Michael Watts - Professor of Economics, Director, Center for Economic Education, Purdue University
Published December 1, 1998 | December 1998 issue
There are strong incentives for individuals to pay the high costs they faceeven after large government subsidieswhen they invest in education. On average, the lifetime income earned by those with a college degree is substantially higher than that of individuals with less education. The rates of return to investments in education are actually highest for elementary education, where basic language and math skills are developed that are used in almost all later life and occupational experiences. Returns to secondary education are somewhat lower, and lower again for the bachelor's degree. But even there the return is considerably higher than the return on savings accounts and bonds, and roughly comparable to the average return received by businesses that invest in new factories and machinery.
There is some debate among economists and others who analyze education and jobs about why college graduates earn more than individuals with less education. But to a prospective student and future employee, the key fact is that they do. Moreover, the income advantage for those with college degrees has increased sharply over the past two decades. That establishes a strong private demand for education and general literacy that would be present even if public subsidies for education were withdrawn. Can the same thing be said for economic literacy?
Unfortunately, we don't have studies that show whether people who are more literate in economics earn more than those who are less literate, let alone how much more they earn. We can, however, point to some evidence that suggests there is a positive return.
We know, for example, that in the 1990 census, in the 25-34 age group, men with bachelor's degrees in economics had median earnings 3 percent higher than the average for all college graduates in this age range, and by ages 35-44 that difference rose to 14 percent. For women those numbers were even higher: 13 percent and 53 percent, respectively (Hecker, 1995). The number of economics majors rises and falls over a long cycle, but about 2.2 percent of all college students major in economics (Siegfried, 1998). Many more college students take one or two economics courses, usually because they are required to do so to complete majors in business, engineering or other fields. A few colleges and universities require one or two economics courses for all students. Total enrollments in college-level economics courses are large enough to support the employment of thousands of Ph.D. economistsabout 70 percent of all new jobs advertised in the American Economic Association's Job Openings for Economists are in academe (Becker, 1997). Finally on this theme, in one highly publicized case a commercial publisher recently paid a million-dollar plus advance to the author of a principles of economics textbook.
At the secondary level, approximately 30 percent to 50 percent of students take a course in economics, again because they are often required to do so. At this level the course requirements are established by state law or regulation, or by individual school or school district mandates. The long-term trend for secondary enrollments in economics courses appears to have been a slow but fairly steady increase (Walstad, 1992).
We have essentially no information about the long-term effects of secondary or elementary economic education on earnings or subsequent career and school choices. There are, however, several long-established organizations with extensive networks to promote more and better training in economics at the precollege level, with major funding provided by both private and public organizations. The two largest national organizations are the National Council on Economic Education (NCEE) and Junior Achievement (JA).
JA is primarily sponsored by corporations, and uses business representatives as once-a-week classroom consultants or advisers to after-school companies run by students. JA programs stress business education and some applied economics. NCEE programs train elementary and secondary teachers to teach more and better economics at all grade levels and in almost any subject area. The training is typically offered through college and university centers for economic education that are staffed by economics and/or education professors who spend some time working with local teachers and school districts.
JA programs are taught from a proscribed set of materials published and sold by JA to schools or program sponsors who donate them to schools. These materials usually focus on the business sector of the economy. The NCEE publishes and sells general curriculum guidelines (including voluntary national standards) dealing with a broader range of economic concepts and topics, and supplementary instructional materials that can be used with whatever textbooks teachers are using. The center directors and staff who provide teacher training in the NCEE network are free to recommend and use films, software, and publications from any source, and they regularly do. As that suggests, salaries for the center personnel who conduct the teacher training are almost always paid by host colleges and universities, not by the NCEE or one of its state council affiliates. Many colleges and universities support this kind of training as part of their local outreach mission, or accept research on effective teaching and learning of economics, and the development of curriculum and instructional materials, as meeting a professor's research and scholarship duties. That happens often enough that the largest single block of resources for the NCEE network is this salary and in-kind support provided by the 270 or so U.S. colleges and universities with Centers. Other sponsors, including business, labor, agricultural and educational organizations, and public and private foundations, provide funding to subsidize tuition payments and instructional materials development and distribution for the NCEE programs, which regularly offer graduate credit in economics or education to participating teachers.
There are several smaller economic education organizations active in elementary and secondary economic education in the United States today, often established or primarily funded by a particular donor or foundation. But as noted above, the NCEE and JA networks are, by far, the two largest organizations working in this area on a national scale.
A relatively new and apparently growing area of economic education and training is through programs provided by businesses to their employees. We don't have good data on the quantity or content of such programs. I have personally been involved with training programs offered to managers and production-line workers at two Fortune 500 firms, and colleagues at Purdue have developed and offered programs for at least four other such firms. The programs we teach use "real" data from the firm or a specific plant site to cover such concepts as revenues, costs, profits, pricing, competition, productivity and profit or gain-sharing plans. At some firms we also discuss exchange rates and other factors affecting international sales and competition. There are only a few studies on employee training in economic and financial education. Bernheim and Garrett (1996), for example, report that employees who attended training sessions on a company's retirement program make different decisions about their pension and savings plans, compared to workers who did not attend the training programs.
Finally, a substantial part of the resources devoted to the financial press and electronic media can be viewed as a key part of the supply of economic information to the public. Many of these outlets, including The Wall Street Journal, Business Week, Forbes and several of the regional Federal Reserve banks, now have educational divisions that directly produce or sponsor the publication and distribution of economic education materials, and in some cases training programs for teachers, students or adult audiences.
Even if we had better data on total dollar value of this support for economic education, we would not be able to identify the benefits to an individual of completing a course or curriculum in economics. It may well be decades before we get good estimates of the value of those benefits. In the meantime, the indirect evidence of those who bear the costs of taking and providing economic education indicates that there are many who have long believed that the value of economic literacy to individuals is substantial.
But that's not the only value claimed for such programs. In fact, despite some outspoken criticism and considerable debate, it is often claimed that the key benefits of economic literacy are reaped not by individuals, but rather by societies where the average citizen is reasonably articulate in the area of economics and economic policy.
There are other variants, but the main argument for the public value of economic literacy is that better public policies result when people elect representatives who support policies based on good economic analysis, and reject those who support bad legislation and policies that favor special interest groups. That idea seems simple enough, but there are two important caveats to consider: 1) Will someone refrain from promoting their own special interest projects just because they recognize the overall adverse effects of such programs? 2) Will someone who is economically literate be more likely than someone who is not to work against special interest programs that cost him or her, personally, very little.
Most economists answer the first question in the negative because, at least professionally, they don't put much stock in the power of guilt or conscience in the face of substantial personal gain that can be achieved through perfectly legal means. Many economists are also inclined to answer the second question negatively. But there is a problem with those answers, and especially the second one. There is a growing literature in economics that recognizes that many people do some kinds of things because they feel it promotes the general social welfare, or as a matter of principle. And while economists have a ready explanation for why voting turnout is so low in most elections, they are also faced with the empirical fact that about half of all registered voters do vote in national elections.
Given that so many people choose to vote, for whatever reason, it is more than plausible that improving the economic literacy of those who vote can strengthen the position of elected and appointed officials who work for good economic policies, and against bad ones.
It isn't true that, without large spending for economic education programs, the U.S. economy will crash and burn. In the Wealth of Nations, written in 1776, Adam Smith was quite sanguine about how effectively competitive markets worked even when consumers and shopkeepers knew little or nothing about formal economics, which in many ways Smith was first presenting and systematizing in his book. People do learn a lot of economics just by interacting in markets every day, as consumers, workers, savers and sometimes as investors and employers, too. They certainly learn to recognize and follow their self-interest in most of the economic settings they face on a day-to-day basis. But much of the economic literacy people acquire this way is learned the hard way, by trial and error. Experience is often a hard teacher, and economic mistakes are often costlyperhaps much more so today than in 1776, given greater specialization, technological development, and global interdependence.
Even if programs to promote economic literacy aren't necessary to save the marketplace and the American way of life, they are likely valuable in helping people function more effectively as consumers, savers, investors and workers. That is, quite likely, the source of the private demand for economic education.
Economic literacy may also have an important role to play in making the economic system work better by influencing voters' and public officials' decisions at the national, state and local levels. If so, economic literacy is to some extent also a public good.
Many of us wish that we had better data on how valuable economic literacy is as both a public and a private good. But at least we know, in general terms, where to look for the results of economic education programs, and for those who value these programs, or should value them.
Becker, William E. "Teaching Economics to Undergraduates," Journal of Economic Literature, September 1997, pp. 1347-1373.
Bernheim, B. Douglas and Garrett, Daniel M. "The Determinants and Consequences of Financial Education in the Workplace: Evidence From a Survey of Households," NBER Working Paper 5667, July 1996. Hecker, Daniel E. "Earnings of College Graduates, 1993," Monthly Labor Review, December 1995, pp. 3-17.
Siegfried, John J. "Trends in Undergraduate Economics Degrees: A 1996-97 Update," Journal of Economic Education, Summer 1998, pp. 285-88.
Walstad, William B. "Economics Instruction in High Schools," Journal of Economic Literature, December 1992, pp. 2019-2051
Watts is the director of the Purdue University Center for Economic Education, a professor of economics, and an associate editor of the Journal of Economic Education. He also serves as a member of the American Economic Association Committee on Economic Education and was part of the NCEE's Writing Committee on the National Standards for K-12 Economic Education.
Watts received his doctorate and his master's in economics from Louisiana State University.