From Bad to Worse: UB Finance Professor Finds Financial Literacy Drops Further Among U.S. 12th Graders

BUFFALO, N.Y. -- Survey results released yesterday by the Jump$tart Coalition for Personal Financial Literacy and Lewis Mandell, professor of finance and managerial economics at the University at Buffalo, show that high school seniors know even less about personal finance basics than they did five years ago.

The good news is that more policymakers are sitting up and taking notice of the problem, say Mandell and Jump$tart representatives.

On average, 12th graders participating in Jump$tart's 2002 nationwide survey answered 50.2 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.). In similar surveys conducted by the coalition in 2000 and in 1997, the average scores were 51.9 percent and 57.3 percent respectively. The researcher for all three studies was Mandell.

"If there's a bright side, it's that the situation quantified by Jump$tart's surveys has caught the attention of Congress, regulators and others," said Dara Duguay, the coalition's executive director.

She notes that in February, the Senate Banking Committee held hearings on adult and youth financial literacy. And earlier this year, President Bush signed the "No Child Left Behind Act," which makes $385 million in funds available for local educational agencies to use for "innovative assistance programs, including activities to promote consumer, economic and personal finance education."

"Our hope is that the latest survey results will compel high-school superintendents to place a high priority on funding innovative personal-finance education programs when applying for the money," said Duguay.

Support for innovative education is welcome news to Mandell, who believes a major factor affecting the Jump$tart survey results is how the information is taught. More than one-quarter (28.8 percent) of this year's survey respondents had participated in a stock market game, where students "invest" hypothetical money in simulated Wall Street trading. Students who participated in a high-school stock market game scored better on the survey (52.4 percent) than did students overall or those who completed other courses in money management or economics.

"Teaching personal finance is like teaching students how to use computers," said Mandell. "In both cases, students learn by doing and in both cases, the subject has immediate relevance to their lives if taught effectively."

Other findings from the survey:

o The average score for Caucasian students was 53.7 percent, compared with 50.6 percent for Asian Americans, 44.8 percent for Hispanics, 42.1 percent for African Americans and 45.5 percent for Native Americans. Males averaged slightly higher scores (50.7 percent) than females (49.7 percent). Students from the Midwest scored higher (53.5 percent) than students from the Northeast (50.5 percent), the West (48.8 percent) and the South (48.6 percent).

o A comparison of results from the 2000 and 2002 Jump$tart surveys shows a decline in the percentage of students who do not use a credit card (from 69.1 percent to 67.8 percent) and who do not use their parents' credit card (from 18.3 percent to 15.4 percent). However, there was an increase in the percentage of students who have their own credit cards (from 9.2 percent to 12.1 percent) and an increase in the percentage of students who have an ATM card (from 31 percent to 35.9 percent).

o Nearly 75 percent of the students have a savings and/or checking account with a bank. The 25.7 percent of the students without any bank account scored lower (46.1 percent) than those who have a savings account (51.7 percent), a checking account (50.5 percent) and both savings and checking accounts (50.2 percent).

o Slightly more than one-third (35.1 percent) of this year's students knew that retirement income paid by a company is called a pension, down from 46 percent in 2000 and 63.5 percent in 1997. In addition, 33.3 percent thought such income was Social Security, up from 30.3 percent in 2000 and 29.2 percent in 1997.

o While almost 60 percent of the students knew that sales tax "makes things more expensive to buy," nearly one-quarter (21.2 percent) thought there was a national sales tax of 5.5 percent. Seventeen percent thought the federal government will deduct it from paychecks and 3.7 percent thought the tax didn't have to be paid in cases where income was very low.

o Almost two-thirds (65 percent) of the students said they felt either "very sure" (18.4 percent) or "somewhat sure" (46.6 percent) about their ability to manage their own finances. The remaining one-third said they were either "not too sure" (24.6 percent) or "not sure at all" (10.5 percent).

The Jump$tart survey, conducted this past December, January and February, consisted of a written 45-minute examination administered to 4,024 12th graders in 183 schools across the U.S.

Based in Washington, D.C., Jump$tart is a non-profit organization whose 140 partners include federal agencies, universities, associations and sponsors of education programs. The coalition's goal is to ensure that students have skills to be financially competent upon graduation from high school. Jump$tart now has state coalitions supporting its efforts in about half of the states.

A copy of the survey questionnaire is posted on the coalition's Web site at http://www.jumpstart.org in the "downloads" section.