July 31 2014
American Teens’ Financial Literacy Foundering
Vicki E. Alger
Earlier this month the Organization for Economic Cooperation (OECD) released results from its first-ever Programme for International Student Assessment (PISA) of financial literacy. Around 29,000 15-year-olds from 18 countries and economies participated in the assessment, and American teens rank squarely in the middle.
Nearly 18 percent of American teens, roughly one out of every six, didn’t achieve baseline proficiency. That means at best these young people can distinguish between needs and wants and can recognize an invoice. In contrast just one out of 10 American 15-year-olds scored at the highest level. These teens can understand more subtle—yet important—concepts such as transaction costs and can describe the consequences of various financial transactions, such as differing interest rates on loans.
Shanghai-China, Belgium-Flemish Community, and Estonia were the top three performers. Meanwhile, students from the United States placed behind their peers in those countries as well as those from Australia, New Zealand, the Czech Republic, Poland, and Latvia.
Our poor standing has little to do with students’ socio-economic backgrounds or the lack of math and finance classes in school. In top-performing countries, all students perform well. No excuses. As USA Today reported:
[OECD Head of Schools Michael] Davidson says that unlike the United States, social background and performance in financial literacy are not correlated in Shanghai — in other words, financial status has little to no impact on literacy. Only 50% of Shanghai students are in schools that offer a financial education program. Davidson says this means students are obtaining those skills in other ways, through other classes and education.
The U.S. on the other hand has 70% of its students enrolled in schools with financial education programs, yet it falls far behind Shanghai in financial literacy among students. The United States, Davidson says, has the strongest correlation between social background and financial literacy, with those from advantaged backgrounds scoring higher in the assessment.
"The U.S. has about the average number of top-performing students, but at the other end of the spectrum there is a higher percentage of students who are performing below the baseline," Davidson says.
He says the difference is not that there is more social diversity in the U.S. population, but that systems such as the one in Shanghai (a population with roughly the same socio-economic diversity as the U.S.) are designed to mitigate against the correlation between social background and education levels.
In other words, Shanghai doesn’t rely on schools to teach young people the basic skills they need to succeed in their everyday lives. Apparently, too, the schools that do offer finance-related course appear to be doing a solid job. Ensuring young people in the United States can start working part-time and summer jobs sooner would likely help them gain practical financial skills. As it is, minimum wage and child labor laws are some of the leading obstacles preventing young people from getting the practical skills they need to be self-reliant, productive adults.