Does America Have a Financial Literacy Problem?

by Miranda Marquit · 15 comments

Not too long ago, CNN Money reported on an international assessment of teenagers and financial literacy. The test, which was administered to 15-year-old students in 18 countries, ranked the United States in the middle. The top results went to Chinese students, with students in Belgium, Estonia, New Zealand, and Australia also scoring quite well. In the United States, close to 20 percent of students didn’t even reach what is called “baseline efficiency.”

This brings up interesting questions surrounding financial literacy. Recent contentions that most adults fail basic financial literacy quizzes indicate that what students aren’t learning in school is catching up with them as adults.

The result is that we, as a nation, tend to struggle with basic financial concepts — with our money situations suffering as a result.

Education, Wealth, and Financial Literacy

It’s important to note that the Chinese students tested weren’t spread throughout the population; though more than half of them were considered top performers, the only students who took the test lived in Shanghai. Shanghai is a larger and wealthier city, and generally its inhabitants receive a better education they they would in a rural area. It seems obvious that people with more wealth and education are more likely to teach their children about money, and are more likely themselves to have a better grasp of financial concepts that lead to long-term success with money.

More importantly, the countries that performed the best, including Australia, have financial literacy lessons included in their national curricula.

Math, language, and science lessons all include financial literacy topics. By contrast, in the United States, curriculum is set by the states —  and less than half of them include financial literacy lessons in the classroom.

While teaching financial concepts for a short amount of time in the classroom isn’t likely to turn our country into a nation of financially savvy citizens, it would help create a solid foundation. And hopefully the concepts would be reinforced at home so they’d be truly effective.

There are no easy solutions to these problems, but more education would undoubtedly help. There’s a good chance that, as a country, we could become better with money — and better face the challenges of the future — if we had a little more financial literacy education, and if we paid attention to it with the same interest we have for the lives of celebrities.

Do you think we have a financial literacy problem? How would you try to solve it?

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  • fredjohnson says:

    I took that test and got 100% of the questions correct. They had a link to it on MSNBC or MarketWatch one day and out of curiosity I thought I’d try it. At age 15, I would not have gotten all the questions correct, but now of course many years after that age the exam is easy. I’m not sure at age 15 if it would have benefited me at all to know all those answers and I certainly wasn’t concerned with most of the questions because they didn’t pertain to me at that age or not even till I was in my 20’s, finally had a job, some money, and had to make decisions what to do with it. But, of course, it was a very basic exam on logic and math. Like I said, it wasn’t hard at all. US schools should teach more of this to kids, no doubt, and eliminate much of the fluff in high school academic subjects to make room for it.

    • David @ says:

      What? You mean some of the stuff we learned in high school could have been eliminated?!?? 🙂

      Seriously though, all they needed to do was to tweak the subject matter a bit. Algebra would have made so much more sense if it was taught with money!

  • Gretchen says:

    This really doesn’t surprise me. It’s sad, but doesn’t surprise me. In high school, six years ago, we were literally taught nothing about how to budget, save, or investing principles. All we were taught was how to write a check, and really, who even uses checks any more? Have we given up on today’s youth?

    • David @ says:

      At least they tried to teach you about writing checks, but you are right, checks are going away as a payment method.

      If we teach one thing, we should teach the masses about credit card debt and how lifestyle crushing carrying a balance can be.

  • Alexis says:

    I remember taking one small brief Personal Finance class in high school. The teacher was one of the athletic coaches and more into sports and was teaching a couple classes on the side. I don’t remember learning much and didn’t even have a textbook for the class;everything was online on a computer. In my opinion, the school systems need to do a much better job at preparing students to finances and how big of a deal they truly are.

    • David @ says:

      I suggest schools just give everybody $100 when they are grade 1 and have it invested in the S&P 500 index fund. Then, starting in junior high, they can talk about the life of that $100 as it goes up and down in value every few months.

      The exercise will teach everybody so much more than spending forever on vague concepts.

  • UH2L says:

    We definitely have a financial literacy problem in this country. Our collective credit card debt is one sign and the mortgages that were beyond people’s means is another.

    The main root of it is innumeracy or mathematical illiteracy. I wrote the quote a while back that “Math is important because money is important.” When I was in high school, 4 years of English were required but I believe 2 or 3 years of math were required (in Ohio.) I’m sure other states are similar. That’s just not smart for us as a society.

    If a person has a basic sense of math that they can do in their head and can calculate interest (or use spreadsheets or online calculators to understand terms) then a lot of problems could be avoided.


    • Phil says:

      I have a neighbor who says people keep trying to buy their house that is up for sale, but then the whole thing falls through. The bank won’t loan them enough to get the house! So we have this couple that thinks they can live anywhere they want without looking at the house or doing the math, as you suggested!

    • David @ says:

      Instead of every item having price tag, it would be so much more useful if they list out how much that same amount, invested, will be in say 10 years. That would kill the economy because no one will buy anything ever again, but everybody’s personal balance sheets will be so much more flush after a few years!

  • Phil says:

    Oh boy, where to begin.

    First of all, Americans don’t do a budget. I don’t know anyone who does. I preach about doing one here on this blog, and my answer to almost every post is, “Do a budget.” Really, how can you tell your money how to behave if you don’t assign it a mission. I have been doing a budget since 2007. I am a school teacher who lives in a very nice neighborhood, has a boat, and a camper. People assume I am in debt, but it is quite the opposite. I have two fully paid for cars as well. And I invest over $1000 per month and have a fully funded emergency fund.

    Secondly, as a school teacher, I have decided to tackle financial literacy where I can. I created a curriculum for my middle school students. When I show them what a life a debt costs them vs what a lifetime of investments creates for them, they are literally blown away. “Mr. Larsen, $100 per month invested will make me a millionaire someday?”. Yes it will.

    Finally, I know this isn’t a political article, but since politics sadly interfere’s with so much of our lives today I would like to point out that if you give people the tools to succeed (see budget rant above), then people are more likely to get ahead, which in turns helps the jobless find jobs, and fix many of the other social ailments plaguing this country. I am tired of paying for other people’s mistakes and lack of planning.

    • David @ says:

      Budgets are important Phil, and thank you for continually reminding us of that fact. Once you know how much you spend, it’s so easy to cut and figure out how much you’ll need for the future too.

      A simple task of tracking your expense is such a powerful tool. And plus, it doesn’t even take that long to log once you start doing it consistently!

  • Bill says:

    I would like to know what the test questions were and what is considered necessary knowledge for “baseline efficiency”. Another thing is that knowing isn’t necessarily doing. We all know how deadly distracted driving is, yet we continue to text and talk on cell phones. How many of us don’t save for retirement because we don’t know that we should vs. how many of us don’t save for retirement even though we know that we should, but we’ll get around to it later. A basic understanding of personal finance and business accounting should be required of all high school students, but that won’t necessarily change our financial habits.

    • David @ says:

      You are so right Bill. We really need to let people know what the consequences of not saving are. Many people mistakenly think saving is giving up something, but it’s not like we are giving the money away. All we are doing is saving it for ourselves at a later date!

  • Aldo@MDN says:

    I definitely think we have a financial literacy problem in the U.S. I’m a prime example of it. I didn’t learn anything about finances until I decided to learn about it on my own when I was 30 years old.

    An easy way of fixing this is by teaching students as early as High School (maybe earlier) about personal finances. I’m not sure if all schools work the same way but in my school the school year was broken into four marking periods and every year I had to take either a Health class or Driver’s education for one of those marking periods. I think one marking period dedicated to personal finance should be good enough. It’s better than nothing.

    • David @ says:

      I’m the same way Aldo. I was lucky that my family showed me how to live below my means, which was valuable but our schools definitely never taught me anything about personal finance. And incorporating it would be easy. All they had to do was change the math curriculum to be money related and problem solved. The math will make so much more sense too.

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