To be ready for life as a grownup, students need some financial skills.

For many years, California schools took an ineffective approach to teaching financial skills. In 2024, the state changed the strategy in a way that should benefit the financial literacy of future generations of Californians. The change will take time. This lesson reviews the background of the issue, the research that compelled change, and some of the things schools can do proactively.

A penny saved is a penny earned

At some level, personal finance is common sense and self-discipline, Ben Franklin-style. A penny saved is a penny earned, right?

Sure, but the economy is full of cheerful businesses, brilliantly marketed, that want to lend you a hand now in exchange for an arm and a leg later. It is easy to walk past some of the most discouraging parts of the financial service economy without even noticing. Over a decade ago, California Governor Gavin Newsom quipped that "the nation has as many check-cashing and payday loan businesses as it does McDonalds and Starbucks Coffee stores combined." In 2022, Pew Charitable Trusts reported that California still had few safeguards to protect borrowers.

These payday advance services are usurous — but for the poor, some banks can be even worse. In 2021 (a good year) about 5% of California households were unbanked, but the rate among those without a high school diploma was much higher — about 17%.

What is financial literacy?

Financial literacy is the capacity to make informed decisions involving money, assets, or debt.

No one is born financially literate. On the path to adulthood, students must acquire the skills they need to support themselves and those they care about.

Society has an enlightened interest in a financially literate public. From a policy perspective, the main vehicle to equip people with basic financial literacy skills is the public education system. Unfortunately, most schools have been ineffective at work of preparing students to understand and navigate their financial self-interest.

California's financial literacy education strategy has been ineffective. But it's changing.

"Weaving" worked weakly

For decades, California expected schools to teach financial skills bit by bit, weaving financial topics into other subjects rather than teaching them explicitly as a separate course. The 2016 California History-Social Science Framework documented the approach. Topics to be covered across multiple courses included budgeting and managing credit, student loans, consumer debt, and identity theft security.

Idealistically, this approach made it every teacher's job to teach financial skills. Practically speaking, it became nobody’s job.

The strategy of weaving financial education across many courses was not effective. In 2022, the Nation's Report Card on Financial Literacy awarded California a grade of D for its approach to teaching financial skills.

In other reviews of financial literacy education among the 50 states, Champlain College awarded California a failing grade. The Council for Economic Education expressed similar concerns.

The costs of financial illiteracy

Financial blunders can have huge consequences for individuals, families and communities. In a much-quoted national survey, respondents blame their own lack of financial knowledge for an average of $1,506 in losses, implying a nationwide shot-in-the-dark total of $388 billion. It's a squishy estimate, but the point is that financial mistakes are common, costly, and preventable. Some of the major costs of financial illiteracy aren't counted in dollars and cents: financial uncertainty is a massive source of stress and conflict.

California's financial literacy education revolution

In 2024, California state legislators chucked the state's ineffective "woven" approach to financial literacy. By the 2026-27 school year, all high schools must provide a semester-length course on personal finance. It will become a statewide graduation requirement for the class of 2031.

This requirement passed into law partly in response to a campaign that threatened to place an initiative measure on the ballot if the legislature failed to act. Implementation details about the new course will be worked out by the state Instructional Quality Commission for approval by the State Board of Education by the end of May 2026.

It can take a long time for changes in an educational framework to be implemented in the specific course offerings or requirements at any given school. In California, textbooks and learning materials are adopted by school districts, which have a lot of power and latitude in how they respond to changes in curriculum frameworks. Changes in curriculum frameworks do not typically result in quick changes or in mandates for school districts to offer or require specific courses.

Schools can get ahead of the coming changes by identifying faculty with an interest in financial education.

Does financial education work?

A course in financial literacy is meant to equip students to make wise choices and help them avoid making costly errors. Does it?

The short answer is yes, but studies suggest that it's important to have realistic expectations. World Bank studies of small financial education interventions have registered only modest effects, for example. Switching to a dedicated course is likely to produce uneven effects depending on how well the curriculum matches the financial context of the students involved. Financial education feels relevant if you have money, or expect to. If you don't, it can feel like preaching or wishful thinking.

In 2019, a study focused specifically on the impact of financial education on African-American college students. The study, which includes a useful rubric, found that effective programs have to include practice to be effective. Theoretical knowledge about personal finance isn't enough.

This lesson concludes chapter 6: "The Right Stuff." The next lesson begins our exploration of "The System." The overall structure of Ed100 is:

Education is Students and Teachers spending Time in Places for learning with the right Stuff in a System with Resources for Success. So Now What?

This lesson was updated in July 2024.