Let's test your financial literacy. Which tends to have the highest growth over periods as long as 18 years: (a) A U.S. government savings bond; (b) a savings account; (c) a checking account, or (d) stocks?
This was one of 30 multiple-choice knowledge questions in a financial-literacy test given to 5,775 high school seniors in December and January in 305 schools across the country. It was the latest in a series of surveys by the not-for-profit Jump$tart Coalition for Personal Financial Literacy every couple of years since 1997.
According to the test results recently released, 45 percent of the students picked the savings bond, and another 35 chose the savings account. The correct answer is stocks, which over 18-year periods have consistently done better than all other choices given, often by wide margins. Only 14 percent of the 12th-graders answered correctly, the lowest percentage since the Jump$tart surveys began.
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Also, just 23 percent of the students in the latest test understand that interest on savings accounts may be taxable if their income is high enough. Only 40 percent realize they could lose their health insurance if their parents become unemployed.
And the overall score — on average, students answered 52.4 percent of the 30 questions correctly — would be a "F" in a typical grading scale and is barely higher than the 52.3 percent score in the 2004-05 test.
"This indicates that, despite the attention now paid to the lack of financial literacy, the problem is not about to resolve itself anytime soon," said Lewis Mandell, a professor at SUNY Buffalo School of Management. Mandell has conducted all the high school surveys for Jump$tart, a not-for-profit organization that seeks to improve the personal financial literacy of students in kindergarten through college (see Web site www.jumpstart.org).
How best to teach financial literacy — including whether to just leave it to the parents — has been debated for years. Most educators today recognize the need for students to learn the basics of managing money, including credit and insurance, by the time they leave high school, if not sooner.
But some educators also are concerned that educational materials used in schools, even if typically of high quality and devoid of commercial pitches, are often prepared and made available by financial firms with a product or service to sell. (The latest Jump$tart survey was funded by the Merrill Lynch Foundation, a philanthropic arm of the brokerage firm.)
Rather than develop a separate course, schools tend to incorporate financial-literacy concepts in these materials into a broader subject, such as social studies. Based on the latest results, that doesn't seem to be a bad approach. While one in six students reported taking an entire course in money management or personal finance, the average score in the test of those who did was 51.6 percent, below the average for all students.
"We have to assume we have not found the right teaching method," said Laura Levine, executive director of the coalition, which serves as a national clearinghouse for personal-finance curriculum materials.
Levine said an interesting finding over the years has been that students who participate in the popular Stock Market Game, in which school teams compete to see which has the most money in a make-believe portfolio after 10 weeks, tend to score better in financial-literacy tests. (I do have misgivings the game may encourage a short-term trading mentality in stocks, rather than long-term investing.)
New questions in this year's survey also show a strong correlation between test scores and what I consider an attitude of responsibility and personal accountability that parents should foster.
For example, students who believe financial difficulties stem mostly from bad luck, or feel that not having enough money to pay the bills is "not so bad," or that people who retire without having saved much can live "pretty well" from Social Security, scored particularly low. Students who said buying too much on credit is the usual cause of financial trouble, and who feel not having enough money to pay the bills is bad and that retirees will find it tough to live on Social Security, had higher scores.
Opinion by
Humberto Cruz
The Savings Game