Kids flunk financial literacy test

Your Money


Let's test your financial literacy. Which of the following options tends to have the highest growth over periods of time as long as 18 years:

(a) a U.S. government savings bond

(b) a savings account

(c) a checking account

(d) stocks

This was one of 30 multiple-choice questions in a financial literacy test given to 5,775 high school seniors during December and January in 305 schools across the country. It was the latest in a series of surveys by the not-for-profit Jump$tart Coalition for Personal Financial Literacy every couple of years since 1997.

According to the recently released test results, 45 percent of the students picked the savings bond, and 35 percent chose the savings account.

The correct answer is stocks, which over 18-year periods have consistently done better than the other choices, often by wide margins. Only 14 percent of the 12th-graders answered correctly, the lowest percentage since the Jump$tart surveys began.

Also, just 23 percent of the students in the latest test understand that interest on savings accounts may be taxable if their income is high enough. Only 40 percent realize they could lose their health insurance if their parents become unemployed.

And the overall score - on average, students answered 52.4 percent of the 30 questions correctly - would be an "F" in a typical grading scale and is barely higher than the 52.3 percent score in the 2004-2005 test.

"This indicates that, despite the attention now paid to the lack of financial literacy, the problem is not about to resolve itself anytime soon," said Lewis Mandell, a professor at the School of Management at the State University of New York at Buffalo.

Mandell has conducted all the high school surveys for Jump$tart, which seeks to improve the personal financial literacy of students in kindergarten through college (see

How best to teach financial literacy - including whether to just leave it to the parents - has been debated for years. Most educators today recognize the need for students to learn the basics of managing money, including credit and insurance, by the time they leave high school, if not sooner.

A survey by Junior Achievement released this spring showed 10 percent of 17-year-olds and 20 percent of older teenagers have credit cards, and that nearly 16 percent of teens with credit cards make only the minimum payment.

Some educators are concerned that educational materials used in schools, even if typically of high quality and devoid of commercial pitches, are often prepared and made available by financial firms with a product or service to sell. (The latest Jump$tart survey was underwritten by the Merrill Lynch Foundation, a philanthropic arm of the brokerage.)

"We have to assume we have not found the right teaching method," said Laura Levine, executive director of the Jump$tart coalition, which serves as a national clearinghouse for personal finance curriculum materials.

Mandell said it is also possible that students "don't focus much on financial literacy and don't retain what they have learned because they don't think it is relevant to their lives."

New questions in this year's survey also show a strong correlation between test scores and what I consider to be an attitude of responsibility and personal accountability that parents should foster.

For example, students who believe financial difficulties stem mostly from bad luck, or feel that not having enough money to pay the bills is "not so bad," or that people who retire without having saved much can live "pretty well" from Social Security, scored pretty low.

Students who said buying too much on credit is the usual cause of financial trouble, who feel not having enough money to pay the bills is bad and that retirees will find it tough to live on Social Security, had higher overall scores.

Humberto Cruz writes for Tribune Media Services.

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