Financial Literacy and U.S. Teens: Global Study Offers Path for Improvement
By Jason Alderman
A first-time global financial literacy study shows that the keys to successful personal finance education are student perseverance and an openness to problem solving.
That’s one of the main findings in the inaugural financial literacy portion of the Program of International Student Assessment (PISA) test (http://www.oecd.org/pisa/keyfindings/pisa-2012-results-volume-vi.htm), which evaluated the skills and knowledge of 29,000 15-year-olds in 18 countries and economies in 2012. Final results were released in September, and PISA officials announced that the assessment of financial literacy will be offered as an optional component in 2015 testing.
PISA was launched in 2000 by the Organization for Economic Cooperation and Development (OECD), which promotes policies that support economic and social well-being around the world.
U.S. students earned an average score of 492 out of a possible 700, which ranks those teens between eighth and twelfth place among all 18 participating countries and economies, according to the PISA study. Other findings from the U.S. results:
- About one in 10 U.S. students is a top performer – 9.4 percent, compared with 9.7 percent across OECD countries. The report said this means they can “look ahead to solve financial problems or make the kinds of financial decisions that will be only relevant to them in the future.” It added that top performers “can take into account features of financial documents that are significant but unstated or not immediately evident, such as transaction costs, and can describe the potential outcomes of financial decisions.”
- More than one in six U.S. students – 17.8 percent, compared with 15.3 percent across OECD countries – do not reach the “baseline level of proficiency in financial literacy.” The report explained that “at best, these students can recognize the difference between needs and wants, can make simple decisions on everyday spending, and can recognize the purpose of everyday financial documents such as an invoice.”
- About 50 percent of all U.S. 15-year-olds said they had a bank account and were found to perform better than those who did not. But the report said the performance gap vanished after accounting for socioeconomic status; only 32 percent of students in the lowest quartile of socioeconomic status had accounts, while 70 percent of those in the highest quartile did.
Countries with students who scored better than their U.S. counterparts seem dedicated to a nationwide, mandatory personal finance curriculum, though most programs have not been in place for very long.
The top scorer, Shanghai-China, has a history of placing financial education topics in its national curriculum that dates back to the 1970s, according to the report. It added that beginning in 2009, the Shanghai-China system has introduced “regular training on finance” throughout its “primary and lower secondary schools.”
In the Czech Republic, a working group for the nation’s ministry of finance developed financial literacy standards in 2007, defining lesson content and outcomes for education in topics ranging from “money and household budget management to financial products and consumer rights.”
Furthermore, in Australia, the nation’s education authorities “have endorsed three iterations” of the country’s National Consumer and Financial Literacy Framework since 2005. According to the PISA report, Australia’s framework helps structure consumer and financial education throughout the country’s educational system and the program has worked with the Australian Securities and Investment Commission to create MoneySmart Teaching a resource portal for K-12 educators.
In America, more teens could improve their financial literacy if states chose to require mandatory personal finance training as a requirement for high school graduation. The Council for Economic Education reported that as of 2014, only 17 states required students to take a high school course in personal finance or that personal finance be included in an economics or civics course as a graduation requirement (http://www.councilforeconed.org/news-information/survey-of-the-states/). That’s compared to 13 states in 2011. However, only six states (Colorado, Delaware, Georgia, Missouri, Michigan, and Texas) required testing of that material last year. The Jump$tart Coalition for Personal Financial Literacy reported that only four states (Missouri, Tennessee, Utah and Virginia) require at least a one-semester course devoted to personal finance.
Bottom line: The results from the first-ever global high school financial literacy test show that organized and systemwide personal finance training helps students excel at money management.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter: www.twitter.com/PracticalMoney.