 Hi, I'm Bob Powell of The Street, and today I'm here with John Pelletier, the Director of the Center for Financial Literacy at Champaign College in Brompton, Vermont. And the Center has just released a new study, the third of its kind that the Center has published called the 2017 National Report Card on State Efforts to Improve Financial Literacy in High Schools. John, welcome. Thank you for having me, Bob. So let's jump into, I think, one of the most startling findings. There are, by your measure, only five states that have earned a Grade A for teaching kids, high school kids how to be financially literate, and about 25% of the states in the U.S. received a Grade F. So talk a little bit about your findings and how you came to those conclusions. Sure. So what we've attempted to do is we've taken a deep dive at every state's policies. So we're looking at statewide policies on what education is required to graduate from high school with regard to learning about personal finance in those classrooms. And there are, unfortunately, only five states in the nation that require students to take the equivalent of a half-year course, so a semester course. That's 60 hours of instruction in personal finance in order to graduate. So that's not a large number of states. To get a B, which is different than an A, so an A is you have this equivalent of a really robust course that is equal to or greater than 60 hours because some states are offering it in a full-year academic course, and in one state it equals over 60 hours based on our estimates. The B states are very, very different because what they require is that there's a course that needs to be taken as a graduation requirement, like economics, and it's very clear what must be taught in that course that time must be allocated to personal finance topics. We give somebody a grade B if they require a course, and they have some level, and it's sadly modest. So grade B isn't a great grade. I want to make that clear. We only found six states where we could estimate very clearly that they required 15 hours of more, so 15 hours or more instruction in that course in personal finance topic. So to put it all together, that's 11 out of 50 states plus DC, so right, 50, 51 entities that require 15 hours or more of instruction. And when you look at some of these grade Bs, there's quite a few states that go from anywhere our estimates range from seven hours to 13 hours, and some because they leave it to local control, we can't estimate at all. Now that's totally different, at least in those A and B states, they're required to be taught something on this topic. Grade Fs are worse. At a grade F state, a student could graduate from high school without ever touching this topic, so the school doesn't have to offer it as an elective. They don't have to, certainly not a requirement. Many of the personal finance topics you and I are familiar with are really not a major part of an economics course, right? Maybe economics talks about needs and wants and opportunity costs, but it's really not deep diving into personal finance topics. So the one thing I hear from this report, this is the third time we do it, we update it every two years, people will say, wait a minute, I'm in a grade F state in California or Massachusetts, and my kid is required to take a course, or it's offered as an elective. That's great. You're an island of excellence in those states. It's being done because you have a superintendent, a board of principals or superintendents who are interested in this topic or teachers are promoting it and got it on as an elective. It's being done because of personal initiative. That's not state policy. This report carried measures state policy. All right, so let's talk about some of the states that do stand out in terms of state policy. You've identified just five states that earned an A. They were Utah, which got an A plus, Missouri, Tennessee, Virginia, and Alabama, all of which received an A. So I talk a little bit more about what those states did to earn their A's. What I'll do, Bob, is I'm going to really focus on Utah because nobody does it better than Utah. Let's focus on the state of Utah and why they got an A plus because they go over and above what some other states do. To get an A, it's really quite simple. You have to offer a class in personal finance or it's equivalent. We can clearly estimate that 60 hours or more of instruction is required. That's what all five A states share in common. What else does Utah do beyond that? In order to graduate from high school, you've got to take a course in personal finance that's equal to one semester course. Here's what they do. First, they do something few states do. Most educators have teaching certifications and they have endorsements on those certificates that say what you can teach. Just because you're a certified teacher in a state doesn't mean you can teach math and physics and language arts and a foreign language. They have expertise being able to teach physical education as a standalone endorsement. In most states, the vast majority of states, there is no required teaching endorsement that really proves personal finance. An example would be business educators or social studies teachers may be, that's your certification to teach economics, but that doesn't mean you've actually been trained to teach personal finance. In states where they don't put this into a class, the Cs and the Ds, whoever is teaching this in those high schools, it could be because they're interested in it and they raised their hand and they wanted to do it. I actually know of high schools where the person who gets stuck with it is the newest teacher because people don't want to teach it. What Utah did is they actually, and they put it in place a few years ago and gave teachers a few years to migrate to it. When they made this a requirement, they said, you know what, that's not good enough. You need to take so many hours of instruction on relevant topics at graduate level courses or seminars, and they actually had a boot camp that they created that everybody had to go through. That's really different. The other thing they did, which is fairly unique, there are a few states, Missouri being the other, that actually have an assessment exam that's tied to a personal finance course. They want kids to take a summative assessment that's offered online by the state and try and figure out how are we doing on this. If you have a really good assessment and we don't have one nationally, by the way, that's one of the problems. We have assessments on so many different topics. The reason assessments are good, I'm not looking for another high-stakes test, but if we don't have a national assessment that we can use in classrooms across the country, we don't know what works well. We don't know what curriculum works well. We don't know what topics kids are struggling with versus which ones they are having an easy time getting their head around. If you have really good national assessment data, you'd be able to maybe find these exceptional educators out there and quickly hop on a plane, go to their classroom and say, what are you doing that no one else is? How can we bottle what you're doing and replicate it elsewhere in the country? That doesn't happen either. Let me get one outcome of this study that will come to pass. The last thing is funding. Teacher training costs money. When they passed legislation years ago that really moved this forward. They set aside funding for teacher education. One of the fake facts in this space that you'll hear from folks in the educational community is that, oh, creating this new mandate will cost money. It won't cost money on curriculum. There's a lot of great free curriculum by nonprofits who, you know, this isn't the banking industry or the insurance industry creating their unique materials, trying to get clients. I'm talking arms-length nonprofits like NextGen Personal Finance, the National Endowment for Financial Education, Consumer Education, the Council, rather, for economic education. There are a lot of great nonprofits in this space with low cost or free curriculum. So that's not your real cost. Your cost, I think, to make this work well is educator training. Right. So you've just described in many ways what you've identified in the report as the key to success, right, that financial literacy topics must be taught in the course that's required as a graduation requirement that teacher training is critical. Funding is needed that educators have access to quality curriculum and that students have some sort of assessments to at least determine whether they're actually learning what is being taught. You mentioned, too, that there's a number of grade F states, I think, in the report that comes out to 11 states in the U.S. Obviously, those states are doing what the exact opposite, that they have no requirements for personal financial education that they can graduate without having to take a course, et cetera, et cetera. Yeah. Let me give you two examples that I'm going to, you know, one that I think is a grade F state that is punching above its weight and it's doing it with the help of the governor and financial regulators in that state and not many of these grade F states things are happening, but, you know, ironically, they're not happening through where you would expect them to happen, like the Department of Education. They're happening by the treasurer's office or whoever regulates, you know, securities or other insurance and financial products, you know, commissioners at that level or the governor is the one pushing it, but it's not really being pushed through the educational departments and they all share one thing in common. A lot of them it's local control, so I'll give you the ultimate local control state and so there is a state among that group of F where they don't, the state government doesn't even set any graduation requirements, right? So think about that. Right. Okay. Now you'll be surprised, Bob, right? Because I know where you've lived and you know where I've lived in the past. What state that is? That's Massachusetts. If you actually look at what they were, they don't require any graduation requirements. They suggest what's called the mass core, so a list of courses that they think everybody should take and have available and Massachusetts has one of the great, you know, education systems, public education systems in the country, so I'm not denigrating it at all, but it's that's the level of local control that they give. So for a real local control state like Massachusetts telling them to offer and make everybody take a personal finance course in high school is kind of hard to do when you historically don't require that for like algebra one. Even though many of the schools, probably all the schools in Massachusetts require it, you're doing it based on local control, they're not doing it by state mandate. And so that's one of the things that the local control states have in common and Treasurer Goldberg of Massachusetts, you know, as you know, she put together a commission that to look at personal finance in the state and this commission came back with a variety of recommendations, including things on the K through 12 levels. So the Treasurer has been very involved with this in Massachusetts and doing a lot of things and boy, I'd love to see Governor Charlie Baker get involved in this too. I Charlie is someone I knew from my prior life and I think he's a he's a great governor. And I hope that's the topic he'd cover Wisconsin's fascinating, right? Because what what they do is they're they're they're a great example of a local control state that I think is doing some pretty good things and in Wisconsin, the governor many years ago created an organization to kind of focus on on these issues. So there's a Wisconsin governor's council and and they they are trying to get schools, even though it's a very much a local control state, slowly, but surely they're trying to get more and more schools to have this as a requirement. But it's it's a decision made at the local district level, so it's much more of a grassroots campaign. So in Wisconsin, they have a report that came out in 2015 that according to that report, 64 percent of Wisconsin school districts with with a high school have a personal finance requirement for graduation. And it's either as a standalone course or they're embedding it in something else that's a requirement like say, you know, economics or maybe it's a senior life skill seminar. And and and so that that that's that's a jump up, you know, because a few years ago it was it wasn't that long ago before 2015 that it was below 15 per below 50 percent in the 40s and then before that in the 30s. So when you're in a local control state where historically people are uncomfortable making educational mandates at the state level, then you're you're fighting a guerrilla war. And so it's kind of a school district by school district fight. Yeah, you know, insisting in your study. And then in my reporting about the study, you noted that these educational interventions in high school appear to have positive impact on knowledge and measurable behaviors and that we know that from other studies that the absence of financial education has detrimental effects. And I saw that there was a post on the Federal Reserve Bank of St. Louis that showed that that measured financial literacy, lower financial lower levels of measured financial literacy have been associated with lower rates of planning for retirement, lower rates of asset accumulation, higher cost financial services, lower participation in the stock market, higher levels of debt. And on the other side, you know, Michael Collins out of the University of Wisconsin, Madison is shown in some of his some of the positive effects of financial education interventions, including the possibility that people manage their debt a little bit better when they do have it. But they tend to be more timely in their payments of their credit card. So it seems like we have evidence on both sides of the coin that that having financial education is a good thing and not having it is a bad thing. Absolutely. So where do you suggest in your report that that there have been some public policy movements as a result of your and other reports? And I guess where do we go from here knowing, you know, knowing the obvious and knowing all this research has proven what people would intuitively think is the case that education helps and that we see how education helps in other areas and it just seems quite silly and almost like we're doing a disservice to our nation's children and our grandchildren that we don't have these programs in place. Yeah, I mean, here's the reality, Bob, that the reality is we know that kids aren't learning this at home. And how do we know that there's been child's surveys and T-Rail prices been surveys of parents and teens and basically parents aren't particularly comfortable talking to their kids about money. And one very, this one's a little bit old, but it's my favorite. It was in 2010, you know, a parental survey done by a child Schwab had parents saying they were more uncomfortable talking to their kids about money than they were sex. Just think about that for a second. The sex talk is more uncomfortable or about as uncomfortable as the money talk. And so that's part of the fundamental problem. Money is not something people feel comfortable talking about in our society. And so that's part of the problem. The second, FINRA, they do this great investor, the FINRA Investor Education Foundation does this financial capability survey nationally about 30,000 people. And so they surveyed about 30,000 adults and they asked them the following question. Did you take and did you participate in personal finance education either in K through 12 school, college, if you went to college, or in the workplace? One in five adults said yes. That means four out of five have no personal finance educational training. So parents aren't doing it at home. As adults, nowhere in their life can they point to getting it. And so the question is where should we put it at a minimum, you know, in high school. High school makes sense for a lot of reasons. One is that we've got to remember not everybody goes to college. And the other thing we've got to remember is colleges aren't teaching this. They're not. They're very few colleges. I work at Champlain College. We required the class of 2012 to graduate with seminars where they had to take certain personal finance seminars on topics to graduate. And we have teeth in that. You can't sign up for classes if you don't meet your requirements each of your academic years. So there's not much going on at the collegiate level. There's not much education in the space that's going on at most schools in the K through 8 level. Where you can see it, where it exists, is at the high school level. And so, you know, we've done a study. You mentioned, you know, Collins's work and he did a study with others. What they did is they looked at states that recently enacted a robust personal finance education requirement in high school. They went and they measured two things. I believe they did this with experience. They wanted to measure two things, credit scores and default rates on debt. And what they found is there was, as you would expect, when this requirement kicked in, they followed it for a few years with that senior graduating class and they looked at that youth segment of the data and there was an increase in the credit scores and a decrease in default rates. And the thought is, you know, well, wait a minute, how do we know that's not just the economy? And so they looked at adjacent states as control groups where there was no educational change and they didn't require personal finance to be taught. And there was no change in that youth data. So there's a study that I think is really important because it shows what's most important. What we want to drive is behavior with personal finance, not who's the third president of the United States, question and answers, right? You know, that sort of esoteric knowledge is great, but we really want to change behavior. The second thing we did that we train educators were one of the few places in the country where educators can get a master's degree training on how to bring personal finance into the classroom. We followed those trained educators into the classroom. And what we found, as you'd expect, this isn't shocking data, that students trained by highly trained educators did better, right? You know, their knowledge level went up on a pre and post test basis. And we compared them to the knowledge by the center study. There are five questions that they've given. It's now up to six. But when we did this study a while back, there were only five that were kind of general financial knowledge questions. And these are those questions you see all the time. You know, are you financially literate? Answer these six questions. And Elisadia helped create them over at George Washington University. And they're great questions. They've been used nationally and internationally. Our kids lead for our two generations, the 16, 17 and some 18-year-old kids were doing as well on these five questions as folks who were 34 to 49 years old. And so, and that's if people are interested, if you search Champlain College Center for Financial Literacy and Prep for Success, you can see that executive summary report. So we know it works. And it's really just getting I think one of the goals of the report is to give people the information they need, whether they're parents trying to do this with a superintendent or a school board member or their legislators who we work with who are trying to introduce changes in their state. This report is literally created for them because what ends up happening is when you're not an expert on an issue, people tell you you can't do something. And what this report shows you is it can be done, it is being done. And here's how they're doing it. So two last questions. One is it would strike me, given that so many companies in private industry would have a vested interest in a financially literate population, that credit card companies, mutual fund companies, brokerage firms, Experian and whatnot. But there are a lot of companies that could also throw some money behind these efforts at the state level and create public-private partnerships of some sort where everyone wins, that educators that might be strapped for funding could benefit from maybe money that comes from a credit card company website that teaches financial literacy. Yeah, I think there's a couple of barriers there. So I totally agree with you. So let me start by saying agree with everything you said that that's a natural place for partnership. One barrier is when people who have financial products, there's a fear that you're coming in and you're just trying to turn my kids into your customers. And that's a fear that educators have, that's a fear that parents might have. And the other thing is your organizations want to do good but they want to get credit for it too. And so to me the partnerships that are likely to be the most successful and one that comes to mind is Bank of America works with the Khan Academy to create a series of financial literacy educational videos is teaming up with a really respected non-profit, unbiased group, give them the money, help them deliver a program, but stay out. Because what you find again and again and again in this space is that when somebody gets involved, the first thing they want to do is create their own branded curriculum in this area. So I'm thinking of recent entrance just in the past maybe three to five years that come to mind. PricewaterhouseCoopers wanted to get involved with this, so they rent and created with the Wharton School curriculum and they did teacher training, all good stuff, but there's already curriculum that's out there. And so we're drowning in a SIA curriculum. A lot of it is free or low cost. Some are from truly 100% non-profit, some are for free but they've been sponsored by financial institution. Vanguard has a program that they've come out with and so what we have are all of these programs competing against each other. So we don't have two or three national standards of curriculum and so where I think the money would be and I'm biased, but to me the leverage in the educational system, if I were spending dollars and I was in a marketing department at a big financial institution, I'd be focused on educator training. You know, one educator at the high school level who could probably bring this to a hundred or more students per academic year if highly trained, that teacher may once they're trained be able to bring this education to a thousand or two thousand students before they retire. And so that's to me, you know, I'm from the financial industry prior to this, the leverage in the educational system is the teachers. If we can have better teachers and give them access to tools, that's the way to go. We've created a website. If folks are interested in looking at it, it's teachfinlit.org, F-I-N-L-I-T, teachfinlit.org. It's geared toward high school educators and everything on that came from a professional learning community of high school teachers that we actually, you know, gave us stipends to. It's stuff that they like and stuff that they use and I don't know why. Maybe if you do a Google search instead it'll come up. Right. So the other question I have is around, you mentioned standards, you mentioned FINRA and they measure the five or six questions where people are asked about these basic financial concepts. And I guess, you know, in the absence of a financial education program and in hopes that maybe they get some financial education from their parents or from somewhere, what are the four or five or six things that people absolutely must learn by the time they graduate? Is it compound interest? Is it diversification? What from your perspective are the four or five things that they should really master before they get out of a great place? That's a great, great, great question. And so, and your focus being high school or college or both? I'd say high school, right here. Because not everyone goes to college, right? Yeah, yeah. So you know what I think, you know, I'll leave them, I'll narrow it down to maybe three, right? I don't even have to go up to five. But one of the most important things is understanding credit scores. And so credit scores are really, really important because they they impact what you're going to pay on credit for your entire life, whether it's for mortgage, whether it's for an automobile loan or lease, whether it's for a credit card. And so your credit score, you know, which is a number that says how likely is this person to repay me if I'm a creditor? That's really what it does. Understanding what behaviors will help or hurt your credit score. And I think it's credit.com. And I have a link somewhere in the report that has a calculator. I'm not saying that the calculator is perfect. I don't have all the underlying detail. It's directionally correct where you can put in your state, your age, and whether or not you're a male or female, and it will come out with a estimate of what they think the credit is going to cost you over the rest of your working lifetime and how much interest you're going to pay. And the key point is, and I think it's absolutely directionally correct, is someone with poor credit, but good enough to get credit versus someone with excellent credit, you're probably going to double how much you pay. So it could be something like, I'm going to pay 150 or 200,000 in lifetime interest charges. If I have great credit, I'll double it. That's what you're going to be paying with really bad credit. And so, you know, the thing I like to use with students is a credit card offer. And a credit card offer will say, congratulations, you've been pre-approved. Your interest rate on your credit card is going to be 12%, 18% or 23%. And I say, well, how can they have three different rates? Well, which bucket you fall into depends entirely upon your credit score. So that's, you know, in that example, it's like, could be 10 or 11% more in interest per annum, just because you weren't paying attention and focusing on your credit score. You know, I had one educator who came through our teacher training program, who I ran into four or five years later, and she said, thank you, I increased my credit score to 200 points. I'll credit score, then understand your credit report and, you know, and make sure you look at your credit report. Or if you don't have one, you know, you got to create a credit history and there are ways of doing that. The other thing is budgeting, understanding how to budget, I think, and know where you're spending money on. So many people say that I'm living paycheck to paycheck. There's no way I can do something different, but they don't actually track all the leaks, you know, and the things that they don't have to have that maybe they could put away. I think we're all subject to it, you know, which are those impulse buys. And all you have to do is go to any grocery store, you know, look at all the stuff as you're waiting in line to pay that they're trying to get you or your kids to want, whether it's a candy or the National Enquirer. I mean, we're all human beings, they're playing off an impulse that we're going to grab that and just throw it in last minute. It's not something we need. But it's something that interests us. So I think those two are, you know, critically important. The third, which would be my last one is compound interest. You know, the example I use with kids is generally a good rule of thumb is if you can get a decent rate of return a little over 7%, about 7.2% a year, you can double your money every decade. So if grandpa, you know, passes away, and he gives you $10,000 and says, you know, save this for your retirement, don't do anything, just, you know, put it in an S&P 500 index fund from Vanguard, for example, or something like that, or an ETF, just leave it alone. If you did that, that 10,000, when you're 18, when you're 68, right, which is probably around your retirement age, is going to be there right now, it goes, you know, goes up to 67. I'm sure it's going to keep going up. So let's say you're 68 in your retire, that's now worth $320,000. Yeah, you're $10,000, right? It's like, you know, it's like, you know, breeding rabbits has turned increased by 32 times. That's the power of compounding. And we live in a world today where we used to at least be able to understand some level of compounding when we had savings accounts, but, you know, we're not even paid 1% on our money. So I think that the, I really worry about this generation's lack of understanding about how compounding works. Yeah. So obviously, people become familiar with the rule of 72, they'll come to appreciate, you know, how much past their money will double at given interest rates. Absolutely correct. So, all right, John, this has been a pleasure talking to you about the study. My guest has been John Pelletier, the director of the Champlain College for Center or Financial Literacy. We've been talking about their latest study that looked at how well states are doing in terms of preparing high school students to become financially literate. The study is called the 2017 National Report Card on State Efforts to Improve Financial Literacy in High Schools. And there's also a story on the street that also describes in additional detail our conversation and the report. Thanks, John. Thanks for having me, Bob. Take care.