By Michael A. MacDowell
The level of economic and financial literacy among Americans is relatively low. It is also poor among older adults in other countries that have developed economies, such as Australia, France, Germany, Italy, the Netherlands, New Zealand, Romania, Russia, Sweden and Switzerland, according to a recent international survey.
In the survey, economists Annamaria Lusardi of George Washington University and Olivia S. Mitchell of the Wharton School of the University of Pennsylvania found that 40 percent of the respondents knew little about the impact of compound interest; 65 percent did not understand how inflation might hurt their buying power, and 60 percent did not know about the importance of diversification in their retirement planning.
Furthermore, the economists also found that only 33 percent of the survey’s respondents could answer three simple questions about financial literacy correctly.
Young Americans have even less of a grasp on personal finance and economic education than adults do. Economic and financial literacy among students has not increased in recent years despite the acknowledged importance of the subjects by decision-makers.
The National Assessment of Educational Progress (NAPE) measures knowledge in a variety of subject matters on a periodic basis. The NAPE test in economics is given nationally every six years. The 2012 results showed that 57 percent of high school students scored below basic or at the basic level; about 40 percent were proficient, and only 3 percent were at the advanced level. A recent survey by the Jump$tart Coalition also found that fewer than half of all high school seniors have a general understanding of credit, saving, insurance or retirement.
The lack of progress among students in these important areas is easy to explain. Educational leaders profess an interest in personal finance and economic education, but the school curriculum in most states does not reflect that concern. Out of the nation’s nine most populous states, Georgia, Illinois, Ohio and Pennsylvania do not require the teaching of economics or financial literacy in their schools, according to the Survey of the States published in 2011 by the Council on Economic Education and supported by the Calvin K. Kazanjian Economics Foundation.
States without a requirement in economic or financial education are not giving their graduates the basic tools they need to make early and ongoing good decisions about their financial lifestyle. For instance, a child with a savings account is seven times more likely to go to college than a child without one. And poor financial acumen early in life helps lead to less-than-optimal personal finance habits later on, according to Michael Gutter, an associate professor and state specialist for the Department of Family, Youth and Community Science at the University of Florida
Dr. Gutter studied the personal behavior of college students who had a course in economics and personal finance in high school and those that didn’t. The results are telling. He found that college students who graduated high school in a state with an economics or financial education graduation requirement displayed much better personal expenditure habits. These same students also were less likely to max out their credit cards, more likely to budget their monthly expenditures, and to pay off their credit card bills each month.
With the recent finding that many college graduates are faced with not only long-term college loans upon graduation, but short-term and very expensive credit card debt as well, the ability to manage money in college can have a significant impact on a young college graduate starting his or her new career.
Habits learned in high school and reinforced in college have the best chance for helping Americans become more financially responsible. This is an admirable goal because, according to a recent University of Arizona study, 50 percent of adults do not budget, 33 percent do not pay their bills on time, and 39 percent carry credit card debt from one month to the next.
Pennsylvania Gov. Tom Corbett’s Commission on Post-Secondary Education was deeply concerned about the rising cost of higher education. Concern also was echoed by commission members about the lack of simple financial preparation on the part of Pennsylvania students entering our colleges. For this reason, the commission strongly endorsed the inclusion of financial education for all students. As of today, however, the Keystone State is among four of the nation’s most populous states that does not require economic or financial education to be taught.
It’s time to make a change. Every Pennsylvania student should be given an opportunity to learn the basics of how best to earn, save and spend along with a rudimentary understanding of how our economic system works. As has been the case in 22 other states, Pennsylvania’s legislators should press for the inclusion of economics in the curriculum of our Commonwealth’s schools.
Michael A. MacDowell served on Gov. Tom Corbett’s Commission on Post-Secondary Education while serving as president of Misericordia University in Dallas, Pa., before his retirement in June 2013. He is also a former economics professor and is now the managing director of the Calvin K. Kazanjian Economics Foundation. He is a resident of Harveys Lake, Pa.