High School Seniors Get ‘F’ in Finance
A fabulous reader, Caryn, sent me the following article from the Washington Post written by Jeannine Aversa: High School Seniors Get ‘F’ in Finance
Young people’s financial know-how has gone from bad to worse.
High school seniors, on average, answered correctly only 48.3 percent of questions about personal finance and economics, according to a nationwide survey released Wednesday by the Federal Reserve. That was even lower than the 52.4 percent in the previous survey in 2006 and marked the worst score out of the six surveys conducted so far.
The article attempted to make a connection between students’ lack of financial savvy and the current housing market, record level foreclosures, and credit worthy borrowers. *blank stare*
So if teenagers understood more about finance, adults wouldn’t buy houses they can’t afford? Or…If teenagers understood more about finance, lenders wouldn’t sell subprime loans to borrowers who they KNOW can’t afford to pay it back? Yea, ok.
And this part really made me scratch my head:
In this year’s survey, only 16.8 percent correctly answered that stocks likely would offer the higher growth over 18 years of saving for a child’s education, while 37.3 percent thought a U.S. savings bond _ one of the most conservative investments _ would offer the highest growth.
Nearly 53 percent said they would have no liability if their credit card was stolen and a thief ran up $1,000 worth of debt. (Liability is limited to $50 after the credit-card issuer is notified.) Only 13 percent knew they might have to be responsible for $50.
“The survey demonstrated that graduating high school seniors continue to struggle with financial literacy basics,”
Guess what Washington Post? 6 of my 8 credit cards have a ZERO liability clause. Now what does that say about 53% of the students who chose “they would have no liability?”
While I understand the point Ms. Aversa is TRYING to make, I think this article (and the survey) was reaching too far. When I was a HIGH SCHOOL senior, I didn’t know very much about stock values either. In fact, I almost failed Econ in undergrad, loved it in grad school and STILL barely understand the complexity of our economic system. Hell, it took a pictorial explanation for me to understand how C.D.O.s drove the subprime market meltdown and the current recession!
My point is…
Personal Finance is NOT rocket science. If you earn $5 and you spend $6, that’s a bad. If you earn $5, spend $2, invest/save $2, and give away $1. That’s good. I hate when “experts” make people think you have to understand complex issues in order to make responsible financial decisions. It’s discouraging for the average person. But if it were true, more than half of the adult population - including the author of this article - would receive an “F” in finance too.
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Amen - ‘tests’ like that are way too reductive to actually suss out how much kids know. As for the 37% of kids who think that a bond is a better way to pay for college than stocks - if they’re looking into the future, they might just be really pessimistic! Knowing that the market historically yields better returns is a good thing to know, but either/or questions like that can really miss the point.
I wish there were more financial education in school - these kids are going to get inundated with credit card offers soon, and deciding to run up a balance at 18 can really wreak havoc on your finances. Learning about those financial basics is way more important than learning about the details of a bear vs a bull market!
Schools are emphasizing community service and and service learning but I think some type of personal finance course should be taught and it could be something easy, like a 1 credit, pass fail type thing.
Single Ma,
You should send an edited-down version of this to the Post as a letter to the editor, and I only say edited-down because newspapers like letters short and sweet. Your point about your zero liability cards in particular is telling.
Heather near Atlanta
Great idea! Wish I had the time. [-SM]
Agreed. These questions don’t reflect the “personal finance basics” that I would expect a hs student to know. More important than knowing what investment gets what return would be knowing how to find that information in order to make good decisions. To some extent, same is true for the CC question.
I agree. I’d more than Fail.. is that possible?
What they should be testing on is the basics of personal finance - budgeting, saving (like that simple formula you had up there)
Hi SM - interesting post. I agree that financial basics should be: spend less than you make, here is how to balance a check book (and just because you pay bills on line doesn’t make this less important), and basics on how to manage a credit card and start establishing good credit. That’s it - the rest (mortgages, investments, etc.) will come with time and life changes. No need to turn them into CFA’s or CPA’s at the age of 18!
That’s why I had to scratch my head when the article mentioned “financial literacy basics” for HS seniors. I thought to myself…hmm…I wonder what they consider complex - margins and covered calls? Oh wait, once you ‘graduate’ HS, that’s basic too! [-SM]
I’ll agree on you sending a letter to the editor too.
And yes, why don’t they test them on life skills — budgeting, balancing a checkbook, writing checks, reading credit card statements, choosing the most favorable bank terms? Because, you’re absolutely right, I’d fail that test too (although you could hardly classify me as financial savvy. I’m just not financially retarded!). < <---LMAO!! [-SM]
Anyway, the stuff that matters, doesn’t seem to be the stuff that anyone’s bothering to teach these youngsters. And, judging from the subprime mortgage mess, parents sure ain’t leading that charge!
Requirements among high schoolers must be changed! As it stands right now, children will only be taught about the current economic issues in 15 years, when they make there way into the history books!
Not only do current events make learning fun, but they make the lessons stick. [-SM]
I was just listening to NPR’s Marketplace Money, and this was a feature. They quizzed staffers with the questions from the test.
The problem with highschool kids, at least where I am from, is that they don’t teach anything about this stuff. How are you supposed to turn into a finacially responsible and educated adult if you don’t learn it in school?
Understanding stocks and bonds has nothing to do with being financially responsible. One must crawl before they walk, and walk before they run, but it doesn’t mean you MUST complete a marathon. Some things are learned through life experience. [-SM]
Great points, but I’m still glad for the article, because it might draw attention to how we need to educate our kids better when it comes to finance.
Bring things to my attention with relevant facts, not by making me think my child is stupid. [-SM]
While I was in high school, if someone had told me to work for myself instead of “getting a good job” I, and most of you all, would be much richer today. working for others will always put a cap on your earning ability but in business for yourself removes those caps. Also, a secondary income from a work at home business is always a plus. Check out these two sites for more information.
http://ezinearticlesnospam.com
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I have no desire to own a business. Further, being an entrepreneur does not guarantee riches. Lastly, your spam links are neither welcome nor allowed. [-SM]
I would not necessarily expect an 18 year-old to know about the best investment vehicle for a specific goal as this article suggests they should. I would consider an 18 year-old who knows about budgeting, how credit cards work, how to calculate interest on savings/loans and the very basics of retirement well on their way to staying out of trouble.
Specifics about investing and investment vehicles is most likely learned much later as circumstances require. Perhaps they are not testing for the knowledge that is actually required for this particular stage in life…kind of like testing a 1st grader on multiplication facts and then lamenting the state of math education when a large portion of them fail. I would be much more interested in the results of an age/life stage appropriate test.
“Understanding stocks and bonds has nothing to do with being financially responsible. One must crawl before they walk, and walk before they run, but it doesn’t mean you MUST complete a marathon. Some things are learned through life experience. [-SM]”
I agree that understanding stocks and bonds doesn’t make you financially responsible. Understanding credit cards, and loans, and how money itself works, does. (the “walking” step) And they still don’t teach ANYTHING personal finance related in highschool. I didn’t have a single class even offered to help with that, no accounting, no personal finance, nothing. If it weren’t for my mother I would have been clueless, sucked into the credit card debt and scams that so many others are. (I wouldn’t have learned to crawl) I got lucky and had helpful responsible parents.
Agree about the crawl/walk/marathon analogy.
I highly recommend that everyone take a look at the Jump$tart survey and answers directly, because I think many of these questions ARE quite basic.
When 40% of kids can’t figure out how long it would take a new worker to save $600 given a basic budget, 60% can’t identify collision as the coverage needed for at-fault damage to one’s own car, and 60% can’t identify the risk of their parents losing family health insurance coverage if the parents become unemployed, there are fundamental gaps in many young people’s financial understanding. (Also, I think that since most credit card agreements also include a clause allowing the card issuer to change terms at any time [albeit with notice], kids would be better off knowing the law rather than their own issuer’s initial agreement.)
It’s not a question of knowing the details about investments. It’s about not knowing a lot at all. And I think an organization that devotes its time to giving educators and students tools to FIX that problem deserves applause more than criticism.
http://www.jumpstart.org/fileindex.cfm
Great points.
However, I was criticizing an article that served no other purpose than to highlight what students do NOT know. We thought your child was behind the curve, now we’ve confirmed s/he is more stupid than we thought. Please! What’s the point? If an organization is proposing a way to FIX the problem AND providing the tools to do it, then you’re right, that IS great and should be commended.
Thanks for link. I need to explore the site and dig deeper. I might learn something new myself. [-SM]
I agree with you Single Ma. Age appropriateness is the key here. Illinois had a “consumer economics” requirement when I was in high school, but it was just one quarter of learning how to balance a checkbook. Literally, we had fake checkbooks and we would add and subtract bills and that was our homework. I learned addition/subtraction in first grade - that class taught me nothing! I think HS students need to know three things - how credit cards work and why they should avoid them or be very careful with them, how loans in general work and the differences between subsidized, unsubsidized and private loans for students, and how credit scores affect finances and why it is important to have a good one.
–Sorry, I put this in the wrong section before.
Single Ma,
I think the idea is that the financially ignorant 18 year olds of today will be the first time homeowners of tomorrow (well really 5-10 years from now). So these people who bought homes they can’t afford were probably the same people doing poorly on the financial savvy quiz 10 years ago. Which means, this problem will only get worse if lenders don’t become more responsible.
Just a thoguht.
Thanks for the link. I took a look. The Clearinghouse looks useful. I also read the press release from the organization about the 2008 survey. That was very interesting as well. I do have some disagreement with them on the definition of what constitutes “basic” financial literacy. At 18 years old, I was in charge of my finances (paying for college, managing my living expenses, and essentially responsible for myself) and there were questions that I would not have known the answer to at the time. For example, I did not own a car, so would not have known the answer to the collision question. I did not need to know in order to live my life at the time. Interestingly, the press release did go on to say that college age kids scored progressively better than high school seniors (which reinforces the point I think many here were making).
While I don’t think they were trying to tell young people that they are stupid, by highlighting questions that many people would not need to know until later in life (or at least until later in college), makes the subject daunting and seemingly much more complicated than it has to be for those just starting their adult lives.
In addition, one thing the press release highlighted is that problem-solving ability seemed to contribute to higher scores on the test. Not being able to figure out how long it will take to reach a savings goal could be a math literacy problem, not a financial literacy problem. Personally, I find that possibility much more disturbing.