Weak Financial Literacy Scores Threaten a Global Education Movement

The FINRA 2012 National Financial Capability study results are due out soon and likely will show no improvement in individuals' money management skills. With so much energy being put into financial education, poor test results embolden critics and threaten a movement.

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The global movement to teach kids about money in school has produced little hard evidence that the effort is paying off. That doesn’t mean it’s all been a waste of time, or that we’ll never get the results we want. But it certainly gives doubters ammunition.

In a series of financial literacy tests dating to 1997, the JumpStart Coalition for Personal Financial Literacy has found that young people’s understanding of personal finance has remained consistently sub-par. Given the energy put into financial education over the past decade, this is disheartening news.

Meanwhile, the FINRA 2009 National Financial Capability study found that only 30% of the population can do a simple 2% calculation and has even a basic understanding of inflation and risk diversification. The 2012 wave of that study will be released soon and reportedly shows no improvement.

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Weak financial literacy scores have galvanized dozens of nations, thousands of nonprofits, and countless educators and policymakers in the attempt to raise the financial I.Q. of people around the world. But test scores that show no improvement are now galvanizing the opposition, which believes no amount of instruction will lead to broad improvement in the way individuals manage their money.

This lack of evidence presents a huge challenge to the financial education movement if it is ever to amount to more than a bunch of disjointed initiatives funded in large part by highly conflicted banks and other financial institutions. Unfortunately, proving long-term behavior change in a fairly new area of study can be difficult.

In my view, the effort is worthwhile. It simply makes no sense that people cannot learn to be better money managers. We have to keep trying and keep looking for a method that works. Young people are starting to understand that personal financial management is a skill they’ll need for a lifetime. We should give it to them.

In recent testimony before a Senate subcommittee on Children and Families, Annamaria Lusardi, director of the Global Center for Financial Literacy at the George Washington University, defended the financial education effort:

“Studies show that Americans who are not financially literate are less likely to participate in financial markets or to invest wisely. They are less likely to save and plan for the future. At the same time, they are more likely to rely on high-cost methods of borrowing. This is a serious problem. Remedying it is difficult, but adding financial literacy to the curriculum in schools would be a good start.”

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She cited four reasons to push on:

  • Young people with poor financial knowledge are unlikely to learn from their parents, other adults, or peers. Only a small fraction of students currently have access to adults and peers who are financially literate.
  • Women, African Americans, Hispanics, and individuals with low educational opportunities have the poorest levels of financial literacy, putting them at even greater disadvantage. Only through school-based programs will this change.
  • Financial skills are necessary for navigating today’s complex world. This is so evident that the Organization for Economic Co-operation and Development (OECD) last year added financial literacy to the topics it evaluates in its Program for International Student Assessment. Financial knowledge now joins mathematics, science, and reading in those tests administered to 15-year-olds around the world.
  • Young people need to understand how to make wise financial decisions before—not after—they are faced with life-changing decisions. Most notable among those decisions is whether or not to invest in higher education.

The payoff will come, she says:

“Where you have well-informed consumers, you will find vigorous competition and efficient markets. In other words, financial literacy is not only good for Americans because it allows them full participation in society, but financial literacy is also essential for business, the economy, the country and, in this age of globalization, the world.”

What remains is to find the right delivery system—and to hold off the critics until we can start showing results.


I agree that all students should be taught something about the economy and management, as @Chadmichael suggested - and I think those opportunities exist today, but they are not mandatory.   The information one receives as an MBA student deals with corporate finance and not necessarily personal finance, though it does introduce one to financial terminology and concepts that are transferable into the personal finance arena.  There are many business people who are doing a fantastic job at earning money, but have a difficult time in managing their own personal economy, and that goes for other professionals (doctors and lawyers) as well.   This is really a complex and challenging issue.   It requires a number of things, I think number one being, overcoming the taboo of talking about one's money and money issues.   If current adult's remain in secret about their money and money issues, they almost guarantee that their children and grandchildren will remain to a large extent illiterate financially.    And let's not forget that as someone else intimated, individuals who are financially illiterate provide large amounts of profit for many financial institutions, in fees and charges that they don't understand and even in purchasing inappropriate services.   However, this is a long term issue, its one that requires long-term hand-holding because it is not a issue that is one-size fits all - because individuals are all different, with differing incomes, differing frames of reference and differing financial goals and objectives - a simple class or seminar will not solve the problem.  Seminars and classes can teach the basic concepts, but it is a life-time project to continue to learn about the financial areas that affect you and your family, and it is indeed intimidating to many who feel that they are not "numbers" people.  Though one may feel that they are "financially OK, because they can pay their bills on time, they may not have an emergency fund, or funds to support their financial goals, or enough insurance, or they may not realize what a "high" interest rate is, e.g., if you were unfortunate enough have had your credit card interest rate hiked up to say 29%, you may feel that you did a fantastic job negotiating it down to 19%, which is commendable, but may not realize that 19% is still way too high an interest rate that you should be carrying, or understanding how mortgages work, and therefore refinancing mortgages multiple times, back in 30 year mortgages each time.   The internet has a whole lot of information, but in many cases for individuals who have never had the basic financial or economic education, one still is may not be comfortable that they are making the right decision, or even on the right path - you don't know what you don't know.   Its similar to someone who is low-tech trying to figure out to accomplish high tech tasks - you need hand-holding for some period of time, form someone who has your best interest at heart, not theirs.  And by the way, the issues are not relegated to individuals who are considered low income earners, many people who are high income earners have similar problems and issues they just have more zeroes in their numbers.   


The sad part about articles such as this is that they accept the erroneous definition of Financial Literacy meaning having or using a bank account and they refuse to acknowledge the impact of the banking industry's elimination of passbook savings accounts, which acted as the gateway into the banking system for generations of youngsters and immigrants who are now called "Financially Illiterate."


Can learning financial mangement help people who earn $7,hour?(millions of Americans)?Can it help people deal with astronomical tuition costs?

What would people defer for longterm goals? Yes,maybe the smart phones(good luck with that.)The pennies they save don't add up to the costs-even at public and community colleges since there have been enormous cuts in funding ,Public funding used to soften the blow.

Now, the emphasis is on personal financial planning.Teens would have to "put away" 1000's/month on their minimum wage jobs(if they can find a job.)

Teens have never been geared for longterm planning.There's always the Horatio Alger characvter who saved pennies from a paper route or from flipping burgers but now they have to defer housing,etc for many,many years to try to pay off their debts.

Perhaps the education should be on trying to negotiate the minefield of usury.


The curriculum might need tweaking but it is an important topic.  I think some type of higher education is necessary for most but ways of getting useful education at the best cost should be stressed.  Perhaps getting recent college graduates with a lot of debt would help to participate in programs would help.  Deferring for long-term goals should be stressed.


Boomers, Markets & Money


Maybe the huge amount of baby boomers that will be living on welfare soon will teach the younger generations to be more careful about saving their money.  And they know how to make themselves heard.


<i>"Studies show that Americans who are not financially literate are less likely to participate in financial markets or to invest wisely. They are less likely to save and plan for the future" </i> This is true. Since they are ignorant about Financial matters most likely they would just be mum about the topic.  I've been reading Vivek Sood's book entitled The 5-Star Business Networks and he mentioned that innovation is important for business. I reckon it is also important to the college system. All students should be thought something about the economy and management. They should not limit it to the MBA students.