Financial Literacy Measure Shows Stagnant Scores for 15 Year-Olds

By Lindsay Frankel
Inside Subprime: July 20, 2020

Young people lack the financial literacy skills to make informed decisions about spending, saving, and borrowing, and recent efforts to bolster financial literacy requirements in some states have yet to impact students. 

In May, the National Center for Education Statistics (NCES) released the results of its most recent Program for International Student Assessment (PISA), which showed no improvement in financial understanding among 15 year-olds in the U.S. since the first assessment conducted in 2012. 

“At a moment when Americans are facing tough financial decisions, we are reporting that we aren’t making progress preparing students for the realities of economic life as an adult in the modern age,” said Peggy G. Carr, NCES associate commissioner of assessments. “These are fundamental life skills that are absolutely essential for all Americans, but the study shows that many of our 15-year-olds—roughly one-fifth overall—don’t have the skills they need to make prudent decisions about their personal finances and struggle with everyday tasks, like determining the best value between two products at the market and knowing how to respond to a phishing email that looks like it’s coming from their bank.”

The assessment is designed to evaluate a 15 year-old’s ability to navigate their personal finances, including understanding basic concepts, knowing what products are available, and identifying risk. The test also shows students’ ability to apply their knowledge in a range of contexts related to their financial well-being. Students who score well are more likely to be prepared to deal with concepts such as budgeting and saving in adulthood. 

How Did U.S. Students Fare?

20 education systems, including 13 OECD countries, participated in the assessment in 2018. Students in the United States scored similarly to the OECD average; 12 percent were top-performers in financial literacy, while 16 percent were low performers. The U.S. was behind Estonia, Finland, Canada, and Poland with regards to students’ scores. American students performed similarly to students in Australia, Portugal, and Latvia, while students in Brazil, Peru, Georgia, and Indonesia fared the worst. 

High performers who reach a level five proficiency are able to understand even complex financial concepts that may not yet apply to how they use money. Low performers who score below level two, on the other hand, will have difficulty making financial decisions in real life. 

Where Do Students Learn About Personal Finance?

In addition to the skills assessment, the PISA asks students about their sources of personal finance knowledge. In 2018, more 15 year-olds learned about money in situations outside of school than in formal classes. 52 percent reported that lessons outside of school taught them about money management, while 46 percent said they gained knowledge of financial topics in the classroom. The most commonly cited sources for information were parents and the internet. 

“Parents were far and away the most frequent source of information about money matters and personal finance, with 96 percent of students saying they learned about these topics from their parents,” said Lynn Woodworth, NCES commissioner. “However, there are some indications that students aren’t having very deep discussions about important financial issues with their parents. Fifteen-year-olds were more likely to say that they did not speak to family about “big picture” money matters, such as economic news or the family budget. The novel coronavirus pandemic presents a unique and real-world relevant opportunity for parents to begin having those discussions about personal finance fundamentals with their child.”

But parents may be lacking fundamental knowledge as well. Only 57 percent of adults in the U.S. are considered financially literate, according to the Standard & Poor’s Ratings Services Global Financial Literacy Survey. And a FINRA study found that financial literacy scores are dropping, especially among young adults ages 18 to 34. While modeling good financial behavior can help, direct communication about financial matters in the family is also important, especially since most adults have some bad financial habits of their own; most are living paycheck to paycheck and many are carrying debt. 

Fortunately, most students and adults do have access to the many free resources available online. If you’re struggling with financial concepts, spend some time honing your skills. In the long run, financial literacy can help people save more money, avoid debt, and maintain the financial stability that is associated with lower levels of stress and fewer health issues.

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.