June 2, 2015

The Effect of Financial Literacy on Credit Scores

A recent Washington Post article highlights studies showing that high school graduates in states mandating personal finance education are more likely to do a better job managing their money, earning higher credit scores and reducing the chances of defaulting on their credit cards.

The article, citing the Council for Economic Education (CEE), stated that:
  • 22 states require students take an economics class before graduating from high school, a number that has not changed in five years, and
  • 17 states mandate personal finance education, but only six test students on that knowledge.
The article also cited a 2014 Federal Reserve report comparing the average credit scores of young people in states that require personal finance education and those that do not. The report found that young people who graduated from high schools that require such education had higher average scores by age 22 than those who graduated from states that did not. Georgia is cited as an example of a state that saw average credit scores increase by 29 points after the state mandated personal finance education.
The Consumer Financial Protection Bureau recently released a tool-kit to help policymakers lay groundwork for expanding financial education for K-12 students, the article noted. The CEE recently created a series of tests it hopes will help educators develop effective models for teaching financial education, the article stated.

Read the full article here.