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When Butte resident Mike Paffhausen graduated from Carroll College in 2009, the school gave him a thin, purple book that he said changed his life. It was titled Life After Graduation: Your Guide to Success.

Paffhausen went on to create a to-do list on a few blank pages at the end of the book that were full of points the book advised. The list was a page plus a few, and included things like “buy life insurance,” “make a budget,” and “make a will.”

He still owns the book today and has crossed every item off the list within two years of reading it.

The book and the lessons learned from it were pivotal to Paffhausen’s life, he said, and since then he has been determined to ensure other young adults benefit from those lessons.

“Finances are like sex, religion and politics,” said Paffhausen. “It is no longer discussed at the table; it’s inappropriate and taboo, and it shouldn’t be. And it’s really inappropriate in families where they’re not good with money. So then we perpetuate poverty.”

Paffhausen’s many efforts to improve the community’s financial literacy include working with Carroll, local high schools, through his church, and even raising funds to continue buying books for future seniors.

Last summer, he told the board of directors of the National Association of Insurance and Financial Advisors Montana, of which he is a member, about his goal of providing guaranteed personal finance courses to every high school student in Montana. Paffhausen and other proponents call it guaranteed rather than required—as in all high school students, a financial literacy class is guaranteed.

Paffhausen came into contact with Next Gen Personal Finance, a non-profit organization that he said had worked with him and the board of NAIFA MT for most of the year to achieve their goal. Paffhausen was introduced to Carly Urban, a PhD economist. in Economics and Associate Professor at Montana State University in Bozeman, through Next Gen.

In October 2021, Paffhausen spoke at the Montana Association of Business Professionals of America Fall Leadership Conference as part of the NAIFA MT. Paffhausen said he spoke at a roundtable with teachers from the organization about guaranteed financial literacy instruction at Montana high schools, and that they were all “resoundingly supportive,” urging him and the NAIFA MT board to move forward.

In January, he became President of the National Association of Insurance and Financial Advisors Montana.

On Tuesday, Urban, who is a leading researcher in the field, presented her findings on guaranteed personal finance courses in schools at the 2022 NAIFA MT State Convention at the Fairmont Hot Springs Conference Center near Anaconda, where NAIFA MT members who were not in attendance were the board was present.

About literacy courses

The thinking behind financial literacy in schools is that high school seniors need to make many very important financial decisions when they graduate and should learn about money before they start earning it.

The case for financial literacy, Urban said during her presentation, is found in her favorite pastime: data. According to her research, only 27% of 23-28 year olds can correctly answer three basic questions about interest rates, inflation and diversification.

“And when I say basic questions, I mean, ‘You have $100 today, the interest rate is 2%, how much money will you have next year? Are you going to have more than $100, exactly $100 or don’t you know exactly?'” Urban said.

She said her research also found that 54% of student loan borrowers didn’t calculate their future monthly payments before deciding to take out a loan, and a statistic she found really insightful: 38% of 18-34 year olds reported using alternative finance services, such as payday loans, in the past five years.

Urban called these alternative financial services a “debt trap for young people”.

“If you want to make sure that as a young adult or in your lifetime you can never start a small business, start with the payday cycle,” she said.

When her research looked at states that guaranteed financial literacy courses as a graduation requirement, they found that first-year graduating class creditworthiness was unchanged up to age 23, and 90-day loan defaults fell by 1.4%. The second graduating class had a 16-point improvement in credit score and a 3.4% decrease in 90-day delinquency, and the third graduating class had a 32-point score increase and a 5.8% 90-day decrease -Offending by age 23. Urban called the results of the third cohort of high school students “huge.”

Her research also shows that people want finance classes in schools, with 88% of respondents in a 2022 survey saying high school students should be required to take a semester or a year-long course in personal finance.

Student loan repayment rates for first-generation and low-income students and a shift from expensive to inexpensive borrowing methods also rose with guaranteed financial literacy courses, and payday loans declined. Students who had guaranteed financial literacy in high school were 21% less likely to have credit card balances on them. Additionally, their research found that students from low-income families were helped the most by this requirement.

However, Urban says there is no evidence that guaranteed financial literacy courses increase the likelihood of opening a retirement account, retirement account, or home ownership.

She said that’s because most college students by age 16, 17 and 18 are thinking about what’s happening right now, like car loans and student loans, and they’re not ready to think about retirement or home ownership.

Guaranteed personal finance courses also do not change graduation rates, college attendance rates, college graduation rates, income, or jobs.

According to Urban’s presentation, eight states in the country guarantee financial literacy courses for every high school student, and another five are in the early stages of implementation.

The reason these courses need to be mandatory and not optional, Urban said, is because research shows that the fact that they’re optional makes no difference in a student’s future credit score, borrowing habits, or loan default rate.

Paffhausen said in addition to the other benefits of guaranteed financial literacy courses studied, it is an impartial cause that everyone he spoke to supports.

State of Courses in Montana

Eight Montana schools currently require financial education, including Absarokee High School, Anaconda Sr. High School, Box Elder High School, Hamilton High School, Polson High School, St. Ignatius High School, Sweet Grass County High School and Victor High School, according to Urban’s presentation.

About three weeks ago, according to Paffhausen, the efforts that he and the board of NAIFA MT had made paid off. Paffhausen and Urban were able to meet with Elsie Arntzen, Montana Superintendent of Public Instruction, and found a home for their cause in her.

According to documents from the Montana Office of Public Instruction, the updated administrative regulations of Montana Chapters 55, 57 and 58, which provide guaranteed financial literacy for high school students, would go into effect in January 2023, if adopted.

Currently four English Language Arts units, three Maths units, three Science units, three Social Studies units, two Vocational and Technical Education units, two Arts units, one Health Promotion unit, two World Languages ​​units and two elective units.

The proposed rule changes include adding a required half credit for civics or government to the three units of social studies, and adding a required half credit for economic and financial literacy to either the three units of social studies or the two units of career and technical education, according to materials from OPI.

Urban’s research shows that social studies is actually the best course to implement financial literacy, not math as some people might think.

There will be challenges, Paffhausen said, and those are primarily “strategic and tactical issues” in delivering the coursework, like training existing teachers to teach personal finance and finding space for the new content in the high school curriculum.

According to research on the required personal finance courses in Peru, the teachers of the classes also benefit. The teachers involved in the Peru study saw their savings increase after teaching the class because they, too, were learning about personal finance in a more entertaining and digestible way than personal finance is sometimes explained to adults.

The cost for schools can also be free, according to Urban, as Next Gen Personal Finance offers high-quality, free teacher training and accreditation, as well as a free curriculum.

Arntzen also said she will provide personal finance units to be taken as part of the 60 units teachers must complete every five years to maintain an active teaching license.

Paffhausen said NAIFA MT is just the right organization to champion this cause. “What organization is better suited to bring this conversation to the forefront?” he said. “Everyone in this room had clients we sat across from who we wished had gotten a better start and received a simple, basic education on how money works.”

And although NAIFA MT is an advocacy organization, Paffhausen said advocating guaranteed personal finance courses doesn’t directly benefit them.

“Society doesn’t know who NAIFA Montana is and never will,” he said. “We have no discernible earnings advantage.”

As for his own children, he said they will learn about financial literacy one way or the other. But he said he believes in this cause for all the other kids who might not, and ultimately because it’s a good thing to do.