How Financial Literacy Yields Success
Ariel Community Academy, in Chicago, uses a number of strategies that research has shown to be effective, including teaching financial literacy and helping students develop their own point of view.
Evidence-Based Practices at Ariel Community Academy
This research summary explores several evidence-based practices that are yielding success at Ariel Community Academy in Chicago:
- A financial-literacy curriculum
- Community partnerships and engaged parents
- A culturally responsive pedagogy
It also includes supporting materials:
Why is financial literacy important?
Financial literacy allows individuals to make educated financial choices, discuss financial issues, and plan for the future; for instance, save money to pay for college, buy a home, or pay for unforeseen adverse events. In addition to promoting long-term well-being, financial literacy can help protect against predatory practices. When implemented well, financial education can increase savings behavior, reduce maxed-out credit cards, and increase timely debt payments (Danes, Huddleston-Casas, and Boyce 1999; Bernheim, Garrett, and Maki 1997; Gutter, Copur, and Garrison 2010).
Money-management skills are pertinent for teens, who spent more than $75 billion in 2011 (Teen Research Unlimited 2012). About 35 percent of high school seniors use credit cards, yet nearly 40 percent incorrectly answered a survey question about how to calculate a savings rate from a budget (Mandell 2008). By college, half of undergraduates have four or more credit cards (Sallie Mae 2009), and some 40 to 70 percent do not know the annual interest rate on their card (Joo et al. 2003; Warwick and Mansfield 2000).
How is financial literacy best taught?
The key characteristics of effective financial education programs for children are that they are:
- taught early,
- developmentally appropriate, and
- taught with applied curriculum to develop decision-making skills.
The research on financial-literacy programs indicates that people learn financial concepts best when financial education is personalized and practical and when it can be applied to real-life situations. For example, financial learning is maximized when individuals are seeking to accomplish personal goals, such as when adults are planning to purchase a home or when they are saving for retirement (Mandell and Klein 2007; Hirad and Zorn 2001; McCormick 2009).
In accordance with these best practices for financial education, Ariel Community Academy teaches financial decision making to students in grades K-8 in the context of activities that are relevant to their everyday lives, such as weighing the costs and benefits of purchasing a meal from different vendors. Delivering financial education in earlier grades helps to ensure that students who are at risk for dropping out and who may need financial education the most can receive it. Edutopia observed first-grade financial-literacy lessons at Ariel. In one lesson, children categorized familiar items as wants or needs. In another, students listened to stories about people making purchases, and then they discussed whether these purchases were planned or unplanned.
In the higher grades, one of the most impactful ways that Ariel teaches real-world financial literacy is by having students invest real money -- $20,000 provided to each class by the Ariel Education Initiative -- in the stock market. Whether students use real money or not, nationally representative surveys consistently find that students who have played a stock market game in class outperform average levels on financial-literacy measures (Mandell 2008). Researchers speculate that playing this type of interactive game "stimulates interest in investment-related aspects of personal finance" (Mandell 2008). According to a 2008 survey, 24 percent of students reported playing a stock market game in class. On average, these students scored 6 percent higher than the national average on a financial-literacy test, outperforming students who had taken an entire economics course (Mandell 2008).
The curriculum at Ariel is also effective because it trains students to compare the long-term and short-term rewards that can result from their financial decisions. By training students to consider the less visible, longer-term rewards when making decisions, the program helps kids develop a stronger and more positive future orientation. Future orientation is the degree to which one is thoughtful about one's future and has been associated with academic achievement in high school students (Brown and Jones 2004) as well as with resiliency, improved school adjustment, and reduced violence among at-risk youth (Aronowitz 2005; Wyman et al. 1993; Stoddard, Zimmerman, and Bauermeister 2011).
Ariel students demonstrate high levels of academic achievement. Since 2007, Ariel has outperformed its district, Chicago Public Schools, and the entire state of Illinois in terms of the percent of students who meet or exceed state standards in reading, math, and science. Additionally, 97 percent of students from Ariel's first three graduating classes have graduated from high school, and some 65 percent are currently enrolled in two- or four-year colleges.
Community Partnerships and Engaged Parents
Less than 20 percent of teachers report feeling competent to teach personal finance (Way and Holden 2009), and evidence shows that providing teachers with the necessary financial knowledge improves the success of classroom financial-education programs (Schug, Wynn, and Posnanski 2002; Bosshardt and Watts 1994; both cited in Lucey and Giannangelo 2006).
When Ariel first started its financial-literacy program in 2001, teachers had minimal knowledge of investment principles. They had familiarity with savings, credit cards, and banks, but lacked sufficient expertise to guide a multifaceted learning process in which students could observe financial principles in daily life. Since 2002, Ariel has had at least one member on staff at all times who has previously worked in the financial-services industry. This on-site expertise has played a crucial role in developing the school's curriculum.
For schools seeking to replicate Ariel's curriculum, Ariel's curriculum director recommends cultivating relationships with local community partners. Such community partnerships can range from inviting experts in the financial-services industry to mentor teachers or collaborate on designing investment curriculum to partnering with a local grocery store to help students understand how businesses operate and how consumers and producers are connected. (For more information about partnering with businesses, go to our resource page, "How to Build Partnerships with the Business Community.")
Parents play a significant role in influencing children's consumer behavior (Pinto et al. 2005; Lucey and Giannangelo 2006; Solheim et al. 2011; Palmer et al. 2001). However, they often lack adequate knowledge to impart financial-planning skills to their children. Ariel's outreach efforts have proven very effective in engaging parents in their financial-literacy program. Parents have consistently reported learning new financial concepts through students' presentations, and Ariel's personal-finance workshops for parents have become increasingly popular over the years.
Culturally Responsive Pedagogy
Ariel's student population is 98 percent black, and 87 percent come from low-income homes. The consequences of financial disadvantage, ranging from insecure and unsafe home environments to a lack of access to cultural resources and mentors, have been shown to undermine student achievement (Oakes and Lipton 2007). Yet even when students are equivalent in terms of financial disadvantage, an achievement gap remains between African American students and white or other student groups (Ogbu 2003).
The predominantly black student population at Ariel may play a role in supporting black students' achievement at the school. A growing body of research indicates that social pressures and negative cultural perceptions in integrated K-12 schools can operate to undermine black students' behavior and academic achievement (Downey and Pribesh 2004; Fryer 2006; Irving and Hudley 2005). Black students may undervalue or avoid academic engagement if participation is perceived as crossing cultural boundaries (Wildhagen 2011) or if hostile stereotypes associated with participation threaten their self-concept (Steele 1997). Mistrust of school may also result from experiencing inequities in educational systems (Kozol 1991) or a lack of acceptance on the part of teachers and schools of the students' cultural expressions that are not part of the dominant culture (Downey and Pribesh 2004).
In order for teachers to create an environment that does not show preference for dominant cultural norms or bias against students' expressions of cultural identity, a culturally responsive pedagogy is critical. Culturally responsive pedagogy involves listening to students and developing an understanding of their values and experiences. Recognizing one's own lack of knowledge about the various cultures of one's students is necessary to the process of understanding the students' worldviews, as is engaging in conversations about the dominant culture. Even if the students and teacher don't reach any conclusions, honest conversations are the essential practice (Downey and Pribesh 2004).
At Ariel, one focus of the financial-literacy curriculum is for students to develop a point of view. Educators encourage each student to recognize and cultivate his or her unique perspective. In the creation and management of each class's investment portfolio, students apply the analytical skills that they have developed and their personal perspectives as individual investors to decide collectively what type of portfolio they want to produce. Ultimately, the portfolio is an opportunity for students to use their point of view to make real-world financial decisions.
Aronowitz, T. (2005). The Role of 'Envisioning the Future' in the Development of Resilience Among At-Risk Youth. Public Health Nursing, 22 (3). Semi-structured interviews were conducted with 28 adolescents to explore the process by which adolescents develop resilience and change their risk behaviors despite multiple stressors in their environment. Envisioning the future included two processes, "feeling competent" and "elevating expectations," which were facilitated within the context of a relationship with a reliable, caring, and competent adult. Participants in this study became resilient despite environmental stressors by setting higher expectations for themselves and feeling self-confident.
Bernheim, B.D., Garrett, D.M. and Maki, D.M. (1997). Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates. Cambridge, MA: National Bureau of Economic Research. A review of the impacts of state-mandated financial education on adult decisions regarding saving money. The evidence indicates that mandates increased students' exposure to financial curricula and that this exposure resulted in significantly higher levels of subsequent asset accumulation once students reached adulthood. The impacts were gradual rather than immediate.
Bosshardt, W. and Watts, M. (1994). Instructor Effects in Economics in Elementary and Junior High Schools. Journal of Economic Education, 25 (3), 195-211. Students generally show better learning of economics concepts when they are taught by teachers who have a developed expertise in economics.
Brown, W.T. and Jones, J.M. (2004). The Substance of Things Hoped For: A Study of the Future Orientation, Minority Status Perceptions, Academic Engagement, and Academic Performance of Black High School Students. Journal of Black Psychology, 30 (2), 248-273. The survey of 334 African American high school students found that future orientation was associated with perceptions of educational usefulness, which was then associated with valuing academic work; however, this relationship was moderated by perceived and real racism experienced in school settings. Valuing academic work was then associated with increased GPA. Future orientation can possibly serve as a protective factor against depressed academic achievement when African American students have viable ways to achieve success and do not feel that their efforts will be treated unfairly.
Danes, S.M., Huddleston-Casas, C. and Boyce, L. (1999). Financial Planning Curriculum for Teens: Impact Evaluation. Financial Counseling and Planning, 10 (1), 26-39. Evaluation of the impact of the National Endowment for Financial Education and the USDA's High School Financial Planning Program on the financial knowledge, savings behavior, and self-efficacy of 4,107 teens nationally. Statistically significant changes were found in financial knowledge, savings behavior, and self-efficacy both immediately after students had studied the curriculum and three months after they had completed the curriculum. About half the teens had gains in knowledge, a third had gains in savings behavior, and 40 percent increased their confidence in managing their money.
Downey, D.B. and Pribesh, S. (2004). When Race Matters: Teachers' Evaluations of Students' Behavior. Sociology of Education, 77 (4), 267-282. The study finds that black students' classroom behavior is rated more favorably by black teachers perhaps because black teachers do not bias against black students' expressions of cultural identity. The authors discuss cultural differences and how teachers can develop their skills of culturally responsive pedagogy.
Fryer, R. (2006). Acting White. Education Next. Using data from the National Longitudinal Study of Adolescent Health (Adhealth), including friendship patterns of 90,000 students from 175 schools in 80 communities who entered grades 7-12 in the 1994 school year, Fryer finds that positive relationships between academic achievement and peer-group acceptance (i.e., popularity) turn negative whenever the group as a whole has lower levels of achievement. The erosion between popularity and academic achievement is exacerbated in contexts that foster more inter-ethnic contact.
Gutter, M., Copur, Z., and Garrison, S. (2010). Financial Capabilities of College Students from States with Varying Financial Education Policies. Denver, CO: National Endowment for Financial Education.
Hirad, A. and Zorn, P. (2001). A Little Knowledge Is a Good Thing: Empirical Evidence of the Effectiveness of Pre-Purchasing Homeownership Counseling. McLean, VA: Federal Home Loan Mortgage Corporation.
Irving, M.A. and Hudley, C. (2005). Cultural Mistrust, Academic Outcome Expectations and Outcome Values Among African American Adolescent Men. Urban Education, 40 (5). This survey of 75 African American male high school students found that cultural mistrust was significantly associated with valuing and expecting academic achievement outcomes.
Joo, S., Grable, J.E., and Bagwell, D.C. (2003). Credit Card Attitudes and Behaviors of College Students. College Student Journal, 37 (3). A survey of 242 college students at a large southwestern state university found low levels of financial literacy and that only about 40 percent of students knew their annual credit card interest rate. Consistent with national averages, the majority of students (71 percent) held one or more credit cards. More than 10 percent of the students possessed five or more credit cards. On average, college students received their first credit card when they were 18 years old. The survey indicated that some students obtained their first credit card before age 17. Almost half (49.4 percent) of the students paid their credit bills in full, and almost 10 percent of the students paid only the minimum payment in any given month.
Kozol, J. (1991)., Savage Inequalities: Children in America's Schools. New York: Crown. Kozol illustrates disparities in education between schools with different classes and races. Schools with the lowest annual budgets are generally overcrowded, unsanitary, and understaffed, and they lack basic tools and textbooks for teaching. Schools with the lowest annual budgets often have higher taxation rates on individuals living in poverty within the school district and are generally attended by students of color.
Lucey, T.A. and Giannangelo, D.M. (2006). Short Changed: The Importance of Facilitating Equitable Financial Education in Urban Society. Education and Urban Society, 38 (3), 268-287. This literature review explores the relevance of financial education to urban society in the context of environmental factors, such as the prominence of advertising and lack of access to financial education, that influence children's financial learning and personal judgments. The authors make the case for a student-centered financial-education curriculum that emphasizes a cooperative rather than a competitive framework. Such a curriculum, they argue, would help create awareness about societal consequences of financially-based personal judgments and how these consequences are related to financial differences.
Mandell, L. (2008). The Financial Literacy of Young American Adults. Results of the 2008 National Jump$tart Coalition Survey of High School Seniors and College Students. This 2008 survey samples high school students and college students nationwide and reports general trends in their financial literacy as compared with the previous years' findings. This report provides an executive summary as well as the full survey, and results are broken down by individual variables, such as gender, race, parental income, and ATM and credit card usage. Notably, high school students performed more poorly on the test than any previous year. College students performed significantly better than high school students. Students who had played a stock market game in class did significantly better on the financial-literacy test, even outperforming students who had taken an entire course on economics.
Mandell, L. and Klein, L.S. (2007). Motivation and Financial Literacy. Financial Services Review, 16. Analyzing national survey data, the authors found that motivation significantly increased financial literacy.
McCormick, M.H. (2009). The Effectiveness of Youth Financial Education: A Review of the Literature. Journal of Financial Counseling and Planning, 20 (1), 70-83. This review describes the state of K-12 financial education and highlights best practices in youth financial education.
Oakes, J. and Lipton, M. (2007). Teaching to Change the World. New York: McGraw-Hill Higher Education. Update to 1998 edition.
Ogbu, J.U. (2003). Black American Students in an Affluent Suburb: A Study of Academic Disengagement. Mahwah, NJ: Lawrence Erlbaum Associates.
Palmer, T.S., Pinto, M.B., and Parente, D.H. (2001). College Students' Credit Card Debt and the Role of Parental Involvement: Implications for Public Policy. Journal of Public Policy and Marketing, 20 (1), 105-113. Emphasizes the concept of brand loyalty, which refers to parents passing their preferences for specific products or brands to their children. Through childhood socialization, these children learn consumer patterns from their parents, who enforce modeling and mediation as learning mechanisms to teach consumer skills to their children.
Pinto, M.B., Parente, D.H., and Mansfield, P.M. (2005). Information Learned from Socialization Agents: Its Relationship to Credit Card Use. Family and Consumer Sciences Research Journal, 33 (4), 357-367. Some 75 percent of American children learn the most about how to manage money from their parents; 87 percent of college students and 90 percent of high school students rely on their parents for financial advice.
Sallie Mae (2009). How Undergraduate Students Use Credit Cards: Sallie Mae's National Study of Usage Rates and Trends. Wilkes-Barre, PA: Author.
Schug, M.C., Wynn, R.L., and Posnanski, T.J. (2002). Improving Economic and Financial Education: A Program for Urban Schools. Social Education, 66 (pp. 239-244). The authors describe a strategy for providing economic education in urban schools that is based on their experience with a program in Milwaukee, where a course called "Integrating the Stock Market Simulation Across the Curriculum" was developed for improving teachers' economic education. The program is called the Milwaukee Economic Education Partnership.
Solheim, C.A., Zuiker, V.S., and Levchenko, P. (2011). Financial Socialization Family Pathways: Reflections from College Students' Narratives. Family Science Review, 16 (2). This study examining 217 college students' narratives about financial socialization experiences in their families concluded that, starting from an early age, families play an important role in the development of financial competencies in children.
Steele, C.M. (1997). A Threat in the Air: How Stereotypes Shape Intellectual Identity and Performance. American Psychologist, 52 (6), 613-629. This review describes a body of experiments that describe how stereotypes operate to undermine the performance of the individuals whom they target. The more the individual values the domain in which the stereotype is relevant, the more the stereotype threatens the self-concept, distracting the individual with a fear or belief that others will view his/her behavior in light of the stereotype, which undermines performance. Many individuals respond to the threats that stereotypes create for their self-concept by dissociating their identity from the domain in which it is threatened, avoiding and/or undervaluing the activity that threatens the self-concept. Mechanisms to reduce stereotype include creating positive role models who act as counterexamples to the stereotype. In addition, making identity less salient in the activity helps to reduce priming of the stereotype and protect the individual's self-concept.
Stoddard, S.A., Zimmerman, M.A., and Bauermeister, J.A. (2011). Thinking About the Future as a Way to Succeed in the Present: A Longitudinal Study of Future Orientation and Violent Behaviors Among African American Youth. American Journal of Community Psychology, 48 (3-4), 238-46. Future orientation can act as a promotive factor for at-risk African American youth. Interventions that help support the development of future goals and aspirations could play a vital role in violence-prevention efforts.
Teen Research Unlimited (TRU) (2012). The TRU Study 2012: U.S. Teen Edition. Chicago, IL: Author.
Warwick, J. and Mansfield, P. (2000). Credit Card Consumers: College Students' Knowledge and Attitude. Journal of Consumer Marketing, 17 (7). This survey of 381 college students at a private Midwestern college revealed that 71 percent of the students did not know their annual percentage interest rates. Additionally, 15 percent had obtained their credit cards by directly requesting an application, 37 percent obtained a credit card through unsolicited mail, and 34 percent received the credit card application at the school through various events or when it was included in the bags used for purchases at the school store.
Way, W. and Holden, K. (2009). Teachers' Background and Capacity to Teach Personal Finance: Results of a National Study. Denver, CO: National Endowment for Financial Education. The study surveyed more than 1,200 K-12 teachers, students currently enrolled in teacher-education programs, and university teacher-education faculty to better understand their training and education in personal finance, their opinions about the importance of financial education, and their capacity to teach these topics. The study was funded by the National Endowment for Financial Education. Only 37 percent of K-12 teachers had taken a college course offering personal-finance content. The study found that having taken a college course in personal finance is a major predictor of teachers feeling competent to teach personal finance. Only 12 percent of K-12 teachers had taken a workshop on teaching personal finance. More than 70 percent of K-12 teachers indicated they were willing to participate in formal financial-education training. Areas for which teachers felt least prepared were risk management and insurance, saving and investment, financial responsibility and decision making, and credit and debt. Survey respondents also want help with teaching methods. As more than 40 states have mandated financial education in schools, the data suggest that much work needs to be done to ensure that state standards are incorporated into teachers' preservice curriculum and that K-12 teachers get the training they need to use the standards.
Wildhagen, T. (2011). What's Oppositional Culture Got to Do With It? Moving Beyond the Strong Version of the Acting White Hypothesis. Sociological Perspectives, 54 (3). This analysis suggests that African American students do not necessarily receive peer sanctions for achieving academic success. Rather, the study puts forth a much subtler process in which certain public expressions of academic engagement are seen as crossing cultural boundaries and that this process results in these students scaling back on overt academic achievement. Racialized norms about school engagement promote an ambivalence towards school that reduces African American students' school achievement.
Wyman, P.A., Cowen, E.L., Work, W.C., and Kerley, J.H. (1993). The Role of Children's Future Expectations in Self-System Functioning and Adjustment to Life Stress: A Prospective Study of Urban At-Risk Children. Development and Psychopathology, 5 (pp. 649-661). Having an early, positive future orientation was related to enhanced socio-emotional adjustment in school in a longitudinal study of children ages 9-11 living in poverty.