EVALUATING MANDATED PERSONAL FINANCE EDUCATION IN HIGH SCHOOLS DISSERTATION Presented in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy in the Graduate School of The Ohio State University by Tzu-Chin Martina Peng, B.A., M.B.A. * * * * * The Ohio State University 2008 Dissertation Committee: Aproved by Professor Jonathan J. Fox, Adviser Professor Catherine P. Montalto _______________________________ Adviser Professor Cäzilia Loibl Graduate Program in Family Resource Management ABSTRACT The purpose of this study is to evaluate the effectiveness of personal finance education mandates. Personal finance mandates in high school are classified into three categories based on curriculum requirements: (1) standard mandates provide guidelines for instruction; (2) course mandates require students to take a personal finance related course before graduation; and (3) test mandates require students to take a financial literacy test before graduation. To evaluate the impact of state level education mandates data from the 1997 to 2006 Jump$tart Financial Literacy Surveys was analyzed. The prior research using the Jump$tart data has shown that imposing a general mandate may have little impact on student financial literacy. In this study, mandating educational standards show partial positive impact on student financial knowledge test outcomes. Mandates that require taking a specific personal finance course upon completion of high school have a significant and positive impact on student financial literacy. Mandates that require testing of personal finance knowledge before graduating from high school were found to have a negative impact on student financial knowledge. The key findings of this study have important implications for policymakers, educators and researchers who are promoting the implementation of personal finance education. ii As more states are implementing personal finance education in current curriculum in recent years, the mandated educational standards start to show a positive relationship with student financial literacy. Development and implementation of a national educational standard for personal finance education should be guided under the leadership of federal government. Empirical results indicate that a positive relationship between a course mandate and student financial literacy enhances with the maturity of course mandates. More efforts on promoting mandatory personal finance course are encouraged. Policymakers should reevaluate the policy on mandating a state-wide personal finance test in high schools since the mandatory test appears to have a negative impact on student knowledge of personal finance. Mandating a specific personal finance course better enhances student personal finance knowledge than mandating tests. Educators are encouraged to work closely with government agencies to highlight the most efficient methods of increasing financial literacy in high schools. Researchers should further investigate the relationship between mandated personal finance education and student financial behavior. iii Dedicated to my family iv ACKNOWLEDGMENTS Mike, my husband: thank you for always being the greatest supporter in the world. With your patience and love, I know I am never lonely down the road of life. Anna, my daughter, thanks for being a lovely baby. I cherish the time we took classes and did homework together during the pregnancy. You are the best encouragement after a tiring day of school. You made me realize how wonderful parenting is! Bob and Lucia, my parents: I am so grateful to be your daughter. Thank you for the endless care and love for us. Not until becoming a parent myself did I realize how much sacrifice you have made for us, without asking anything in return. You have given me so much in my life and I will pass it down to the next generation. Oscar and Jean, my parents-in-law: it is such a blessing to have you in our life. Thank you for your tireless support during our most difficult time so that I can finish my PhD study. Nick, my dearest brother: thank you for always being there as the support for our family. The Fox family: Jonathan, the best advisor, mentor, and friend: my gratefulness to you for your support and encouragement is beyond description. Thank you for bestowing so many valuable lessons upon me through your positive attitude toward life, your receptiveness for everyone around you, and your sense of humor which shed so much light for those fortunate enough to know you. I would like to extend especially vi heartfelt thanks for being so understanding, helpful, and patient throughout my long- distanced study. I could never accomplish this dissertation without your guidance and continual support. Suzanne, you deserve so much thanks and praise for your insightful advice and never-ending support on my research work. I’ve enjoyed writing papers with you too. The whole process is never stressful, rather it is quite enjoyable. And baby Sophie, you have been such a delight during my dissertation writing process. I cannot tell you how many times when I got frustrated and tired, especially in the later stages; your cute pictures cheered me up. Your beautiful, big eyes revitalized me as they cried out, "You can do it". Thank you for simply for being such a little angel! Thank you all Foxes, for your love and friendship! My dissertation committee, Dr. Montalto: I am grateful for your support and guidance for my dissertation. I also enjoyed your class very much, which was one of the best lectures during my study at OSU. Thank you for leading us to the rewarding world of research and for being so patient reading our papers over and over. Dr. Loibl: thank you for your thoughtful suggestions for my dissertation. You have always provided useful information for graduate students and spent time with us on research ideas and methods. Dr. Hanna: you exposed me to a wonderful world of personal finance in the first year of my PhD. Despite the fact that working as your teaching assistant was one of the most challenging times of my life, it was one of great discovery too. I look back with fondness and sincerely appreciate the opportunity to learn so much from you. I truly appreciate all the time you sacrificed to share research ideas and provide great advice. Dr. vii Stafford: thank you for always being there to listen and discuss with me about my research. Dr. Mandell: thank you for your generosity for sharing this wonderful dataset with me so that this dissertation and one of my dreams could be realized. Colleagues and friends at the Ohio State University, Vibha: you have always been so patient to discuss research ideas and help me with my studies in any way you can. I enjoyed all of our time together; whether taking classes together, sitting in seminars together, or simply sharing thoughts about our careers and life. I am so thankful to have such a great friend like you. Meichi, Dave, and William: thank you for helping me with all the paper work during the long process to finish the degree. Michelle, Carol and the Shang family: I am thankful for your taking such good care of me and my family during my study in Ohio. You have made our life in Ohio a great experience that we will never forget. viii VITA April, 1976 ....................................................Born - Taipei, Taiwan 1998................................................................B.A., English, Soochow University 2000 - 2002 ....................................................Master of Business Administration State University of New York at Buffalo 2003 - 2007 ...................................................Graduate Teaching and Research Associate, Department of Consumer Sciences, The Ohio State University PUBLICATIONS 1) Peng, T. M., Bartholomae, S., Fox, J. J., & Cravener, G. (2007). The impact of personal finance education delivered in high school and college courses. Journal of Family and Economic Issues, 28(2), 265-284. 2) Chen, C., Peng, T. M., Evans, D., and Hanna, S. “Putting your money where your mouth is. Do households optimize their investment portfolios based on their subjective risk tolerance?” Consumer Interests annual, 52. 3) Peng, T. M. and Lee, J. (Nov 2005) “Health status and pension income” Poster session, th The Gerontological Society of America 58 conference proceedings. 4) Peng, T. M., Bartholomae, S., and Cravener, G. (Feb 2006). “High school or college? The best time to take personal finance courses” Eastern Family Economics Resource Management Association conference proceedings. FIELDS OF STUDY Major Field: Consumer Science Minor Field: Statistics & Geographic Information System viii TABLE OF CONTENTS Page Abstract ............................................................................................................................. ii Dedication ........................................................................................................................ iv Acknowledgments............................................................................................................. v Vita ................................................................................................................................. viii List of Tables .................................................................................................................. xii List of Figures ................................................................................................................ xiv Chapters: 1. Introduction . 1 1.1 Background . 1 1.2 Statement of the Problem .................................................................... 2 1.3 Purpose of the Study ........................................................................... 4 1.4 Significance of the Study .................................................................... 4 1.5 Outline of the Study ............................................................................ 5 2. Policy .................................................................................................................... 7 2.1 National Eforts . 7 2.2 The Financial Literacy and Education Improvement Act .................. 9 2.3 Financial Education in High Schools ................................................ 11 2.4 State Mandates . 13 2.5 Summary . 19 3. Review of Literature ........................................................................................... 21 3.1 Evaluating Personal Finance Education Abstract ............................. 21 3.1.1 Financial Literacy among Young Americans .......................... 22 ix