Financial Education and the Debt
Behavior of the Young
Revised: September 2015
JEL classification: A20, D12, D14
Young Americans are heavily reliant on debt and have clear financial literacy shortcomings, yet evidence on the relationship between financial education and youths’ subsequent debt behavior remains both limited and mixed. In this paper, we study the effects of exposure to financial training on debt outcomes in early adulthood among a large and representative sample of young Americans. Variation in exposure to financial training comes from statewide changes in high school graduation requirements regarding financial literacy, economics, and mathematics that were mandated in the late 1990s and 2000s. The FRBNY Consumer Credit Panel provides debt outcomes based on quarterly Equifax credit reports from 1999 to 2014. Our analysis, based on a flexible event study approach, reveals significant effects of quantitative training on debt-related outcomes of youth. We find that exposure to math and financial literacy education modestly decreases the incidence of adverse outcomes—such as delinquency and collections—and both reduces the likelihood of youth carrying non-student debt and increases reliance on student debt. All but the student debt effects tend to fade out with age. On the other hand, economic education leads to an increase in the likelihood of adverse debt outcomes, and, relatedly, to a decline in youths’ average risk scores. The effects are observed to accumulate as the borrower ages. Our results suggest that financial education programs, increasingly promoted by policymakers, do have significant impacts on the financial decision-making of youth, but their impacts may depend on the content of the programs.