Teens Lack Financial Perspicaciousness? Like that's a shock...
Category: Economy & Business... Society & Culture...
Posted Wednesday, May 24, 2006 at 04:22 PM [GMT-6]

The Jump$tart Coalition for Personal Financial Literacy was created in 1995 with the goal of ensuring that "basic personal financial management skills are attained during the K-12 educational experience." The Coalition had discovered what many of us suspected all along: the average student who graduates from high school lacks basic skills in the management of personal financial affairs.

The organization administers a biennial test to assess the level of financial literacy among American students. The 2006 test was given to almost 6,000 12th graders in 37 states, and the results released in April showed a very slight increase in scores over the 2004 test. Still, the average score for the 30 question test was just 52.4% (vs 52.3% in the previous exam).

I thought it might be interesting to look at the handful of questions where fewer than 40% of the test-takers knew the correct answers. I've extracted them from the complete test results, which are available via this PDF document. I've provided the correct answer in the blank line below each question; just click and drag over the blank line to reveal it.

Many savings programs are protected by the Federal government against loss. Which of the following is not?

a. A bond issued by one of the 50 States
b. A U. S. Treasury Bond
c. A U. S. Savings Bond
d. A certificate of deposit at the bank

Only 28.6% answered correctly (a); 49.3% answered (d)

Doug must borrow $12,000 to complete his college education. Which of the following would NOT be likely to reduce the finance charge rate?

a. If his parents took out an additional mortgage on their house for the loan.
b. If the loan was insured by the Federal Government.
c. If he went to a state college rather than a private college.
d. If his parents cosigned the loan.

Only 30.4% answered correctly (c); 32.9% answered (a)

If you had a savings account at a bank, which of the following would be correct concerning the interest that you would earn on this account?

a. Sales tax may be charged on the interest that you earn.
b. You cannot earn interest until you pass your 18th birthday.
c. Earnings from savings account interest may not be taxed.
d. Income tax may be charged on the interest if your income is high enough.

Only 22.7% answered correctly (d); 50.9% answered (c)

Retirement income paid by a company is called:

a.Rents and profits
b. Social Security
c. 401k
d. Pension

Only 37.7% answered correctly (d); 32.9% answered (c) and 25.9% answered (b)

If your credit card is stolen and the thief runs up a total debt of $1,000, but you notify the issuer of the card as soon as you discover it is missing, what is the maximum amount that you can be forced to pay according to Federal law?

a. nothing
b. $50
c. >$500
d. $1000

Only 15.1% answered correctly (b); 55.8% answered (a)

Kelly and Pete just had a baby. They received money as baby gifts and want to put it away for the baby's education. Which of the following tends to have the highest growth over periods of time as long as 18 years?

a. A U.S. Govt. savings bond
b. A savings account
c. A checking account
d. Stocks

Only 14.2% answered correctly (d); 44.8% answered (a)

I tend not to get too exercised over this perceived shortfall in "financial literacy." I'm pretty sure I was clueless even as a high school senior about many of these topics, either deferring to my parents for advice and direction, or deeming them irrelevant to my more immediate needs. On the other hand, I gained the knowledge I needed in college, and that's not an option or a choice for many kids.

I am surprised by certain things, like the abyssmal failure to understand that the liability for a stolen or lost credit card is not zero. This is a bit scary, given how many teens nowadays have their own credit cards.

The linked PDF has a section at the end where scores are broken down by demographic indicators. It's interesting to note how certain expectations by the students about their futures correlate with their financial acuity. For example, when asked about the type of work they intended to when they finished school (whatever that means), the group that picked "manual labor" scored only 41.0% on the test while the group that picked "professional worker" scored 54.9%, a seemingly significant difference that also raises questions of cause and effect, i.e. which came first, their career aspirations or their inability to grasp -- or lack of interest in -- basic personal finance?

Technorati tags: Jump$tart Coalition | Personal Financial Skills