Amid Growing Need for Financial Literacy for Teens, Wellesley Professor’s Research Points to More Math

New studies show that when it comes to paying bills, understanding debt, and planning for loans, American high schoolers have a lot to learn. Kartini Shastry, assistant professor of economics, has conducted research on the topic—and the findings are surprising. Her research was highlighted in a recent MarketWatch article on teenage financial literacy, though this is not the first time the media has turned to Shastry and her colleagues’ research, Forbes and Slate magazine, and others, have cited their work.

Shastry and fellow researchers at Harvard Business School and the Federal Reserve Bank of Chicago argue that important questions remain about how best to educate high schoolers on personal finance. "It's easy to assume that financial literacy training will improve financial decision-making, but the evidence for this causal link is weak," said Shastry in an email interview.

She and her colleagues sought to tackle these questions by re-examining an often-cited paper on financial literacy training; this earlier research concluded that state mandates (between 1957 and 1982) requiring high school students to study personal finance in order to graduate were effective. However, Shastry and her team "used much larger data sets" and found their results contradicted the earlier, more limited data—"a very precisely estimated zero effect." In other words, "These mandates had no effect on the propensity to accumulate assets, the level of investment income and credit management," she said.

So what should be taught? Shastry told MarketWatch the answer could be as simple as more math. "A lot of these finance questions could really be a math question," she told the finance site. While it's unclear precisely why teaching math helps, a possible answer could be that students become more comfortable with math skills and this in turn increases their confidence when it comes to things like loan terms or planning savings, according to Shastry. She also told MarketWatch that teens might find it difficult to grasp concepts and skills, like how to plan for retirement, that they won’t use for months or even years later. Approaching these questions though math education might ameliorate such problems.

A Forbes article from earlier this year reported the researchers showed that "[p]ersonal finance classes look to be a wash, but getting high school students to take just one extra math class could be the solution, increasing students' ability to succeed financially, while reducing the possibility that they'll make any number of expensive, easily-avoidable mistakes."  In her email, Shastry summarized it this way: "Students who are required to take additional math courses have better financial outcomes (such as reporting any investment income, equity in real estate, and credit outcomes)."

The working paper, High School Curriculum and Financial Outcomes: The Impact of Mandated Personal Finance and Mathematics Courses, is forthcoming in the Journal of Human Resources. Shastry has previously presented the research to the Maryland State Department of Education's Financial Literacy Education Advisory Council.