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Is there a financial literacy crisis among US teens?

By Justin Boyle

Is there a financial literacy crisis among US teens?

In what might seem like a dispatch from the Tell-Me-Something-I-Don't-Know Department, the National Center for Education Statistics (NCES) released data last month that indicate American teenagers have a below-average grasp of personal finance for their age.

The NCES study, known as the Program for International Student Assessment, or PISA, asked 28 million 15-year-olds various questions that tested their financial literacy and problem-solving skills. The results revealed that many kids from the U.S. don't know much about income tax or basic compound interest, let alone financial planning or investment principles.

Is this a crisis? Here's a look at the numbers.

The stats don't lie

First, the bad news: Just 9 percent of U.S. students tested at level 5 or above for financial literacy. That's the level that includes long-term investment planning, big-picture financial concepts and unstated implications in financial documents, which, frankly, many adults don't even understand.

What's more troubling is that 18 percent of U.S. students surveyed tested below level 2 on the study's rating scale. That means that nearly one in five U.S. 10th graders can't recognize the value of a simple budget or conceive of financial implications that they haven't personally experienced.

How are students missing out on these basic money management ideas? While there are likely a variety of answers to this question, these students' inability to understand compound interest or compose a basic household budget is a serious matter that needs addressing.

Is it a crisis?

It's worrisome, but the U.S. was far from the worst performer overall in either category. Here's a breakdown of some top and bottom performers in each segment, for perspective:

Students above level 5
Students below level 2
  • China - Shanghai: 43 percent
  • New Zealand: 19 percent
  • Australia: 16 percent
  • Estonia: 11 percent
  • United States: 9 percent
  • Poland: 7 percent
  • Spain: 4 percent
  • Italy: 2 percent
  • China - Shanghai: 2 percent
  • Estonia: 5 percent
  • Australia: 10 percent
  • Croatia: 16 percent
  • United States: 18 percent
  • France: 19 percent
  • Israel: 23 percent
  • Colombia: 56 percent

The international average had 10 percent of students at level 5 or above, and 15 percent of students below level 2. (Only member nations of the Organization for Economic Cooperation and Development were included in the average -- China and Colombia are non-member partner nations -- but the figures compute similarly without these outliers in the mix.)

We're not the worst, then, but we are below average.

What can we do?

The other part of the PISA study, the section that tested students' problem-solving abilities, did suggest something in the way of a remedy. U.S. students fared much better across the board when tested on skills they've received more instruction on, which says something about how well students are picking up the things they're taught in school.

Is it such a stretch to imagine a financial literacy class alongside the civics and geography courses of junior high? Teenagers often lament learning things they don't think they'll need in later life. How could it even cross their mind to complain about learning how to use money (which they may already love doing anyway)?

It may not be that easy, of course. Ask any school administrator and you'll likely hear that negotiating scholastic policy is only slightly less difficult than squaring the circle, which, in case you've never tried, is fairly difficult.

In the meantime, self-directed financial literacy training is available in many places today, and parents can also teach kids about saving to help impart whatever homegrown fiscal wisdom they have to give. It may take something a little more comprehensive to give a boost to our standing when the PISA comes around again in 2015, but every little bit helps.

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Justin Boyle is a writer and journalist in Texas.

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