Section III – Statement of the Critical Importance of Economic
and Financial Literacy for Students and Missouri Citizens
As our society has progressed into the technological age, our educational systems have focused on those skills that will build the human capital (human productivity, knowledge skills, and expertise) to support growth. The need for a technologically capable workforce provides a compelling case for focus on the development of reading, communication, math, and science skills. An even more compelling argument for reading and math literacy is that, as our society has advanced, it is virtually impossible to function in day-to-day life without those skills. However, a life skill that people must call upon each and every day of their lives is, to a great extent, overlooked in elementary and secondary schools.
Economics is, simply put, the decision-making science. Skilled decision making requires an understanding of benefits and costs. It is not enough to bring children to the well of technological education. Education in science, math, and technology won’t be absorbed unless children recognize the importance of developing their human capital. Economics makes apparent the benefits of education and skill building. It demonstrates the costs of forgoing opportunities to gain this knowledge. It teaches children to choose wisely. Economic literacy aids individuals as they make decisions as consumers, workers, savers, investors, citizens, and participants in an increasingly global economy. Individuals who are educated in economics have the ability to apply economic analysis in their personal lives and as part of our society, establishing the economic policies that will determine the future wealth and prosperity of our nation.
Despite the importance of economic literacy to our personal and collective well-being, less than fifty percent of high school students have taken a course called “economics.” Of the 63 percent of high school students who attend college, only 40 percent take an economics course. Therefore, 75 percent of all high school graduates will never have taken even one course in economics.
As adults, we are called upon to establish economic policy through our representatives and by vote. Economics Nobel Laureate, George Stigler, addressed this issue nearly three decades ago saying, “The public has chosen to speak and vote on economic problems, so the only open question is how intelligently it speaks and votes.” It is unlikely that a citizenry that lacks essential education in economics can make well-considered decisions. There is an old saying, “Good economics is bad politics.” There is truth in this statement. The politician with the most promises wins; the constituency with the most to gain will make it so. However, the first rule of economics tells us that this is not a win-win situation. Resources are scarce – we can’t have everything we want. There is an opportunity cost associated with every budget expenditure, so in the short run one group’s gain brings about a loss of some other societal want.
Only an economically literate populace can discern this basic resource allocation problem and make decisions that will sustain economic viability as we enter into a global economy in the technological age. However, surveys show that the most basic of economic concepts are grossly misunderstood by American adults. When asked for the most widely-used measure of inflation in a 1992 Gallup Survey, only 35 percent of adults responded correctly. In the leading free-enterprise system in the world, only 33 percent of adults could identify the basic purpose of profits (Gallup, 1994). In 1997, five years after a recession, the Washington Post surveyed American adults asking if the current (1997) unemployment rate was higher, lower, or about the same as the rate in 1992. Only 39 percent responded correctly. Finally, in a 1988 survey conducted by the Minneapolis Federal Reserve Bank, adults were provided several approaches to pollution control and asked which would make the best use of a country’s economic resources – only 38 percent recognized that the benefits must exceed the costs of the control measure. How can a populace with so little economic understanding make effective decisions?
In regard to people’s personal financial understanding, the proof of economic illiteracy is presented by even more dire evidence. Over the past decade, a time of unprecedented prosperity, the US has averaged nearly 1 million bankruptcies a year. One-third of all families had credit card debt in 1990, but in 2001, two-thirds of all families had credit card debt. The average credit card debt has increased from $2,400 to $9,000 during the last ten years. A family can go only 17 days without a paycheck.
While education in basic economic concepts and principles is deficient among teachers and students, education in the personal side of economics, personal finance, is nearly non-existent. Studies state that children receive most of their education in personal finance from their families. However, these studies also state that parents are often reluctant to discuss family finances with children. Worse yet, the “education” the children receive can be simply the repetition of bad habits picked up from their parents.
Although studies show that a college-level economics course improves adult economic literacy, most students will never have an economics course. Two alternatives exist: 1) a capstone course in basic economics and personal finance at the high school level, and 2) the integration of economics and personal finance into an already existing K-12 curriculum.
In a recent survey, high school students were asked to compare several academic subjects and comment on the amount of education they had received in each. Students could respond with “A Lot,” “A Little,” or “Nothing.” Students responded “A Lot” as follows: mathematics (94%), English or American literature (84%), science (84%), U.S. history (76%), how the federal government works (23%), how the economy works (23%), and how business works (15%). Even worse, 13 percent of the students responded that they had received no education in how the economy works, and 19 percent of the students responded that they had received no education in how business works. There is an obvious need for an introductory economics course that is delivered in a consistent curriculum across Missouri.
Another approach to economic literacy is
the integration of economics into other subject matter, K-12. Consider the
following example of topics made more complete by integrating economics.
¨ Students study environmental issues in science classes, but receive little or no instruction about the economic impact of environmental policies or the environmental impact of economic policies. Their education in this area is not complete without their consideration of economics.
¨ Students study the initiation of government programs in U.S. history without understanding the economic impact of those programs then and now. Students must recognize that policy decisions have opportunity costs.
¨ Students study the current events associated with our global neighbors. Yet, without an understanding of economic incentives, it is difficult to arrive at fact-based solutions to global problems.
Systemic integration of basic economics concepts beginning in kindergarten and continuing throughout twelfth grade would provide students with the stepping stones to adult economic literacy. Using this approach, the 75 percent of all high school graduates who do not and never will participate in an economics course would develop a fuller understanding of the world around them. The ideal would be to combine both a capstone course in high school and K-12 integration.
Missouri Governor Bob Holden and the Missouri General Assembly agree that improvement in Missouri students’ knowledge of the economics of our society and their own personal finances can enhance Missouri’s future labor force, can encourage interest in the issues facing our democracy, can develop an appreciation of saving and investing, can build capabilities in money management, and can foster wisdom in the use of credit. As an investment in Missouri’s future, Governor Holden signed House Bill 1973 (which passed the House 130-11 and the Senate 30-0) and an issued an Executive Order to develop a set of recommendations that will, once and for all, set the standard for economic and personal finance education in Missouri schools.
The Governor, the Missouri State Treasurer, the Missouri Bankers’ Association, and the Missouri Council on Economic Education have taken the initiative to promote economic literacy among Missouri students by proposing the following:
¨ An enhancement of the Missouri Department of Elementary and Secondary Education standards and benchmarks pertaining to economics and personal finance
The Missouri Show-Me Standards in social studies were developed before the national standards in economics were completed. Although the Missouri standards cover most of the pertinent topics, it is unclear to teachers as to how the topics should be taught. Furthermore, school districts are left to decide for themselves the scope and sequence of economic education taught in kindergarten through eleventh grade. This paper provides a listing of specific benchmarks in economics and personal finance, along with the appropriate scope and sequence.
¨ Recommendations on methods, materials, procedures, and in-service training of teachers
Successful teaching in any subject area demands the use of sound methodology, accurate materials, and in-service teacher education to direct teachers to effective grade-level procedures. This paper suggests ways to address these issues.
¨ Recommendations relating to detailed procedures and time tables to assure integration of testing on appropriate areas of economics and personal finance in the Missouri Assessment Program (MAP) with sufficient test questions to permit a separate reportable test score for each of these two subjects
The absence of personal finance education is a serious void in Missouri education. Test questions pertaining to economic and personal finance concepts must be numerous and rigorous to assure that these subjects are taught.
¨ Recommendations relating to content for a capstone high school course in economics and personal finance in which a passing grade shall be achieved by each public school student prior to graduation from high school
Students are required to take a course in the workings of government and the political system. Indeed, they must pass a test in U.S. government to graduate from high school. However, upon completing the course, student understanding is incomplete. Students cannot fully comprehend governmental decision making without an understanding of economics. Students should be required to take an introductory economics and personal finance course so that they are prepared to make well-reasoned decisions, both personally and as members of society.
¨ Recommendations relating to establishing appropriate undergraduate preparation requirements for teacher certification for teachers from kindergarten through the twelfth grade that will enable new teachers to meet these increased expectations in economics and personal finance education
Education in economics is incomplete in undergraduate coursework for education majors. For many students, economic study is nothing more than a brief section embedded in a social studies methods class. When required to then teach economics, the teacher’s insufficient background retards students’ ability to gain economic knowledge.
This paper presents a revision of the economics standard under the Social Studies Content standards to include both economics and personal finance concepts and principles as follows:
Students will have knowledge of economics and personal finance concepts, including productivity, market system, spending, saving and use of credit, and principles, including supply, demand, risk and return and creditworthiness.
Personal finance is an application of economic concepts and, as such, should be included in an economics curriculum. For this reason, this paper suggests benchmarks in economic concepts and principles as well as personal finance. The inclusion of personal finance benchmarks affords the opportunity for integrating economics into the broader curriculum.
The proposed benchmarks in meeting the revised standard provide the degree of specificity needed to develop each concept fully. In addition, the benchmarks are grade-level specific, providing the scope and sequence for logical progression through grade levels. Each benchmark is designated as one that addresses economic concepts (EC), one that addresses personal finance concepts (PF), or one that addresses both economics and personal finance (EC/PF).
Careful consideration has been given to the most appropriate grade level for concept introduction. Benchmarks are listed for each grade level from kindergarten through eight. However, at the high school level, the appropriate time for delivery of economic or personal finance depends on the courses offered. Therefore, the high school benchmarks are indicated as those appropriate for grades nine through eleven. (Italicized words are defined in the document glossary.)
Following the standard and benchmarks is a document that describes a classroom application for each benchmark. Each application presents an opportunity to integrate economics and/or personal finance in other curricular areas. This further demonstrates the adaptability of economic and personal finance education along with the applicability of economics and personal finance to real-world situations. (Italicized words are defined in the document glossary.)