Behind the Research: The Big Picture of How We Studied States’ Spending on Financial Education

Studying investments in financial education across states is important because it impacts the future financial health of thousands of U.S. residents.

by Joseph de la Torre DwyerUduak Grace Thomas
May 4, 2021

Behind the Research articles provide a view of the twists and turns that happen in research projects. When possible, we explain the steps in our thinking to make the social science research process more transparent. This is the first Behind the Research story about the project called A New History of Investment in Financial Education across the United States.

In 2018, Knology responded to a request for Letters of Interest from the National Endowment for Financial Education’s (NEFE) Research Funding program. We proposed performing a cost-benefit analysis of state investments in financial education to understand the returns that these financial education interventions offer to students. Our main research question was “What is the impact of greater spending on youth financial education upon measures designed to capture the experiences and challenges of low- and moderate-income U.S. residents?” This question would eventually be the basis of the project, called A New History of Investment in Financial Education across the United States.

Our earliest steps in this project were to identify which sources of data could help us answer our question. We used public data on economic security outcomes from the Federal Reserve’s national Survey of Household Economics and Decisionmaking (SHED) as a proxy for estimating the impact of states' financial spending on individuals’ financial outcomes. Specifically we came up with four scales from the SHED to provide us with a sense of how people feel about their finances, what sorts of behaviors they are engaged in, and how they might react to financial shocks in the future.

We paired this information with state-level data that we collected on spending for financial education in public schools from middle through high school, and occasionally elementary school. One of our first steps was to think through how to categorize the subset of data from the SHED that we were interested in -- in particular, the measures of financial health -- as well as data we had collected from other sources. This included considering assumptions we would need to make. Making assumptions is normal in research, since there are some things that we cannot know for certain but we can make educated guesses about. For example, we assumed that a current resident of a given state was present in the state, years earlier, when residents participated in financial education courses or programs.

Recognizing that not all the spending on financial education comes from public schools, we expanded our scope of financial education spending to include contributions from non-profit organizations. One previous study showed that in at least one year, it was these organizations that accounted for most of the direct spending on financial education interventions like out of school programming and teacher trainings. Specifically, a report from the Consumer Finance Protection Bureau found that of about $670 million spent in 2011 on financial education throughout the U.S., non-profit organizations spent $472 million – significantly more than federal, state, and municipal governments combined. In order to build a more complete historical picture of financial spending from the 1990s to 2020, we cataloged spending by the Council for Economic Education, a leader of non-governmental financial education initiatives in many states, which also collects data on non-governmental spending on financial education.

Next, we had to determine what would count as spending on financial education for the purposes of our study. This was important because it would allow us to compare outcomes between residents of different states. We reasoned that this comparison would only be possible if we accounted for all of the spending on financial education irrespective of who paid for it, rather than limit ourselves to only state-funded expenditure. Another consideration was the actual cost of the courses and how costs climb over time. For example, if a resident of Colorado was taught a one-credit course on personal finance each year for 8 years, the spending would not be equivalent to eight credits in total but would need to be adjusted for inflation.

One of our goals for the project was to put together a comprehensive database of historical spending on financial education that can support research projects, including our own, that are focused on testing the impact of these interventions. The resource we had in mind would include economic and demographic data from each state over several years. To build the database, we collected annual data on fiscal years for all 50 states up until 2017. We also gathered data on the rules and regulations set by different state legislatures and state-level Departments of Education governing education requirements for students.

We considered different ways of structuring and organizing the information we were gathering, recognizing that it would simplify data entry and make organizing and searching the data easier. We ultimately decided to provide the data in two formats to enable more people to use the database. One option is a bundle of CSV files, and the other is a collection of datasets within an R package for users of the R statistical program.

About the Project

From 2019 to 2020, Knology led A New History of Investment in Financial Education across the United States, a research initiative funded by the National Endowment for Financial Education® (NEFE) and supported by a range of experts. Knology built a robust database of historical spending on financial education across all 50 states, as well as outcomes of that spending. The team then used the database to study how investments in financial education through public schools and non-profits contributed to indicators of financial health for U.S. residents, such as retirement savings and financial fragility. Learn more about the project. If you have questions about this project, contact us at info@knology.org.

The National Endowment for Financial Education is the independent, centralizing voice providing leadership, research, and collaboration to advance financial well-being. Find out more about NEFE at NEFE.org.

Photo credit: Javier Trueba on Unsplash.

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