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National Standards for Personal Finance. William Bosshardt, Florida Atlantic University. The Need for Financial Literacy. FINRA Investor Education Foundation, 2013
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National Standards for Personal Finance William Bosshardt, Florida Atlantic University
The Need for Financial Literacy • FINRA Investor Education Foundation, 2013 • Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow? • Nation: 75% Correct, 13% Incorrect, 11% Did Not Know • Kansas: 77% Correct, 13% Incorrect, 8% Did Not Know
The Need for Financial Literacy • Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account? • Nation: 61% Correct, 17% Incorrect, 20% Did Not Know • Kansas: 67% Correct, 14% Incorrect, 18% Did Not Know
The Need for Financial Literacy • Buying a single company's stock usually provides a safer return than a stock mutual fund. • Nation: 48% Correct, 9% Incorrect, 42% Did Not Know • Kansas: 46% Correct, 9% Incorrect, 44% Did Not Know
Council for Economic Education • Undertook project of writing standards
Why Were They Written? • To connect personal finance to basic economics • uses choice, trade-offs, incentives, markets and other economic concepts to discuss personal finance • To focus on economic decision-making for personal finance not simple recommendations • To use examples of financial decisions people face in their daily lives.
What Are the Standards? • A concise document that explains what students in the schools should know about personal finance and how to use that knowledge • The content is organized and described in the form of standards, which are important topics in personal finance.
Financial Literacy Standards 1. Earning an Income 2. Buying Goods and Services 3. Saving 4. Using Credit 5. Financial Investing 6. Protecting and Insuring
1. Earning an Income Income for most people is determined by the market value of their labor, paid as wages and salaries. People can increase their income and job opportunities by choosing to acquire more education, work experience, and job skills. The decision to undertake an activity that increases income or job opportunities is affected by the expected benefits and costs of such an activity. Income also is obtained from other sources such as interest, rents, capital gains, dividends and profits.
1. Earning an Income Income for most people is determined by the market value of their labor, paid as wages and salaries. People can increase their income and job opportunities by choosing to acquire more education, work experience, and job skills. The decision to undertake an activity that increases income or job opportunities is affected by the expected benefits and costs of such an activity. Income also is obtained from other sources such as interest, rents, capital gains, dividends and profits.
Benchmarks • The benchmarks describe in detail what students should know about a standard and how to use or apply that knowledge. • 144 benchmarks (average of 24 a standard) • Within a standard, they are sorted for what should be completed by 4th, 8th, and 12th grades
Key Things to Remember • Designed to be evergreen • No factual knowledge • Deposits insured up to $250,000 • Mechanics not specifically addressed • How to buy a stock • How to write a check • Designed to provide deep understanding
Behavioral Economics • Traditional economics: weigh costs and benefits and make a rational decision • Behavioral economics: sometimes humans can be influenced by things and do not necessarily make a decision based on costs and benefits • Rules of thumb • Warnings • Read: Kahneman “Thinking, Fast and Slow”
Who Will Use Them? • State DOEs: guide for developing their own standards • School administrators: for reviewing their curricula • Teachers: guide for what should be taught to students • Curriculum writers: for preparing educational material • Test developers: for assessing student learning • Researchers: for evaluating long-term outcomes
The Committees: Writing • Steve Buckles, Vanderbilt University • Andrew Hill, Federal Reserve Bank of Philadelphia • Bonnie Meszaros, University of Delaware • Mike Staten, University of Arizona • Mary Suiter, Federal Reserve Bank of St. Louis • Bill Walstad, University of Nebraska - Lincoln
The Committees: Review • Jeanne Hogarth, Federal Reserve Board • AnnamariaLusardi, George Washington University • Brigitte C. Madrian, Harvard University • Peter Rousseau, Vanderbilt University • Mark M. Zandi, Moody’s Analytics
