Student Understanding of Personal Finance Sorely Lacking

The Oregonian has reported on the results of a new study that shows American students' appalling lack of understanding of personal finance. Researchers out of the University of Nebraska wrote that even when students were incentivized with cash prizes, they scored on average only 52% on a personal finance exam. In another disturbing finding, the authors determined that a substantial gender gap exist in fiscal knowledge, with boys outscoring girls on 20 out of the 23 subject areas covered by the test.

What sets this study apart from similar research published in previous years is that every student out of the nearly 6,700 high-schoolers who took the exam was at the same time enrolled in a course that was meant to teach them the concepts being assessed by the researchers. They were additionally motivated by cash prizes since they were competing in the National Finance Challenge which was held in the spring of 2011.

"We believe our findings are representative of a best case scenario for financial literacy in U.S. high schools since they were collected under competitive incentives," said co-author Carlos Asarta, an associate economics professor at Nebraska. The students hailed from 11 states, none on the West Coast.

The lack of conceptual understanding such as interest rates, budgeting, taxes and insurance could be a substantial handicap to students beginning their college careers. Many make irresponsible financial decisions during their time as students, and end up graduating carrying not only a substantial student debt load, but also large amount of credit card and other personal debt. It is no surprise that students find that keeping their use of credit in check to be difficult, in light of the fact that the test showed them to be most ignorant on the issues dealing with buyer/seller responsibility and creditor obligations.

Boys scored higher than girls by an average of 4 percentage points. Girls did poorest on questions about investing. They scored higher than boys on two questions gauging personal financial responsibility and financial decision making.

"What seems important is the fact that educators should address this financial literacy gap among students at a young age because it has been found to persist well into adulthood," the authors wrote. "Unfortunately, most financial educational programs and materials have been aimed at adults, with limited development of high school based curricula."

The study has already been accepted for publication and should appear in the pages of an upcoming issue of the Journal of Economics and Finance Education. The authors will also deliver a presentation based on their findings at the next annual meeting of the Council of Economic Education.

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