Does $20 per Student Make a Difference? an Analysis on Financial Education, Gender, and Use of Alternative Financial Services Among U.S. Young Adults

Background and Study Purpose: Although alternative financial services (AFS) provide credit options to consumers who are excluded by the mainstream market, exorbitant fees and interest rates put a great financial burden on individuals and society as a whole. To improve young adults’ financial health, some states have established a variety of financial education programs for middle and high school students. However, between-state variations in school financial education investment exist, which may potentially affect financial outcomes of people residing in different states. This study examines the between-state variations in financial education investment, if these variations explain variations in young adults’ use of AFS, and if this association is moderated by gender.

Method: With a focus on young adults (aged 25 to 30), this study used individual-level data from the United States Federal Reserve’s annual Survey of Household Economic and Decision-making (SHEDAY) 2015 to 2019 (N = 4,858), and accordingly, the state public spending data from 2003 to 2012. The dependent variable in this study is young adults’ use of AFS (0-4, count variable). State-level independent variable is state annual spending on each student, categorized as high (>$20), median ($10-20), and low (<$10) spending states based on the distribution. Individual level independent variables include individual socioeconomic characteristics. Three two-level negative binomial regression models were fitted to examine the association between individual characteristics, state-level financial education spending, and young adults’ use of AFS.

Results: Findings from this study show that young adults who were female, non-White, and had lower socioeconomic status were more likely to use AFS. State-level financial education spending was significantly associated with AFS use by young adults, after controlling for individual factors. The likelihood of using AFS decreased by 28% (p<.01) for young adults coming from states with high spending on financial education, when compared to their counterparts from low spending states. The model with the interaction term shows that the effect of state-level spending on financial education varied by gender: holding everything else constant, living in states with high spending on financial education was associated with 35% lower likelihood of using AFS by young adult males (p<.01).

Conclusion and Implications: Findings indicate that although state investment in school financial education may reduce young adults’ use of AFS, it has little help in alleviating the situation of those who are living with high financial burden. State-level financial education spending plays an important role in young adults’ AFS use. Specifically, a significant association appears only when states’ annual spending reaches a certain amount; in this case, more than $20 per student. It is reasonable that higher spending is likely linked to better financial education design and enhanced implementation, which may yield better financial behavior outcomes. Results may reveal that current financial education programs were designed in a way that favored male students. Findings from this study call for state policies on investing in school financial education and highlighting program design and implementation that work inclusively across gender, race, and other demographic characteristics.