Social Education Vol. 66 No 5 pp. 239-244

Improving Economic and Financial Education

A Program for Urban Schools

Mark C. Schug, Robert L. Wynn II, and Tracy J. Posnanski

Almost all Americans believe that “basic economics should be taught in school and that it is important for the people of the United States to understand economics,” according to a Louis Harris survey of American adults and high school students that was conducted in 1999.¹ The same survey administered a brief test to these adults and students on basic economic understanding. It found that “half of all American adults and two out of three American high school students get a failing grade.”

All students should have the opportunity to have a good economic education at school, but many students do not receive an economic education of any kind. About two in five high school students of all grades in the survey stated that they had not been taught economics at school. This situation improved among high school seniors: slightly more than four in five students in the twelfth grade stated that they had been taught economics. The poor results of students on the test suggest that the quality of economic education needs to be improved significantly.²

The survey showed that while most students of all races and both sexes scored low in their economic understanding, there were differences based on gender and race or ethnicity. Male students scored higher than females, and white students scored higher than black or Hispanic students.³ These results have implications that go far beyond school. Different degrees of knowledge about economics and personal finance among different population groups can result in different levels of attainment of income and wealth.

At present in the United States, there is a significant difference in income received by whites, on the one hand, compared to African Americans and persons of Hispanic origin, on the other. In 1998, according to the Federal Reserve, the median income for white, non-Hispanic families was $37,700, while the median income for families categorized as non-white or Hispanic was $23,300.⁴ This represented a large gap, even though it was a significant advance on the situation nine years earlier: in constant 1998 dollars, median income for families categorized as non-white or Hispanic rose in 1998 to 61.8 percent of that for white families compared to 48.3 percent in 1989. According to Robert A. Margo, a major reason for this increase lies in past decisions of African-American parents to invest in the education of their children and move great distances to give their children a better life.⁵

The difference is even more pronounced when we compare another kind of gap—the gap in wealth, or the net value of all assets, including homes, cars, stocks, savings accounts, and others. In 1998, the median net worth of white non-Hispanic families was $94,900, while the median net worth of families categorized as nonwhite or Hispanic was only 17.3 percent of that amount. Although this represented an improvement on the situation nine years earlier, when non-white or Hispanic family net worth was only 9.3 percent of that of white families, there is still a large gap that needs to be addressed.

Many important historical, social, economic, and political variables account for this gap, and there has been much public discussion of its causes and possible remedies. In this article, we will focus on the potential of economic education to narrow the gap. One prominent theme in the recent debate on the wealth gap has been the need for minority youth to be exposed to information and to be involved in programs that can improve their career chances and financial net worth. For example, in a recent book, Jesse L. Jackson, Sr., and Jesse L. Jackson, Jr., describe several programs that can help minority youth.⁶ These programs reflect the efforts of families, nonprofit groups, camps, government initiatives, church programs, and some community partnerships.

In our view, economic education in schools also has a very important role to play in attempts to reduce the gap. This is particularly the case in urban school systems, many of which have large minority populations. Students in an urban school system can benefit from a better understanding of how our economy works, of the future role that the student can play in the economy, and of the correct guidelines for managing financial resources.

Although a basic purpose of economic education is to train students in general economic concepts, we also emphasize the importance of a strong component dealing with personal finance. Many decisions are made by students during their time in school that have a vital effect on their subsequent income and wealth. Students need to understand the implications of their career decisions (e.g., by appreciating the great increase in income that is associated with having a college degree compared to simply completing high school, or of completing high school rather than dropping out). Education in finance can also benefit students by showing them the great opportunity to accumulate wealth purely because they are young. Because of the importance of compounding rates of increase, assets that are held for a long period of time can increase in value at a rate that often astonishes those who are not familiar with personal financial planning. Take, for example, the situation of a student who works part-time for the minimum wage of $5.15 per hour for four years between the ages of 17 and 21. Suppose this student invests two hours of pay every week in a tax-exempt account, such as an IRA, invests the money in an index fund that tracks the stock market (represented by the Standard and Poors 500) and then stops investing at the age of 21. If the stock market maintains its historic average rate of increase, the IRA will be worth more than $200,000 when the student is aged 65.⁷

Many challenges need to be met if an effective economic education program is to be established. They include:

• Identifying and implementing lesson plans that are both stimulating and educational.

• Providing professional development for teachers in the program.

• Having the program reach as many students as possible.

• Establishing an effective system for evaluating the effects of the program.

In this article, we describe a strategy for providing economic education in urban schools that is based on our experience with a program in Milwaukee, where a model has been developed for improving economic education. The program is called the Milwaukee Economic Education Partnership. Its several partners include the Wisconsin Department of Financial Institutions, the Helen Bader Foundation, the Wisconsin Council on Economic Education, the Milwaukee Public Schools, the Wisconsin Department of Public Instruction, and the University of Wisconsin-Milwaukee (UWM) Center for Economic Education. The Partnership has three major components: (1) an economics curriculum that highlights a stock market simulation; (2) professional development for teachers; and (3) two direct programs for students: a summer educational program, and Youth Enterprise Investment Clubs, in which high school students manage real assets.

Curriculum

One objective of the program is to provide engaging lessons for students that can be used as springboards for them to expand their economic knowledge. The program uses the Wisconsin Stock Market Simulation, an activity in which students invest a hypothetical $100,000 portfolio over a ten-week period. Currently, about 250 teams (about 1,600 students) participate in the program each year. In association with this simulation, the program uses a curriculum published by the National Council on Economic Education, which introduces key concepts related to investments in the securities markets. The laws of supply and demand, principles of personal investing, company research, and the basic features of a market economy are stressed in the lessons, which also focus on how the economy affects personal investing and how personal investing affects the economy. Assessment activities include journal writing, multiple choice questions, and essay questions.⁸

Students are often curious about money, and a lesson plan that consistently stimulates their interest in personal finance is presented here under the title, “Do You Really Know How to Become a Millionaire?” It asks questions about the characteristics of millionaires and contains useful information about the relationship between different levels of educational attainment and different levels of earned income.

Do You Really Know How To Become a Millionaire?

Warm-up

Tell the students that the purpose of this lesson is to show how they can make choices that improve their lives. The lesson has several tips about the accumulation of personal wealth. It introduces ideas that will be explored throughout the study of economics and personal finance.

Exercise

• Divide the class into groups of three. To each group, distribute one sheet of paper with “T” on one side and “F” on the other, and one sheet with “Millionaire” written on it.

• Explain the rules of the game.

• Choose a spokesperson for each group see next page).

• Display a transparency of the questions on the overhead projector. At first, keep all the questions covered. Show the students one question at a time so they do not see them all at once.

• All students in the group must tell the spokesperson what they think the right answers are for the questions.

• The majority prevails whenever the group disagrees on the answer.

• The spokesperson must hold up the sheet of paper with “T” and “F” to indicate the group’s decision on the question. A team must answer each question. The spokesperson must also hold up the “Millionaire” sign if the group wants to use this option.

• Each group gets five points for each correct answer. Each group loses five points for each incorrect answer.

• Each group may choose to “Millionaire” on any question up to a total of five questions. If the group answers correctly, it receives 10 points; if the group answers incorrectly, it loses 10 points from its score. Groups should use this tactic on questions they are most
confident about answering correctly.

• A total of 100 points is a perfect score. To earn this score, the students must answer all questions correctly and “Millionaire” correctly on five questions.

• The team with the most points wins and is declared “The Millionaires of Tomorrow.”

• For each question, ask the students to decide in their group whether they think the statement is true or false. Then the spokesperson holds up the “True/False” sign to show the group’s decision to the class. Make sure these sheets are raised simultaneously to discourage some groups from waiting to see what other groups decided. Or the groups can write their answers to all the questions first and then calculate their score.

• While the students keep track of their own scores, keep a point total on the board so that each group can see how it is performing relative to other groups. They will use this information to decide when to go “Millionaire.”

• Discuss the answers either as the students answer each question or at the end of the game. Explain to the students some basic principles for making money and living a more satisfying life.

Cool Down

• Have the students write a brief essay on “Do You Really Know How to Become a Millionaire?”

Source: “The Millionaire Game,” in John S. Morton and Mark C. Schug, Financial Fitness for Life: Going for the Gold (New York: National Council on Economic Education, 2001). The answers to the test come primarily from two excellent sources: Dwight R. Lee, and Richard B. McKenzie, Getting Rich in America (New York: Harper Business, 1999), and Thomas J. Stanley and William D. Danko, The Millionaire Next Door (New York: Pocket Books, 1996).

Do You Really Know How to Become a Millionaire?

Answer each question “True” or “False.” For each correct answer, you will receive five points. For each incorrect answer, you will lose five points. For any five questions, you may hold up the “Millionaire” sheet with your answer. If you answer correctly, you will receive ten points. If you answer incorrectly, you will lose ten points.

1. Most millionaires are college graduates.

2. Most millionaires work fewer than 40 hours a week.

3. More than half of all millionaires never received money from a trust fund or estate.

4. More millionaires have American Express Gold Cards than Sears cards.

5. More millionaires drive Fords than Cadillacs.

6. Most millionaires work in glamorous jobs, such as sports, entertainment, or high tech.

7. Most millionaires work for big Fortune 500 companies.

8. Many poor people become millionaires by winning the lottery.

9. College graduates earn about 65 percent more than high school graduates earn.

10. If an average 18-year-old high school graduate spends as much as an average high school dropout until both are 67 years old, but the high school graduate invests the difference in his or her earnings at 8 percent annual interest, the high school graduate would have $5,500,000.

11. Day traders usually beat the stock market and many of them become millionaires.

12. If you want to be a millionaire, avoid the risky stock market.

13. At age 18, you decide not to smoke and save $1.50 a day. You invest this $1.50 a day at 8 percent annual interest until you are 67. At age 67, your savings from not smoking are almost $300,000.

14. If you save $2,000 a year from age 22 to age 65 at 8 percent annual interest, your savings will be over $700,000 at age 65.

15. Single people are more often millionaires than married people.

Millionaire Game Answers

1. True. Four of five millionaires are college graduates. Eighteen percent have Master’s degrees, eight percent law degrees, six percent medical degrees, and six percent Ph.D.s.

2. False. About 2/3 of millionaires work 45-55 hours a week.

3. True. Only 19 percent of millionaires received any income or wealth of any kind from a trust fund or an estate. Fewer than 10 percent of millionaires inherited 10 percent or more of their wealth.

4. False. Only 28.6 percent of millionaires have American Express Gold Cards while 43 percent have Sears credit cards. Only 6.2 percent of millionaires have American Express Platinum Cards.

5. True. Ford is preferred by 9.4 percent and Cadillac by 8.8 percent. Lincoln comes in third at 7.8 percent. Only 23 percent of millionaires drive a current-year (new) car.

6. False. A majority of millionaires are in ordinary industries and jobs. They are proficient in targeting marketing opportunities.

7. False. About three out of four millionaires are self-employed and consider themselves to be entrepreneurs. Most of the others are professionals, such as doctors, accountants, and lawyers.

8. False. Few people get rich the easy way. If you play the lottery, the chances of winning are about one in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once. In contrast, you have a one in 1.9 million chance of being struck by lightning. A pregnant woman has one chance in 705,000 births to have quadruplets. How many sets of quadruplets do you know?

9. True. In recent years, the average college graduate earned 66 percent more than the average high school graduate did. People with professional degrees earned 150 percent more than high school graduates did.

10. True. Of course, a normal person would spend some of the difference, but it is a dramatic illustration of how valuable a high school diploma is. The difference in earnings between a high school graduate and a high school dropout is $8,000 at age 18. The illustration assumes the difference increases by 1.5 percent each year and that the difference is invested at 8 percent interest each year.

11. False. Recent studies show that 80 percent of day traders lose money.

12. False. Long term (starting in 1926 and including the Great Depression), the Standard & Poor’s 500 Stock Index has increased at about 11 percent compound annual rate of return, exceeding the return on any other investment. Of course, there is risk. The stock market has down years, and there is no guarantee of an 11 percent return in the future, especially in the short run. In contrast, the long-term return on risk-free U.S. government securities during the same period ranged from 5 to 6 percent. The actual return depended on the term of the bond. Another way of looking at this is that $1.00 invested in the S&P 500 on January 1, 1926, was worth $1,828 on December 31, 1997. One dollar invested in long-term government bonds during the same period was worth $39 on December 31, 1997. It probably paid to take the additional risk of buying stocks.

13. True. Because of the power of compound interest, small savings can make a difference. It pays to resist temptation and live below your means.

14. True. Because of the power on compound interest, the earlier you begin saving, the better. Regular saving will make you a millionaire, even if your salary is modest.

15. False. Most millionaires are married and stay married. By contrast, divorce is a gateway to poverty. Financially speaking, divorce is something you want to avoid, particularly after you have children. It is important to choose a marriage partner carefully.

Professional Development

The Center for Economic Education of the University of Wisconsin-Milwaukee offers a course titled Integrating the Stock Market Simulation across the Curriculum. Nearly 80 teachers, more than half of whom are minority teachers, have participated in the course. We estimate conservatively that more than 2,500 students have improved economic understanding as a result of being in the classrooms of teachers from the Milwaukee Public Schools who participated in this course.

Here are some of the features of the course.

• All teachers play the Wisconsin Stock Market Simulation and use in their classes the accompanying curriculum material published by the National Council on Economic
Education.

• An economic education specialist from the Center for Economic Education of UWM provides all teachers with direct assistance for classroom teaching.

• Teachers are instructed in the basics of personal finance, including saving and investing, as well as the basics of economics, including the concepts of scarcity, choice, opportunity cost, laws of supply and demand, equilibrium price, and the institutions of a market economy.

• Teachers develop their own lessons and report on classroom successes and failures.

An attempt was made to evaluate the extent to which the course improved the knowledge of its participants. Here are the results from the first two years. Teachers completed tests of basic economic knowledge and personal finance before training and afterward. Table 1 shows the results of the pre- and post-test scores on selected items from the Test of Economic Literacy for each of the two years. The course seems to have had a positive effect by enhancing performance on items from the Test of Economic Literacy. The post-test scores in both years were significantly higher than the pre-test scores, according to the dependent sample t-tests that were conducted. The difference between the pre- and post-test mean scores was statistically significant in each year [t (18) = -3.519, p < .01 for the first year, and t (17) = -2.83, p < .05 for the second year].

Table 1 also shows the results of the teachers’ performance on a test of personal finance in each year. As was the case with the test on basic economic knowledge, it appears that the course had a positive effect in enhancing performance on test items regarding personal finance. The post-test scores were statistically significantly higher than the pre-test scores for both years, according to the dependent sample t-tests that were conducted. The differences between the pre- and post-test mean scores were statistically significant in each year [t (18) = -2.832, p < .05 in the first year, and t (17) = -3.05 p < .01 in the second].

Student Programs

The Milwaukee Economic Education Partnership also provides two direct programs to Milwaukee students—the Youth Enterprise Academy and the Youth Enterprise Investment Clubs. The Youth Enterprise Academy is a ten-day summer program for high school students that is conducted on the university campus. Its goal is to increase the economic education and participation of city youth in the economy. Three areas are emphasized. First, students study personal finance, participating in several activities that stress saving, investing, credit, and the importance of getting a good education (investing in their own human capital). Students act as “stock analysts,” researching various companies for their “clients” and recommending whether the stocks of those companies should be bought, held, or sold.

The Youth Enterprise Academy also emphasizes basic economics. Students participate in several activities to learn such basics as scarcity, choice, opportunity cost, incentives, profit, the laws of supply and demand, market price, price ceilings, price floors, and so forth. The students participate in auction market and private property rights simulations, and hear presentations from successful minority business people.

Finally, the Youth Enterprise Academy focuses on academic success, which is necessary if participants, to become leaders in the economy. Students examine career options, decide what courses to take now to get ready for college, and discuss how to finance a college education.

In another major program, the Milwaukee Economic Education Partnership sponsors Youth Enterprise Investment Clubs and the Youth Enterprise College Fund among students selected from the Youth Enterprise Academy. A Youth Enterprise Investment Club manages a Youth Enterprise College Fund—a fund with an initial value of $2,000 per student or $10,000. The goal of a Youth Enterprise College Fund is to increase the value of the fund to cover most or all of the first year of tuition at a typical college or university. To do this, students enroll in the National Association of Investment Corporation as an investment club. When a member of the Youth Enterprise Investment Club graduates from high school, he or she can designate that his or her share of the whole fund be paid to the post-secondary education institution to which the student is enrolled.

How well do the students learn? Table 2 shows the pre- and post-test scores for tests comparing student performance on selected items from the Basic Economics Test in years one and two of the Youth Enterprise Academy. The Youth Enterprise Academy appears to have had a positive effect on performance on items in this test, according to the dependent sample t-tests that were conducted. The difference between the pre- and post- test mean scores was found to be statistically significant in both years [t (22) = -6.567, p< .001 in the first year, and t (17) = -5.19 p < .001 in the second].

Students also completed tests on their knowledge of personal finance before and after the program. Table 2 shows the results of the pre- and post-test scores for each year. The Youth Enterprise Academy appears to have had a positive effect on performance on personal finance test items, according to the dependent sample t-tests that were conducted. The difference between the pre- and post-test mean scores was found to be statistically significant in both years [t (22) = -7.664, p< .001 in the first year, and t (22) = -11.36, p< .001 in the second].

Conclusion

Taken together, the components of the Milwaukee Economic Education Partnership appear to be a good start toward addressing the lack of economic understanding and the net worth gap in urban areas. Much, however, remains to be done. It is hard to sustain and expand such programs—no matter how well intentioned—in large urban school districts. Persistence and the continued involvement of school and the community partners are essential for success.

Notes

1. The survey was conducted for the National Council on Economic Education (NCEE). Its results are available on the NCEE website at www.ncee.net/poll/results.html

2. Among those students who had been taught economics in school, only 26 percent received a grade of C or better on the survey compared to 14 percent of those who had not been taught economics.

3. Boys were more likely than girls (25% vs. 17%) and white students were more likely than African American and Hispanic students (26% vs. 11% and 14%) to score a C or better on the survey.

4. The information in this and the next paragraphs about family income and net worth is taken from Federal Reserve System, “Recent Changes in U.S. Family Finances: Results from the 1998 Survey of Consumer Confidence,” Federal Reserve Bulletin, Federal Reserve Division of Research and Statistics: Washington, D.C., January 2000.

5. Robert A. Margo, “What Is the Key to Black Progress?” in D.N. McCloskey (ed.), Second Thoughts: Myths and Morals of U.S. Economic History (New York: Oxford University Press, 1993): 65-69.

6. Jesse L. Jackson, Sr., and Jesse L. Jackson, Jr., It’s About the Money (New York: Random House, 1999).

7. The calculation has been made on the assumption that the money is invested at the end of each year of work and compounds at 10.5% annually. This reflects a historical average rate of increase in the Standard and Poors 500 Index of 10.7% annually from the end of 1925 through 2001, minus 0.2% reflecting the costs of an index fund, such as the Vanguard 500. Information has been obtained from the Vanguard website, www.vanguard.com. The historic rate of increase is quoted in an article “Stock Dividends Look More and More Attractive” from the magazine In the Vanguard (Spring 2002): 3, and the estimate of costs is the actual cost for the Vanguard Index Fund 500 in 2001.

8. See Mark C. Schug, Kathleen Ryan Johnston, John S. Morton, and Donald R. Wentworth, Learning from the Market: Integrating the Stock Market across the Curriculum (New York: National Council on Economic Education, 1997).

Mark C. Schug is a Professor in the Department of Curriculum and Instruction at the University of Wisconsin-Milwaukee, where he is the Director of the Center for Economic Education. Robert L. Wynn II is Financial Education Officer in the Department of Financial Institutions of the State of Wisconsin. Tracy J. Posnanski is an Assistant Professor in the Department of Curriculum and Instruction at the University of Wisconsin-Milwaukee.

Table 1

Test Scores for Teachers in the Program

Year 1: Pre- and Post-Test Scores on Economic Literacy Test Items