William Bosshardt, Florida Atlantic University

 FINRA Investor Education Foundation, 2013  Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow?  Nation: 75% Correct, 13% Incorrect, 11% Did Not Know  Kansas: 77% Correct, 13% Incorrect, 8% Did Not Know

 Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, how much would you be able to buy with the money in this account?  Nation: 61% Correct, 17% Incorrect, 20% Did Not Know  Kansas: 67% Correct, 14% Incorrect, 18% Did Not Know

 Buying a single company's stock usually provides a safer return than a stock mutual fund.  Nation: 48% Correct, 9% Incorrect, 42% Did Not Know  Kansas: 46% Correct, 9% Incorrect, 44% Did Not Know

 Undertook project of writing standards

 To connect personal finance to basic economics  uses choice, trade-offs, incentives, markets and other economic concepts to discuss personal finance  To focus on economic decision-making for personal finance not simple recommendations  To use examples of financial decisions people face in their daily lives.

 A concise document that explains what students in the schools should know about personal finance and how to use that knowledge  The content is organized and described in the form of standards, which are important topics in personal finance.

1. Earning an Income 2. Buying Goods and Services 3. Saving 4. Using Credit 5. Financial Investing 6. Protecting and Insuring

Income for most people is determined by the market value of their labor, paid as wages and salaries. People can increase their income and job opportunities by choosing to acquire more education, work experience, and job skills. The decision to undertake an activity that increases income or job opportunities is affected by the expected benefits and costs of such an activity. Income also is obtained from other sources such as interest, rents, capital gains, dividends and profits.

People cannot buy or make all the goods and services they want; as a result, people choose to buy some goods and services and not buy others. People can improve their economic well-being by making informed decisions, which entails collecting information, planning, and budgeting.

Saving is the part of income not spent on goods or services today or paid in taxes. People save for different reasons during the course of their lives. People make different choices about how they save and how much they save. Time, interest rates and inflation affect the value of savings.

Credit allows people to purchase goods and services that they can use today and pay for those goods and services in the future with interest. People choose among different credit options that have different costs. Lenders approve or deny applications for loans based on an evaluation of the borrower’s past credit history and expected ability to pay in the future. Higher-risk borrowers are charged higher interest rates; lower risk borrowers are charged lower interest rates.

Financial investment is the purchase of financial assets to increase income or wealth in the future. People who save have many choices when making financial investments because these investments have different risks and expected rates of return. Investments with higher expected rates of return tend to have greater risk. Diversification of investment among a number of choices can lower investment risk.

People make choices to protect themselves from the financial risk of lost income, assets, health, or identity. They can choose to accept risk, reduce risk, or transfer the risk to others. Insurance allows people to transfer risk by paying a smaller price now to avoid the possibility of a larger loss later. The price of insurance is influenced by an individual’s behavior.

 The benchmarks describe in detail what students should know about a standard and how to use or apply that knowledge.  144 benchmarks (average of 24 a standard)  Within a standard, they are sorted for what should be completed by 4 th, 8 th, and 12 th grades

Distribution of Benchmarks by Financial Literacy Standard Benchmarks Standards4th8th12thTotal 1. Earning an Income Buying Goods and Services Saving Credit Financial Investing Protecting and Insuring Total

 Designed to be evergreen ◦ No factual knowledge  Deposits insured up to $250,000 ◦ Mechanics not specifically addressed  How to buy a stock  How to write a check  Designed to provide deep understanding

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards Entrepreneurs start businesses Entrepreneurs are people who start new businesses. Starting a business is risky for entrepreneurs because they do not know if their new businesses will be successful and earn a profit.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards Entrepreneurs start businesses Entrepreneurs are people who start new businesses. Starting a business is risky for entrepreneurs because they do not know if their new businesses will be successful and earn a profit. Workers earn a wage The wage or salary paid to workers in jobs is usually determined by the labor market. Businesses are generally willing to pay more productive workers higher wages or salaries than less productive workers.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards Entrepreneurs start businesses Entrepreneurs are people who start new businesses. Starting a business is risky for entrepreneurs because they do not know if their new businesses will be successful and earn a profit. Workers earn a wage The wage or salary paid to workers in jobs is usually determined by the labor market. Businesses are generally willing to pay more productive workers higher wages or salaries than less productive workers. How to write a checkChoosing a payment method entails weighing the costs and benefits of the different payment options.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards You should always comparison shop People incur costs and realize benefits when searching for information related to their purchases of goods and services. The amount of information people should gather depends on the benefits and costs of the information.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards You should always comparison shop People incur costs and realize benefits when searching for information related to their purchases of goods and services. The amount of information people should gather depends on the benefits and costs of the information. What is a want and what is a need People make choices about what goods and services they buy because they can’t have everything they want. This requires individuals to prioritize their wants.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards You should always comparison shop People incur costs and realize benefits when searching for information related to their purchases of goods and services. The amount of information people should gather depends on the benefits and costs of the information. What is a want and what is a need People make choices about what goods and services they buy because they can’t have everything they want. This requires individuals to prioritize their wants. Pay yourself firstPeople choose between immediate spending and saving for future consumption. Some people have a tendency to be impatient, choosing immediate spending over saving for the future.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards Credit use should be avoided at all costs People can use credit to finance investments in education and housing. The benefits of using credit in this way are spread out over a period of time and may be large. The large costs of acquiring the education or housing are spread out over time as well. The benefits of using credit to make daily purchases of food or clothing are short-lived and do not accumulate over time.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards Credit use should be avoided at all costs People can use credit to finance investments in education and housing. The benefits of using credit in this way are spread out over a period of time and may be large. The large costs of acquiring the education or housing are spread out over time as well. The benefits of using credit to make daily purchases of food or clothing are short-lived and do not accumulate over time. What is a stock and what is a bond The rate of return earned from investments will vary according to the amount of risk. In general, a trade- off exists between the security of an investment and its expected rate of return.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards People can buy insurance to protect themselves By collecting a relatively small amount of money, called a premium, from each policyholder on a regular basis, the [insurance] company creates a pool of funds to compensate those individuals who experience a large loss.

Examples of topics / concepts found in educational materials Related Benchmarks from the Standards People can buy insurance to protect themselves By collecting a relatively small amount of money, called a premium, from each policyholder on a regular basis, the [insurance] company creates a pool of funds to compensate those individuals who experience a large loss. A deductable the set amount of a loss that is paid by policyholder Policy features such as deductibles and copayments are cost-sharing features that encourage the policyholder to take steps to reduce the potential size of a loss (claim).

 Traditional economics: weigh costs and benefits and make a rational decision  Behavioral economics: sometimes humans can be influenced by things and do not necessarily make a decision based on costs and benefits ◦ Rules of thumb ◦ Warnings ◦ Read: Kahneman “Thinking, Fast and Slow”

Standard & Topic Grade Level Benchmar k Number Benchmark II. Buying Goods and Services 124 Consumers may be influenced by how the price of a good is expressed. III. Saving12 1 (second sentence) Some people have a tendency to be impatient, choosing immediate spending over saving for the future. III. Saving128Employer benefit programs create incentives and disincentives to save. Whether or how much an employee decides to save can depend on how the alternatives are presented by the employer.

Standard & Topic Grade Level Benchmar k Number Benchmark II. Buying Goods and Services 124 Buy 12 for $12 Anchoring III. Saving12 1 (second sentence) Some people have a tendency to be impatient, choosing immediate spending over saving for the future. III. Saving128Employer benefit programs create incentives and disincentives to save. Whether or how much an employee decides to save can depend on how the alternatives are presented by the employer.

Standard & Topic Grade Level Benchmar k Number Benchmark II. Buying Goods and Services 124 Buy 12 for $12 Anchoring III. Saving12 1 (second sentence) Time inconsistency III. Saving128Employer benefit programs create incentives and disincentives to save. Whether or how much an employee decides to save can depend on how the alternatives are presented by the employer.

Standard & Topic Grade Level Benchmar k Number Benchmark II. Buying Goods and Services 124 Buy 12 for $12 Anchoring III. Saving12 1 (second sentence) Time inconsistency III. Saving128Default bias

Standard & Topic Grade Level Benchmark Number Benchmark V. Investing1210 Investors should be award of tendencies that people have that may result in poor choices. These include avoiding selling assets at a loss because they weigh losses more than they weigh gains and investing in financial assets with which they are familiar, such as their employer’s stock or domestic rather than international stocks. VI. Protecting and Insuring 123Judgment regarding risky events is subject to errors because people tend to overestimate the probability of infrequent events, often because they’ve heard of or seen a recent example.

Standard & Topic Grade Level Benchmark Number Benchmark V. Investing1210 Loss aversion Prospect Theory VI. Protecting and Insuring 123Judgment regarding risky events is subject to errors because people tend to overestimate the probability of infrequent events, often because they’ve heard of or seen a recent example.

Standard & Topic Grade Level Benchmark Number Benchmark V. Investing1210 Loss aversion Prospect Theory VI. Protecting and Insuring 123Difficulty judging probability

 State DOEs: guide for developing their own standards  School administrators: for reviewing their curricula  Teachers: guide for what should be taught to students  Curriculum writers: for preparing educational material  Test developers: for assessing student learning  Researchers: for evaluating long-term outcomes

 Steve Buckles, Vanderbilt University  Andrew Hill, Federal Reserve Bank of Philadelphia  Bonnie Meszaros, University of Delaware  Mike Staten, University of Arizona  Mary Suiter, Federal Reserve Bank of St. Louis  Bill Walstad, University of Nebraska - Lincoln

 Jeanne Hogarth, Federal Reserve Board  Annamaria Lusardi, George Washington University  Brigitte C. Madrian, Harvard University  Peter Rousseau, Vanderbilt University  Mark M. Zandi, Moody’s Analytics