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Dr. Carly Urban has PhD in Economics from the University of Wisconsin. She won the Christensen Award in Empirical Economics in 2011 and the first author of the paper, “The Effects of High School Personal Financial Education Policies on Financial Behavior”. Tune in and find out why financial behavior is SO IMPORTANT!

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Chris Pratt: We are here with a really special guest today. She has a PhD in Economics from the University of Wisconsin Madison. She won the Christensen Award in Empirical Economics in 2011, and she wrote a paper called The Effects of High School Personal Financial Education Policies on Financial Behavior, among many other papers she’s written. Her name is Dr. Carly Urban. Welcome to the show Dr. Urban,
Dr Carly Urban: thank you so much for having me.
Chris Pratt: Yeah. So I stumbled upon your research while I was looking into financial education and financial literacy and trying to understand, like, is there any real value in financial education and where does that value come from? Like it doesn’t come at an early age. Is it important to talk to your kids when they’re young about personal finance? Is it something that, you know, you should focus on when you’re a little bit older when their kids are a little bit older?

I know that when I was a kid, I didn’t really care about investing or about credit or credit scores, but as I got older, you know, maybe even 10 or 11 or 12, I did start to care because of my parents and their education. And we didn’t learn anything about it in school, especially not in public school. And in your research, I’ll let you explain it because you know it a lot better. You talk a lot about the importance and the value of financial education and financial literacy and a lot of all these processes and programs that the government could put into place to advance financial education. And most importantly, what the outcomes of that are on the students that are learning about personal finance and about financial literacy.

Dr Carly Urban: Yeah. I’m going to flag one thing you said right away.
Chris Pratt: Sure.
Dr Carly Urban: You learn from your awesome parents and that’s great. And, you know, talk to your kids early about money as much as possible, like teach them different skills at different age groups. Great. But unfortunately we can’t pick our parents and there are a lot of people for whom their parents are very stressed out about money or not good at managing money. Or it’s, it’s a really uncomfortable conversation because especially kind of looking around the world right now, a lot of people are jobless or, you know, really struggling and trying to figure it out. And I’m sure that those conversations might not be the most positive for kids. So I feel like talking to your kids in the appropriate Headspace is probably important. So you don’t send the wrong message, but all of this, to say that, you know, parents are heterogeneous, they’re different, everyone, different parents can’t pick them.

So you have to think about reaching kids and reaching all kids in places where they already are. And one easy way to hit people with financial education at a time when they all have similar types of financial, um, issues that are going to come up soon is in high school, right? So people that are, you know, 15 through 18 are about to become financially independent. Maybe they’re getting their first jobs. They’re probably being targeted by similar types of creditors and other profit maximizing profit making let’s say entities out there that are, you know, um, thinking about who to target as they become adults. And they’re running into a lot of the same kind of questions and issues, and that makes financial education in schools, really, especially in high schools, a ripe time to teach everyone kind of the same basic topics so that they can go out into the world with, you know, some understanding of how to create a budget, what our average income is going to look like monthly for a job that you might be interested in.

What does long term debt look like? And what does repayment of that look like for when you actually have that job, whether you’re thinking about student loans or auto loans or any other type of long term borrowing mechanism. Uh, and then you can also talk about things like, you know, just basic budgets, basic saving credit cards, debt traps, things that they’re just going to be thinking about in the very near future, if they aren’t already and kind of hit everyone at once. So we don’t have this larger income inequality gradient where, you know, the wealthiest and the most savvy financial parents are really educating their kids, passing through that financial knowledge. And then other people are just kind of falling behind and even further behind, um, as their parents have financial shock.

Chris Pratt: Right. And I’m glad we’re just jumping right into this. So the reason I was bringing up the question of at what age do you really start getting into this in depth is because I find that from my observation, you know, kids will only pay attention to what they want to pay attention to, which often is, you know, video games and television and their toys and whatnot. And, um, so I was just curious, like, could it make kids not like personal finance, right? I mean, this is an issue in all fields.

Dr Carly Urban: Absolutely true. A thousand percent. So there’s actually some work, mostly psychologists have put together for the CFPB in the last five or six years and they call it the building blocks to financial wellbeing. It’s like, what can you teach kids at different ages? And at younger ages, you’re really kind of teaching them executive function, habits and norms. So basically like, you know, things like, Hey, if you eat all your cupcakes today, you’re not going to have any cupcakes tomorrow. Like very basic things. And you’re not teaching them like, Oh, this is what the interest rate is on. Blah, blah, blah. Like, it’s not like financial education as someone in the finance field would think about it, but they’re the same kind of topics just you’re teaching them in a different way. So, you know, whether that be like, Hey, we’re going to do a gold star system. Every time you do your chores, you get a gold star. And then after you get a certain number of stars, you get this really cool toy. But if you have fewer stars, you get this much less cool toy, but you can get it right away. So they kind of understand like delayed gratification and things like that, that I think translate well, but you’re not like telling these kids specifically like money-based topics.

Chris Pratt: Yeah. And the reason I’m, bringing that up and really want to talk about it a lot is because I find with kids in college, they especially are like, I don’t need to learn about, you know, retirement accounts, especially with retirement accounts. So like, why do I care about retirement when I’m not retiring for like 40 years? And I say like, if you don’t start building habits now to be successful, even if you decide you don’t want to invest for retirement, as soon as you start working. Okay. But you at the very least need to develop some kind of savings habits and get an understanding of what it is that you’re doing and what the consequences are of what you’re doing down the line, so that you can make an informed and educated decision about what you’re doing. And so the paper I mentioned, I’ll just read a quick excerpt from it.

There’s a lot of great information in it, and I’m sure you can explain it much better than I can in this excerpt. You say on average 4.8% of young adults with active credit records have a 90 day, late payment by age 22, implying that about 10,000 of these young people in the state of Texas, which is one of the States you did this research in would experience a default. The estimates in one of your tables would predict that more than 5,000 of these young people in the class of 2007 would have avoided a serious credit default after the education was in place after the financial education was in place. So I’d like you to break this down for me, but what I’ve read out loud, it sounds like you’re cutting the default rate in half with this education.

Dr Carly Urban: Yeah, basically. So, so back up a little bit, I really wanted to jump in and figure out specifically, in some States where they were doing financial education, what I thought of as well in terms of their state policies. So in both Georgia and Texas beginning with 2007, all students who graduated from high school in the States had to complete a path a semester of econ. They integrated the two and before this requirement was in place, economics was a requirement as a full semester class, but they just said kind of teach economics however you want. And then after it went into effect, they had very specific standards. So they said, you’re going to teach all of these topics. They incorporated economics and personal finance and kind of in a very nice way. So you’re learning about opportunity costs when you’re learning about budgeting, which you know, is works really well together.

And you’re learning about like macro economic fluctuations in the economy and, you know, the importance of insurance and job stability and things like that. So both of them really incorporated the curriculum well, and in order to really figure out what the counterfactual was, this kind of took a lot more clever economics thinking to try to figure out how we were going to back out what the causal effects were in each of these two States. So what we did is we got really big data from the consumer credit panel, which was at the federal reserve bank of New York. I had coauthors at the federal reserve board at the time. So they had access to these great data and it’s a random sample of everyone across the US, 5% of the population.

Chris Pratt: And this is high quality data, right? Like

Dr Carly Urban: Super high quality. So everything you would see on a credit report, it’s reckless tax, right? So you see in these data, right. And you know exactly where people live, you know, their zip code at least of where they live and, you know, a lot, I mean, you know, nothing about them, demographically, you don’t know like their gender or their race or ethnicity or whether or not they’re married, but you know, a lot about the credit side. So what we wanted to do is figure out, you know, what’s the causal effect. And we couldn’t ,just compare kids in Georgia in 2007 to say a border state that did not have financial education. I’m remembering Texas is counterfactual was Oklahoma, but I’m forgetting towards this off the top of my head, but I’m sure I’ll remember in a minute. So in Texas, let’s start with, um, we can’t just compare kids who graduated from Texas in 2007, to those in another state that didn’t have any financial education because obviously their educational systems are just different anyway. Right? So they’re not going to be apples to apples there, and it’s going to be kind of a biased difference. And we can’t just compare kids in Georgia in 2007, to those who graduated from high school in 2006 in Texas. Because I don’t know if you remember anything that happened around that time period, you know, financial crisis, something, blah, blah, blah. Right.

Chris Pratt: For listeners who have listened to previous episodes, we’ve covered the 2008 financial crisis. So yeah,

Dr Carly Urban: So there’s, you know, other things going on at the same time nationally, but what we can do is we can compare kids in Georgia in 2007, the kids in Georgia in 2006. And then we can also compare kids who graduated high school in Oklahoma, in a border state that had no requirement in 2007 to kids in Oklahoma in 2006 that were not exposed to any graduation requirement and compare those two differences to see if the change in Texas is different than the change in Oklahoma. So basically we’re seeing if those growth rates are different, you know, differencing out getting rid of all those differences across the two systems or comparing two systems individually to themselves. And then we’re just comparing the comparison. That makes sense.
Chris Pratt: That’s clever. Yeah.
Dr Carly Urban: So we follow these kids from 18 to 22 and we actually follow them by cohorts. So we look at the first graduating class that was affected by the new requirement, the second graduating class, those who graduated in 2008 and then those who graduated in 2009. And we actually see an increase in the effectiveness of the mandate over time where, you know, teachers might not actually know what they’re doing that first time around, they need some type of training. They need to kind of get the cobwebs out of teaching a new curriculum. And there’s actually a lot of evidence from other studies, some new work by Veronica for GENCO at the inner American development bank that actually shows after teachers have to teach this stuff. They, their credit scores go up to, right? So teachers are probably improving their own lives.

Chris Pratt: There’s research that shows that when you teach something, you learn it better. But I didn’t know that there was kind of a correlation or maybe even a causal effect to practicing it.

Dr Carly Urban: Yeah, that’s a, that’s a really cool study cause it’s in Peru, but they randomize which schools have to do this. They’re trying to figure out if financial education is effective before they, you know, go across the whole country with the requirement. And they were really interested. So they did a whole big RCT and randomized and the teachers that were randomized into having to teach this actually had much higher credit scores for the next three or four years.
Chris Pratt: Wow,
Dr Carly Urban: Just crazy. Yeah. Um, so we find then that last cohort has the largest effects, but even the second cohort has pretty large improvements in credit scores and reductions in delinquencies. So people just seem like they’re making fewer mistakes. There are no more or less likely really to have a credit report. So it’s not just that they’re entering the credit file more, but we are seeing these, these large effects.

Chris Pratt: And I mean, that’s kind of astounding that 5% of the young adults that you studied had a 90 day late payment by the age of 22. Like that’s just a few years later and you’re already at 5%. I do want to ask you also about like the States? Do you know how many States have some kind of financial education requirement in their curriculum?

Dr Carly Urban: I feel like I always get hate mail about this. Cause I’m always like a year behind. I’m like looking at what I can use for research, right. And data is always a little bit lag. And I say it’s about 26. There are five States that require a standalone requirement. And Chris Pratt: What does that mean?
Dr Carly Urban: So that means that you have a full semester of just personal finance.
Chris Pratt: Okay.Wow.
Dr Carly Urban: Now I had a grant from next gen personal finance last year where I looked at high school course catalogs. I’ve had a whole awesome team of RAs that looked at every high school that actually had an online course catalog and looked at whether or not they required personal finance within another course offered personal finance or basically had nothing. And the interesting takeaway was in these five States that require a standalone class. Every single school had a standalone class requirement, every school complied, but in the States that require that you integrate personal finance into something else there’s only about 40% compliance. So that means if you think about this research, right, our effects are understated vastly. So really inflate everything by basically double it, right. Maybe a little more than double because everyone’s not even complying.

Chris Pratt: Right. So you mean that had they complied the outcomes and the results would have been even better?

Dr Carly Urban: Exactly. I mean, schools are also like underfunded and they’re doing so much with so little and teachers, they’re being asked to do quite a bit. So it’s not entirely surprising. These mandates are often unfunded. The States are giving schools no money to do this. They’re just saying, Hey, do this extra thing. Um, so it’s tricky from a school’s perspective.

Chris Pratt: And I do want to give you a huge shout out, huge shout out to Dr. Urban for, for doing this research. And I’m glad you’re mentioning a bunch of your colleagues because this research is not easy to do. And you mentioned how you had a, group of undergrads TA’s helped you find this data from, uh, you said every high school in the country. That is insane!

Dr Carly Urban: Yeah. So a lot of them are like four satellites. They spent a lot of time just going through every single one. It’s pretty hard work. Yeah. Yeah. It’s cool. The kind of thing it’s just gets me up in the morning though. I like understand, I love understanding local policies and like what’s actually happening and figuring out like the devil’s always in the details. So figuring out what those details are, is super exciting to me.

Chris Pratt: Yeah. And it’s, you know, luckily for everyone else, it’s super important too. Right. So I’m glad that you’re able to find something that excites you that also has an extremely valuable and positive impact at least I think on our society and on people. So you talked a little bit about the different ways that these, uh, these programs are implemented either in their own class or incorporated into something else. What are the challenges that an educator faces when it comes to getting funding to implement these financial education programs?

Dr Carly Urban: I mean, I think there is none. The good thing is there are a lot of resources out there that are free that are really helping these teachers out. So lots of, um, federal reserve banks around the country, the st. Louis fed has been awesome in developing content. Next gen personal finance has been teacher training for free entirely. And they’ve actually done quite a bit more now that everything’s virtual and they don’t have to like travel around and train teachers. There’s been a lot of nonprofit support and stepping up jumpstart, coalitions councils on economic education in every state have really just been stepping up to the plate. So I think there’s been a lot of great resources out there. The teachers just need to find it that obviously is tricky. And there are obviously some for profit. Um, I don’t want to call them exploiters cause I feel like they’re, you know, out there, they’re trying to make a profit too, and they’re developing curriculum and they’re trying to sell it to schools. And sometimes they feel like that’s the easiest thing and maybe that’s not the most effective thing.

Chris Pratt: And I mean, there’s always, I feel like there’s often a bias of a cost bias. Like if it costs more or if it’s, if it costs anything at all, then it must be better.

Dr Carly Urban: Exactly. Oh, I think like there’s some like beginning stages development of like standardized textbooks, which just don’t really exist in this field. Like everything is a little bit ad hoc and until Vinod gets to the point where like Math or English or other subjects are where there’s more standardized textbooks that we know and trust, then I think we’re going to be in that kind of weird gray area. Yeah.

Chris Pratt: And so speaking of that, you know, this financial education environment pretty well in the, in the current state of the country with that respect, how plausible do you think it is that schools will permanently add a personal finance subject to their high school curriculums? And so it sounds like this is something that really has to be done at the state level to achieve full compliance across, you know, every school across country. So every state kind of has to get on board for this happen. Do you see that happening or do you think that it’s going to stay as some States do and some States don’t and I know you don’t have a crystal ball, so you don’t know for sure, but what, what is your, what are your thoughts?

Dr Carly Urban: So I can tell you a little bit about this. So this is my experience in like, I’m usually like the outsider that’s coming in when States are considering passing one of these or not like to just talk about the research, see what’s out there and see what the possible benefits are. So, you know, I’m usually that objective voice. The interesting thing to me is I feel like Fin Ed supporters especially are like, this should be a bipartisan issue. Everyone should love Fin Ed. And actually that’s generally not the case because one people on the right tend to think local control is the answer. So, you know, you shouldn’t tell schools across the board to do the same thing. Like you should kind of let them decide and people on the left don’t really like Fin Ed because they think it’s like the blame game. Right. So if only you would have done this, then you wouldn’t be in trouble.

So people think of it as like either Fin Ed or a safety net. And that’s also not the right answer. So I feel like benign can sometimes be in this like weird in between ground where we’re like, no, no, we’re really like, we just really want everyone to have better finances. And it passes a cost benefit analysis. ROI is clearly there. Um, and then like, how do we implement this type of policy becomes a little bit more tricky. So I think we need to move like the rhetoric around financial education out of like anything that even somewhat insinuates blame. And I think like what I’ve actually seen is in some schools they’re pulling this as something, you know, um, that might be too sensitive in the fall, or that might be something that can be like the first thing to go because those math and reading and other requirements are there.

And if those aren’t fulfilled, then the students aren’t going to graduate. So like in normal times, I would say there’s a clear ROI for financial education. Now it’s a little bit trickier. I think it’s still worth it, especially because these kids are really not going to be able to talk to their parents, maybe as much about money, if things are, um, a little bit dicier at home,
Chris Pratt: you mean because of COVID?
Dr Carly Urban: Yeah, because of COVID I think parents are even more stressed out they’re, you know, homeschooling in some ways and you know, some of them are out of work and I think it might not be the most positive conversation right now for some, it might be great. It might be a great talking point, very open, easy conversation. And I think for some, it will be a lot more stressful people who are maybe facing eviction or other types of larger shocks. And those are the people that really need the school based financial indication more as my guess. So the answer to your question is it is really tricky and it could go in either direction and I have no idea.

Chris Pratt: Yeah. Money and financial education and just personal finances in general is such a difficult topic to work around and walk around. I know even parents, like, like you said, they oftentimes, it’s not that they want their kids to fail financially it’s that they have some shame or reservedness about discussing their own personal finances with their kids and what I’ve tried to do. I think on the one hand, I think it is good to hear people’s stories of in details of their personal finances and, and how they became successful. But on the other end, like you’re saying financial education, isn’t just about that. It isn’t just about like hearing people’s actual numbers. It’s about the education and the concepts of what is credit. We were talking about retirement accounts, what is the overtime retirement account? What is saving? How do you save, et cetera, et cetera.

Dr Carly Urban: Yeah, I think you’re right. And I think especially with 18 year olds, you know, setting them up for their futures is really important. So we actually, in other work, I have looked at do loan borrowing and you know, we looked at this kind of in two phases. So the first thing is like, do people go to different types of colleges or do they stop attending or do they switch to a four year or two year? And there’s really no change in that, on that margin. So no one changes where they go to college when they go to college, whether they’re not, they go to a two or a four year more or less expensive or in state or out of state, literally nothing on that margin, which surprised me at first, but maybe people just are who they are and they’re living out the life that they want to live out. And those are their preferences. And they’re somewhat fixed,

Chris Pratt: Not changing based on, based on what,

Dr Carly Urban: Based on whether or not they had financial education required. So after they had the required financial education, there’s no change in where they go to school or if they go to school. But if they did go to college, we are seeing that they were more likely to fill out a FAFSA. They are more likely to get some type of grants and scholarships. They’re actually taking out more in, in federal student debt. So higher Stafford loans, which sounds counterintuitive at first, but they’re using less credit card debt to finance their college, which seems really important because obviously credit card debt accrues right away has high interest rates. And really kind of just shows a lack of understanding how much you need to spend. Right? Whereas student loans at the federal level are relatively cheap and have low interest rates. And don’t accrue interest during college, if it’s a subsidized loan. So they’re actually shifting in a way that might seem counterintuitive, but makes sense when you think about moving from higher to lower interest rates.

Chris Pratt: So what you’re saying is that they’re shifting from using credit card debt to taking on a, let’s say a better debt in federal student loans.

Dr Carly Urban: Exactly. And for, uh, students from the least affluent backgrounds. So with the lowest expected family contributions, they’re actually less likely to work while they’re enrolled, which others have found increases their likelihood of staying. So, I mean, there are different kinds of findings that you wouldn’t necessarily expect. And that group actually has the largest reduction in credit card debt.

Chris Pratt: Wow. And I mean, this is something that, that gets discussed a lot around this notion of paying your way through college, um, and how that’s not really, it depends on the school you go to, but that’s not really possible at a lot of schools these days, just because of the sheer size of tuition bills. So that finding does make sense. And one of the things my parents told me, and one of the things we learned in our program was that if you have a plan, then your work to make money while you’re in college is going to be a lot more focused and it’s going to make a lot more sense. So for instance, uh, I don’t know, let’s say that, you know, you need meal credits, right? Obviously you want to work to be able to eat, right. Or, uh, you know, you want to be an RA so that you don’t have to pay, uh, your room and board.

You have a specific goal and reason why you’re working and why you need to work as opposed to just working to make money and then blowing it on random stuff. One of the things that I learned in my program, I talked to you a little bit about this before the show. You really have to pay attention to what you’re spending your time doing. Cause when you were in college, you have so much “free time” that outside of, you know, just going to class that you really have to be intentional about what you do with that time and, you know, time that you spend studying and time that you spend working and time that you spend having fun and hanging out with your friends and whatnot.

Dr Carly Urban: Yeah. I think the advice, “have a plan” is as far as probably the best thing for pretty much everything, let alone your finances.

Chris Pratt: Right? Exactly. You said that, uh, you’ve done an experiment in the workplace. Could you talk a little bit about that?

Dr Carly Urban: Yeah. So this was closer to 2010-ish in Wisconsin. We used, um, credit union tellers. So think of those as like very entry level employees. Most of them are women they’re relatively young and they’re not that financially literate to start. And we did an actually online education experiment where all of these employees, while they were at work were allowed to spend 10 hours on whatever units they wanted to. So work time, they, you know, got to focus on whatever they wanted. So they were getting paid to be in at work. They got to do their own financial education. And this is kind of like a, let me, let me back up a little bit. This is a kind of a clever way to do an experiment when you want everyone to have access is that we allowed half of these people to get it a year earlier.

And then the second half got it the next year. So everyone eventually got it, but we had enough time to be able to see what the different effects were. So the group that was randomized into the first year, we saw that they increased their retirement savings by about 30 bucks a month after getting the education. Um, and we actually get all their financial data because you know, it was a credit union, which is pretty cool. And you know, that seems pretty modest, but over the life course, given how retirement savings work and that these people were relatively young, that’s actually quite a big habit change. Right. And kind of a plug for online financial education because you got to pick whatever topics were relevant to you at that time. If we keep talking about how finances are so personal and everyone’s going through different things. And there were units about like education accounts for your kids, like five 29 accounts or, you know, education accounts for yourself, or, you know, getting out of debt or all different types of topics that you got to choose from. It seemed like these people on average were doing relatively okay. And most of them take the retirement savings modules to focus on. And that’s where we see the biggest increase.

Chris Pratt: Wow. And that’s what I preach. I’m like, even in high school, you know, if you’re not making a ton of money and you’re like, well, why should I be saving it even, I don’t know, $5 a month at the very least, it’s just to develop those good habits. So we’re out of time, but thank you so much for coming on the show, Dr. Urban, it’s been a pleasure to have you. I highly suggest and encourage our listeners to read some of her research and really take a look at that and really consider the value of personal financial education. We will put links to her paper and to her profile in the show notes. Again, the paper that I read of one of many that she’s written is called The Effects of High School Personal Financial Education Policies on Financial behavior. So thank you again, Dr. Urban for coming on the show.
Dr Carly Urban: Thank you so much.
Chris Pratt: And hope to see you again soon.
Dr Carly Urban: Great. Thanks.

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