US teens lagging behind in financial literacy

A study published in July by OECD (Organization for Economic Cooperation and Development) found that when it comes to American teenagers and financial literacy, they are mediocre at best. In a survey presented in 2012 to 15-year-olds in 13 countries, Americans came in ninth, scoring 492 out of more than 625 possible points. This score was below the average score of 500 and well below the highest score of 603, which was scored by teenagers in Shanghai.

Clearly, American teenagers need help learning about money if they are to be expected to become financially responsible adults.

And…it turns out, college students aren’t much better. In January 2013, Inceptia, a nonprofit organization that works with schools to teach financial responsibility, released results of a survey of 962 first-year college students that found that 89% of the students scored the equivalent of a “C” or below on a 50-question financial literacy test. None of the students scored an “A,” and only 11% scored a “B.” Two thirds scored a “D” or “F.” The questions explored subjects such as credit scores, information on pay stubs, and interest rates on loans. Since these students are three years from entering the “real world,” the poor grades they received in this study indicate the importance of starting their financial education quickly.

What can be done?

High schools and colleges are beginning to act to help young Americans learn about and take more control of their finances. Increasingly, they are partnering with companies to provide courses and online tools so students can get to college and, ultimately, beyond with the knowledge necessary to manage their finances effectively.

• In June 2013, Higher One, a provider of financial services to more than 1,600 colleges and universities, partnered with EverFi, Inc., to provide high school students with a web-based financial literacy program. The program will utilize video, animation, 3-D gaming, avatars, and social networking to explain complicated financial concepts students need to know.
• Inceptia has partnered with Financial Beginnings, which provides free financial education to schools and community groups in Oregon, to bring a combination of online and classroom financial education to Oregon high schools.
• H&R Block is offering the Budget Challenge, a free teen literacy program designed as an online game that gives students simulated practice in the financial realities of being an adult. Each student gets a regular paycheck, a checking account, a 401(k), and bills to pay. At the end of each session, the 22 students who have the highest scores win a $20,000 scholarship and the student with the highest score wins a $100,000 scholarship.

What it means

Both financial services companies and schools have begun to take the idea of teenage financial literacy seriously. By integrating online education and interactive activities, they are meeting the students where they are, rather than asking students to come to them.

The more schools and companies that can get students engaged with these topics, the better and smarter financial consumers they will be as teenagers and, later, as adults.

For more information about teens and finance, click here. 

Robyn Kaiserman does research and analysis and writes in-depth reports for use by clients in and associated with the financial services industry. Her most recent topics include Retail Banks and Credit Unions and Canadian Savings and Investing.