Are Students Gaining Financial Literacy Skills
from the Classroom?

In an environment that finds Federal Reserve Chairman Greenspan appearing in a national public service announcement that highlights the importance of personal financial education to the economic well-being of consumers and their families, the results of a recent survey of high school seniors suggest that students are not receiving that education (from personal finance classes currently offered) in U.S. public schools.

The 2002 National Jump$tart Survey posed 31 multiple-choice test questions to 4,024 twelfth graders in public schools, nationwide. Students were also asked 18 multiple- choice questions about their demographics. The 31 test questions covered four main categories: Income; Money Management; Savings and Investment; and Spending and Credit. Overall, the mean score was 50.2 percent-with 68.3 percent of students failing the exam (a failing grade was defined as scoring less than 60 percent on the 31 test questions). Students correctly answered the most questions (61.6 percent) in the Income section of the test and the least (41.6 percent) in the Savings and Investment section.

The 2002 survey was the third biennial nationwide survey administered by the Jump$tart Coalition for Personal Financial Literacy. Measured against the results from the 1997 baseline survey and the second survey's results reported in 2000, financial literacy scores on the 2002 test were the lowest yet. However, the average score in all three surveys was a failing grade. The average score was 57.3 percent in 1997 and 51.9 percent in 2000.

In his report of the 2002 survey results, Dr. Lewis Mandell (Professor of Finance and Managerial Economics at SUNY Buffalo) noted that students were more likely to correctly answer "questions that tested terminology rather than reasoning ability." However, "…students who play an interactive stock market game in class consistently show higher levels of financial literacy (52.4 percent) than those who don't. This suggests that personal finance is taught most effectively to high school students if it is both interactive and relevant." Test performance was better for those students who reported higher parents' income and higher parents' education particularly when compared with the performance of those students with the lowest reported family income and parental educational attainment. The student demographic variable associated with the greatest performance difference was race. However, "no racial group…had even 40 percent of students passing the exam" leading Mandell to assert that "[t]he problem is national, rather than one of race or poverty."

The question of how best to address this "national problem" remains unanswered. Mandell reports in the 2002 study that "the fifteen percent of students who have taken an entire semester's course [in personal finance] do a bit worse on the exam than those who haven't. This is supported by a second finding that students in states with a statewide requirement in personal finance did not do as well as those who live in states with no requirement, although the differences are small."

Senators Paul S. Sarbanes (D-MD) and Jon Corzine (D-NJ) introduced legislation on July 28, 2003 "to promote better financial decision-making among consumers." Senator Sarbanes characterized current government and private sector efforts to increase financial literacy as "…suffer[ing] from the lack of a single comprehensive strategy-there is too little coordination and too much duplication." The legislation will create an interagency coordinating committee that will be chaired by the Secretary of the Treasury and based in the Department of the Treasury. Within one year, the committee must "develop a national strategy to promote financial literacy and education among all Americans." The legislation also requires the committee to: "review financial literacy and education efforts throughout the federal government; coordinate and promote financial literacy efforts including partnerships between federal, state and local governments, non-profit organizations and private enterprises; and submit an annual report to Congress detailing the state of financial literacy and education as it relates to the strategy."

In the meantime, anyone who wants to avail himself/herself of available financial education materials should visit the Federal Reserve's financial education website. For information and materials directed toward youth and student audiences, visit the Jump$tart Coalition for Personal Financial Literacy's website.