted financial knowledge and behavior scores among respondents. Respondents in states with two or more personal finance requirements had higher financial knowledge scores than respondents in states with no requirements. Contrarily, respondents in states that had developed personal finance content standards had lower financial knowledge scores than respondents in states with no requirements at all. No other requirement type successfully predicted higher financial knowledge scores on its own. These results suggest that the number of requirements matters more than type of requirement in predicting financial knowledge. Gender, ethnicity, education, income, employment status, and living situation were also successful predictors of financial knowledge. No significant relationships emerged for the outcome variable financial behavior, suggesting that personal finance instruction is more likely to make an individual knowledgeable but less likely to influence an individual’s behavior. Policy implications of this research include the need to focus on targeting and educating demographic groups that are less likely to be financially literate, as well as encouraging all states to adopt more stringent personal finance content standards and requirements. To aid in the development of future standards and requirements, a further examination of the impact of different requirement types on financial literacy is first necessary.