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K-12 education can equip students with the skills needed to make sound financial decisions. Research suggests that students who participate in high-quality financial literacy programs are more likely to achieve higher educational attainment, better financial outcomes, and more successful postsecondary lives. The Center for Financial Literacy states that financial literacy is a crucial tool for promoting economic mobility, narrowing the wealth gap, and fostering a more equitable and prosperous society. It plays an important role in reducing poverty and inequality. As of March 2024, 25 states require students to take a standalone personal finance course of at least one semester before graduation.

PISA definition of financial literacy

The Program for International Student Assessment (PISA) is a large-scale international study that aims to evaluate education systems worldwide by testing the skills and knowledge of 15-year-old students. It has been assessing the financial literacy of young people since 2012. PISA defines financial literacy as “knowledge and understanding of financial concepts and risks, as well as the skills and attitudes to apply such knowledge and understanding to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life.”

Financial literacy matters in public education

More than one-third of American adults report having more credit card debt than emergency savings. One reason for this disquieting situation is a lack of financial literacy, according to some experts. PISA data show that in the United States, 16% of 15-year-old students in 2018 were low performers, scoring below basic proficiency level; 22% performed at the basic. In other words, nearly 2 in 5 students have either little or very basic skills in managing their money. 

Data show that 12% of 15-year-old students in the U.S. were top performers in financial literacy, scoring at a high proficiency level. Students from nondisadvantaged backgrounds often demonstrate higher proficiency in financial literacy. These students grasp less common financial concepts and terms that become increasingly relevant as they approach adulthood. For instance, they understand how to manage bank accounts and the benefits of compound interest in savings products. They also are capable of interpreting and evaluating detailed financial documents like bank statements and can explain the functions of specialized financial products. Additionally, they possess the ability to make informed financial decisions by considering long-term consequences, such as recognizing the total cost implications of repaying a loan over an extended period. These skills enable them to address and solve unusual financial problems effectively.

On average, Black, Hispanic, and low-income students performed at the basic financial literacy level. At this level, students can make financial decisions based on information that directly impacts their lives, appreciate the importance of a straightforward budget, and understand key aspects of common financial documents. They can perform basic mathematical operations to solve simple financial problems and understand the connections between different financial factors (e.g., the amount of use and the costs incurred). However, the knowledge and skills students have at this level is not sufficient for success in their postsecondary life.

What works

As more states require financial literacy for high school graduation, policymakers need to be cautious of potential pitfalls. Simply mandating financial literacy courses does not guarantee that students will develop the necessary skills to manage their budgets and spending effectively. PISA data suggest that setting higher learning expectations, fostering a responsible and mindful attitude towards money, applying classroom knowledge in practical contexts, and discussing career aspirations after high school can be more effective than solely relying on textbook teaching and basic discussions on money management.

Financial literacy and digital citizenship

Citizens who are financially literate and engaged in digital citizenship are better equipped to navigate the complexities of modern economies and the digital world. According to the 2018 PISA data, two-thirds of U.S. students used the internet to gather the information they need about money matters (e.g., spending, saving, banking, investment). Additionally, 40% of students reported that they always compare prices between a shop and an online store when using their allowance to buy a new product.

Financial literacy is not merely a beneficial skill but a critical one that impacts the socioeconomic dynamics of our society. It empowers individuals, particularly younger generations, to navigate the complexities of personal finance and digital economies effectively. The disparities in financial education and outcomes highlighted by recent PISA data underscore the urgent need for targeted and practical financial education. As policymakers continue to enhance financial literacy curricula, it is crucial that these programs are designed to be comprehensive, practical, and accessible to all students.

Jinghong Cai (jcai@nsba.org) is the senior research analyst at ¾ÅÉ«ÊÓƵ’s Center for Public Education.