High School Seniors Lack Knowledge of Finance
Non-Profit Survey Reveals Need for Credit Education
Nov 20, 2008
How well do high school students understand the basics of personal finance? Unfortunately, not well enough, a new survey reveals.
The survey, sponsored by the non-profit Jump$tart Coalition for Personal Financial Literacy and funded by the Merrill Lynch Foundation, asked 6,586 high school seniors in 40 states to answer questions about topics ranging from credit card interest to home mortgages.
The average 12-grader correctly answered 48.3 percent of the questions correctly. That was down from the 2006 survey, when the average senior got more than half – 52.4 percent – of the survey questions right.
"The survey demonstrates that graduating high school seniors continue to struggle with financial literacy basics," said Dr. Lewis Mandell, a professor of finance and managerial economics at SUNY Buffalo school of management, which conducted the survey.
What High School Seniors Know about Personal Finance
The survey results revealed a few bright spots. Teens appear to have a good understanding of how education affects wages, for instance, and more than half of those polled said it’s only “financially beneficial” to borrow money when it can have a direct benefit, such as purchasing a car that would allow you to commute to a higher-paying job.
Teens also understand many of the financial services and products that they use on a day-to-day basis. More than 60 percent of those polled understood how ATM fees work while 90 percent understood that a bank savings account is a safe place to put money, relative to other investments.
But there were some clear holes in their knowledge. Just 48 percent of the students polled by Jump$tart understood that a credit card user who paid only the minimum fee each month would pay more in annual finance charges than someone who pays her balance in full each month. Similarly, just 17 percent of students knew that investing in stocks are likely to produce higher returns over the next 18 years than savings bonds, savings accounts and checking accounts.
Fewer than 40 percent of students, meanwhile, understood the benefits of a fixed rate mortgage as a hedge against inflation.
Racial Groups Show Different Levels of Financial Knowledge
The survey revealed a significant gap in financial literacy among racial groups. Students who identify themselves as “White or Caucasian” answered 53 percent of the survey questions correctly, on average, compared to 41.3 percent of students who identify themselves as “Black or African American.”
Students who come from higher-income families fared better on the survey than those from lower-income households, and students who worked at least part-time did better than those who didn’t work at all.
A full one-third of teens reported that they have both a checking and savings account and 27 own stocks or other investment vehicles. Some 65 percent of students reported that they never use a credit card while 15 percent said they regularly use a card issued in their own name.
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