CEE Details New Standards for Financial Literacy

By Jason Bramwell

How can teachers help younger students understand compound interest and simple interest? By using jelly beans, of course.
 
"A teacher will instruct one student that at the end of year one, they get to put X number of jelly beans in a jar, which represents compound interest. Then another student will put Y number of jelly beans in a jar, which shows simple interest. The students will be able to see over time how that jar of jelly beans is much bigger on the compound interest side," Chris Caltabiano, vice president of domestic programs for the Council for Economic Education (CEE), told AccountingWEB. 
 
"The focus of what we do at the CEE is active learning," he continues. "It's getting kids out of their seat, having them interact with each other, and trying to make kids understand these concepts in a way that will meet them where they're at."
 
It's these types of visual teaching tactics that the CEE hopes will be implemented as part of its National Standards for Financial Literacy. Released by the CEE April 16, the standards are a framework for the content and skills the CEE believes should be contained in a K-12 personal finance curriculum.
 
"The goal of the standards is to help children grow up to become good decision makers as adults and to teach them how to think about the world in what we call an economic way of thinking," Caltabiano says. 
 
Written in accessible, easily understandable terminology, the standards are not tethered to any specific curriculum, do not assume any prior financial knowledge, and are designed to be applicable to all socioeconomic groups, according to the CEE. The standards provide the basis of student assessment for curriculum development, as well as for the development and correlation of personal finance to existing and new lessons and other teaching materials.
 
"It's critically important that these skills take root at the K-12 level, and the earlier the education begins, the better," Nan Morrison, CEE president and CEO, says in a written statement.
 
Developing the Standards
The idea of developing standards for financial literacy was the result of a discussion during a conference CEE convened on the assessment and evaluation of personal finance and economic education in May 2011.
 
"A lot of the researchers in the room expressed some consternation about not having financial literacy standards that were easily accessible. They wanted standards that they could take into the marketplace to figure out how kids were doing," Caltabiano says.
 
CEE identified the following six people who would become the core authors for the initiative: 
  • Stephen Buckles, senior lecturer of economics, Vanderbilt University
  • Andrew Hill, economic education advisor, Federal Reserve Bank of Philadelphia
  • Bonnie Meszaros, assistant professor of economics, University of Delaware
  • Michael Staten, professor and director of graduate studies, University of Arizona
  • Mary Suiter, manager of economic education, Federal Reserve Bank of St. Louis
  • William Walstad, John T. and Mable M. Hay professor of economics, University of NebraskaLincoln
In January 2012, CEE collaborated with the six core authors and a core project director to determine which personal finance content areas needed to be contained in the financial literacy standards. 
 
"First, we did a literature review of everything that was out there. The second thing we did was to develop a laundry list of all the financial literacy concepts that we felt were important, and we started to cluster those around common themes," Caltabiano says. "Six common themes really came to the surface (see sidebar). These are the types of things students are going to face in the real world."
 
After several rounds of revisions, the standards were finalized last month.
 
"I think financial literacy as a subject area has been developing and evolving over time. But we started to see some coalescence around some of these themes, so I feel that maybe we're starting to enter a maturing phase as a subject area," Caltabiano says.
 

Six Common Themes

Following are the six common themes of personal finance contained in the National Standards for Financial Literacy. Chris Caltabiano, VP of domestic programs for the Council for Economic Education, provided a description of each.

1. Earning capital: "That's about earning income and thinking about your own human capital. What does it mean to earn income? How do you earn income? How do you make decisions in your life that get you to a point to earn income?"
 
2. Buying goods and services: "Obviously, that's something kids are doing all the time. How do you think about what you buy? How do you think about what you don't buy? How do you make those decisions?"
 
3. Saving: "Part of anyone's income will likely be set aside for future spending opportunities. That's a core concept people will be dealing with when they're thinking about their own personal lives."
 
4. Credit: "Credit is a reality of the world we live in. Credit can be both your best friend or your worst enemy. We try to take an ecumenical viewpoint, not that credit is good or credit is bad, but that credit is. As consumers in the marketplace, we feel that students should understand how credit works and how they should make decisions to use or not use credit based on the reality of where they are."
 
5. Financial investing: "Once upon a time, some of the investing tools that are available were only used by a relatively small portion of the population, but that's really changed over the course of time. We believe kids should understand how financial investing works. How do you make the decisions that best influence your future life? What things should you be thinking about to make that happen?"
 
6. Protecting and insuring: "Even if you seem to make the best decisions in the world, how can you protect yourself to make sure that if something goes awry, there's no long-term damage to your situation as a result of that?"
 
Surveying the States
Caltabiano says the CEE's stance is that personal finance isn't being taught enough in schools around the country. That stance is corroborated with results from CEE's most recent Survey of the States, a biennial report on the status of economic and personal finance education in the nation's schools.
 
According to the 2011 survey, forty-six of fifty states included personal finance in their K-12 standards; however, only thirty-six of those states require the standards be taught. Other data include:
  • Fourteen states offered a high school course on personal finance.
  • Thirteen states required that a course on personal finance be taken to graduate.
  • Five states tested on personal finance or financial literacy.
A more recent survey conducted by the Credit Union National Association (CUNA) on high school student borrowing found that nearly 50 percent of high school seniors couldn't guess how much money they would need to pay for college. Also, a large majority of the 847 high school students polled knew neither the rates (83 percent) nor the duration (77 percent) of their expected or existing college loans.
 
"These troubling findings suggest not just a lack of awareness of college cost or how debt works but also a lack of basic financial knowledge," CUNA Executive Vice President Paul Gentile says in a written statement. "The results suggest that some students could be challenged in managing basic expenses or using such payment tools as credit cards in a consistently responsible manner as they enter adulthood."
 
Now that the standards for financial literacy have been developed, the CEE hopes to get those standards out to states that mandate personal finance in their K-12 standards.
 
"In some states, the state legislature will pass a law that financial education or economics must be taught in the classroom. In some cases, a state's department of education or board of education will put in its own financial education standards, which school districts and schools will be required to teach in the classroom," Caltabiano says. "As more states review, develop, or build requirements for their standards, we hope they will look to the national standards we developed and say, 'We want to benchmark what we do in our state against this strong set of standards.'"
 
Implementing Financial Literacy in the Classroom
Caltabiano says it's important to note that a teacher isn't going to walk into the classroom and teach the standards that CEE developed.
 
"They're going to teach lessons that address the content within the standards," he adds. "One of the things we do at CEE, and other agencies also do this, is build stronger teachers. CEE has a nationwide network of organizations that specializes in economic education, and in total, we trained approximately 55,000 teachers this last year in both economics and personal finance. We need to get more teachers confident in teaching this subject area."
 
The CEE also provides teachers with a variety of tools they can use to help students better understand personal finance concepts.
 
"We have a storybook in our Financial Fitness for Life series in which younger kids learn about earning income, how to save, and how to make spending decisions," Caltabiano says. "Another lesson kids learn is if a person borrows a pencil and they don't return it, the person who lent them the pencil might not lend it to them again. So they learn the person who didn't return the pencil maybe isn't as creditworthy as they were before."
 
To further buttress the standards, CEE is in the process of designing nationally normed financial literacy assessment tests to provide teachers, researchers, and policymakers with data that identifies student understanding of these key concepts. According to Caltabiano, there will likely be tests at three school levels – upper elementary school, middle school, and high school. The CEE is hoping to have the tests available for students to take online versus on paper.
 
"We're probably a year away before this becomes a reality," Caltabiano says about the tests. "We thought we first needed a good set of assessable standards before we could put an assessment in place."
 
Caltabiano stresses that implementing the financial literacy standards nationwide will not be a short-term process.
 
"If we get three states on board a year – states that didn't have these standards in place before – then we'd feel good about that," he concludes. "It's a lot of work to get to fifty states and all the districts underneath, so it's not something that's going to happen tomorrow."
 
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