Requiring high school students to take a personal finance course reduces their likelihood of getting expensive payday loans down the road.

This is the takeaway from the research published by the FINRA Foundation for Investor Education in collaboration with April financial literacy month.

Short term loans, usually due on or before your next payday, can result in interest rates of up to 400%, according to the Consumer Financial Protection Bureau. For comparison, that’s over 10 times the rate of more expensive credit cards. It takes about five months for borrowers to repay the loans and costs them an average of $ 520 in fees, according to Pew Trusts.

Melody Harvey

Source: Mélodie Harvey

“Consumers should use alternative financial services as a last resort,” said Melody Harvey, study author and member of the University of Wisconsin-Madison Poverty Research Institute.

Yet young people may have few other borrowing options, Harvey said. “It’s hard to get credit through traditional means if you don’t have enough history.”

There are more payday lenders in the country as McDonald’s or Starbucks.

Young adults who must take a personal finance course to graduate are 4 percentage points less likely to take out payday loans than their peers who did not have to, Harvey found.

That’s a significant drop, given that nearly 20% of Americans aged 19 to 31 report using short-term loans.

Harvey compared the behaviors of individuals living in a state with a mandate of personal finance education to those of their older counterparts living in the same state and of their same-aged counterparts living in a state without a mandate.

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In some classrooms, including those in Tennessee and Utah, the risks of payday loans are directly addressed. In other schools across the country, teachers stick to more general topics such as interest rates and debt management. Both forms make students wary of loans after they leave the classroom, Harvey said.

Another recent study found that in states where personal finance education is mandatory, students make better decisions about how to pay for college. For example, they contract less private debt.

“My goal in reviewing payday loans was to talk about the applicability of these courses to situations that students will encounter in the very near future,” Harvey said.

Disclosure: NBCUniversal and Comcast Ventures are investors in Tassels.



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