High-School Students' Financial Knowledge Is Lacking, UB Study Finds

BUFFALO, N.Y. -- When it comes to such personal finance topics as paying taxes, using a credit card or saving toward retirement, today's high-school seniors know less than their colleagues did three years ago, according to survey results compiled by Lewis Mandell, dean of the School of Management at the University at Buffalo.

The survey, sponsored by the Jump$tart Coalition for Personal Financial Literacy, measured the personal-finance knowledge of 723 12th graders in public schools across the United States and compared the results with those from a similar survey conducted in 1997 by the coalition.

Mandell announced his results at a news conference held last week at the Federal Reserve Building in Washington D.C. The survey is a part of an effort by Jump$tart to raise awareness about the necessity of including personal-finance courses within all U.S. high schools.

On average, participants in the 2000 survey answered 51.9 percent of the questions correctly -- a failing grade based upon the typical grade scale used by schools (90-100 percent =A, 80-89 percent =B, etc.). The average score in the 1997 survey was 57.3 percent.

The students' worsening performance on the survey, Mandell believes, can be attributed partly to increased pressure placed on high schools to focus on courses that will help students pass basic exit exams, at the exclusion of more progressive courses, such as personal finance.

"We certainly should have empathy for the challenges confronting our nation's high-school teachers and administrators, but we also must recognize the disastrous effects of not properly preparing our teenagers for the financial realities of modern life," Mandell says.

"We are sending young adults into the world where they'll have to make financial decisions more complex than ever before, in part because there are so many choices out there, and they are just so poorly informed and equipped to make key decisions," he says.

Since 1997, personal finance has been incorporated into the curriculum standards of only a handful of states, including Idaho, Illinois and Pennsylvania, according to Mandell. The low number is alarming, he says, considering that half of high-school graduates directly enter the workplace rather than go on to college, with the number even higher among minority students.

Mandell believes, however, that the issue is not just availability of personal-finance courses, but how the information is taught, noting that the survey results showed some higher knowledge levels among students with interactive classroom training.

A quarter of the survey respondents, Mandell points out, had participated in the "Stock Market Game," where students invest a hypothetical $100,000 during a 10-week simulation of Wall Street trading. In response to a question about where to invest money for long-term growth, 23.4 percent of the students in the latest survey correctly answered "stocks" as the most likely financial instrument to have the highest return, versus 14.7 percent in the 1997 survey.

In addition, students who participated in a high-school stock-market game scored better on the survey (55.1 percent) than did students who completed an entire course in money management (51.4 percent) or an entire course in economics (51.0).

"Knowledge of personal finance is not something students can develop by memorizing terms and phrases," he says. "It's a skill that students learn when given the opportunity to apply concepts and practices as part of a thoughtfully designed curriculum."

Other findings from the survey:

• The average score for Caucasian students was 54.5 percent, compared with 53.6 percent for Asian Americans, 45.3 percent for Hispanics, 47 percent for African Americans and 38.6 percent for Native Americans. Males averaged slightly higher scores (52.2 percent) than females (51.6 percent).

• Students demonstrated an improved appreciation for the value of college, compared to the results of the 1997 survey. Fifty-two percent (compared with 9.9 percent in 1997) said that they would expect to earn about 70 percent more money as college graduates than they would as high-school graduates.

Students' knowledge of taxes decreased: Just 38.3 percent of the students (compared with 49.2 percent in 1997) correctly answered that their federal income tax would at least double if their annual income grew from $15,000 to $30,000.

• Less than half (46 percent) of this year's students knew that retirement income paid by a company is called a pension, down from 63.5 percent in 1997. In addition, 30.3 percent thought such income was Social Security, up slightly from 29.2 percent in 1997.

The percentage of students who do not use a credit card declined slightly (69.1 percent in 2000 versus 70.8 percent in 1997). Of the students who do use a credit card, 9.2 percent had their own (compared with 7.7 percent in 1997), 18.3 percent use their parents' (compared with 17.2 percent in 1997) and 2.8 percent use both their own and their parents', compared with 4 percent three years ago.

• Students whose parents often discuss money matters in front of them scored only slightly better on the survey (52.6 percent) than did students whose parents sometimes (52.5 percent) or rarely (52.4 percent) discuss money matters in front of them. However, students whose parents never discuss money matters in front of them achieved a score of 42.5 percent.

"For students to improve their knowledge of personal finance, we need to recognize that high school is the appropriate time and place to give them meaningful, interactive and fun instruction in personal finance," Mandell says. "Until that happens, we can expect students to continually score poorly on personal-finance exams such as this, and we can expect that they will continue to make poor financial decisions and encounter financial difficulties as adults."