Senator Zay has introduced SB 328 which generally tries to promote the instruction of students in “personal financial responsibility.” It creates a grant fund to pay entities to implement teacher professional development programs to teach them how to conduct financial responsibility instruction. The State Board of Education is directed to create guidelines for the grants which include providing evidence-based training to a teacher who has no background in the area. It also directs the State Board to enter into a contract before September 30 “with an organization that provides a nationally recognized training program for professional development in personal financial responsibility education from early learning through secondary education.” Based on this, I strongly suspect such an organization exists, and I would be a little surprised if that organization is not the moving force behind this legislation. (But it could also just be part of a general “personal responsibility” ethos.) A teacher who completes such training would be eligible for supplemental compensation from a school district.
The Department of Education is given some discretion in determining the content of the training, but the legislation requires that it be effective in teaching “personal financial responsibility, entrepreneurship, and economic systems with an emphasis on free market economic systems.” The legislation is frustratingly vague with respect to what it means by “personal financial responsibility.” This American Prospect article discusses the nationwide popularity of “financial literacy” programs and the sketchy foundations on which they rest. Law professor Lauren Willis has emerged as a leading critic of financial literacy education:
She’s since emerged as a leading critic of financial literacy education, which she says is pushed by large financial interests that fight commonsense reforms to help consumers make safer choices. “We don’t ask consumers to fix their own cars,” she says. “People aren’t dumb, they’re just busy, and we should regulate around those things, with the assumption that there are certain things a consumer can do and other things they can’t, and that it would be silly to ask them to do.”
Willis also notes that there’s nothing about financial education that’s designed to teach students how to challenge the economic system. For example, it does not involve teaching people how to organize unions and collectively bargain for defined-benefit retirement plans—even though we know pensions have helped millions lead more financially secure lives. “Financial literacy education sends the message to people that if they’re in financial trouble, then they must have failed to make the right decisions,” she says. “It’s not designed to say, ‘Hey, society is not organized in a way that gives everyone equal opportunity and we want to teach you the skills to challenge that.’”
(SB 328’s emphasis on entrepreneurship and free market economic systems is a give away as to the preferred bias here.) The cost of such education does not seem to be justified by its benefits. John Lynch, director of the University of Colorado’s Center for Research on Consumer Financial Decision Making: “The cause of financial literacy education is so good, and it sounds so plausible, but to me that’s like saying obesity is a major problem so let’s give billions of dollars to some particular fad diet,” Lynch says. “It’s an utter waste of time to be teaching this stuff, the effect sizes are trivial in magnitude.”
I’ve suggested before, and have not been dissuaded that this would be useful, that the State should come up with a model household budget for various levels of income:
This plays somewhat on an idea I’ve had for awhile – that it would be useful for the State to provide a model budget for its citizens based on various income levels. My initial impulse for this was that a lot of citizens are bad with money, and there are often complaints that poor people have enough to live on, but they’re making poor spending choices (e.g. cable, cell phones, tattoos, cigarettes). Perhaps a model budget would help — one for poverty level, one for median income, and maybe model budgets for other income levels. On the other hand, it would be a little uncomfortable if that model budget for median income revealed that the middle class simply could not afford the things we normally associated with “middle class.”
That’s the type of financial literacy I could get behind. But, if financial literacy education is just going to be a talking point that policymakers use when they’re accused of ignoring structural problems with the economy, then it’s probably not worth the effort. This reminds me of the popularity of the “skills gap” myth. There is a deep desire to regard the economy as a morality play where poverty is evidence of sloth and wealth is evidence of moral probity which allows us to complacently let the rich stay rich and absolves us of any duty to the poor. (But, I’m probably getting ahead of myself here — loading up SB 328 with freight that might well not be intended by Sen. Zay.)