American Students Score Poorly in Financial Literacy

America’s high school and college students are lagging in terms of basic financial literacy, according to a new study from the SPARK Institute and Corporate Insight Inc.

The research, released Friday and intended for annual publication, found that among 956 high school students and 910 college students, many showed limited knowledge of personal financial topics, and the majority showed little faith in school systems to teach them about finance.

Among five multiple choice questions in the survey—covering credit scores, loans, retirement savings, investing and interest accrual—only 39% of the college students got more than half of the answers correct, while high school students fared slightly worse, with 37% getting at least half right.

Looking Ahead

The survey is an early step in what SPARK [Society of Professional Asset Managers and Recordkeepers] Institute President Tim Rouse says will be a core focus for the industry group in the years ahead.

He notes that most of the member firms in SPARK have “independent financial literacy programs,” which prompted SPARK to look for ways to combine forces. One early step was conducting research on young people’s financial literacy.

“We wanted to have a baseline of what high school and college students know when it comes to financial literacy,” Rouse says.

The institute will be bringing the findings to policymakers in hopes of implementing programs that can engage both public and private actors, Rouse says. One group he noted in particular is the Financial Literacy and Education Commission, run out of the U.S. Department of the Treasury and tasked with developing a national strategy on financial education.

More immediate potential vehicles for growth, however, are state governments, many of which are already either mandating or providing financial literacy programming to students, Rouse says. SPARK recently spoke with policymakers from Maine, who introduced a law to have financial literacy taught in high school and some levels of middle school.

“Ideally, the goal here is that we can help support those efforts at the state level to get this type of curriculum into the school,” he says.

Rouse says SPARK also envisions a role for member groups in “training the trainers”—providing teachers with the financial education and tools they need to teach students.

“One of the things we found out in the conversations with the state of Maine is that a lot of teachers are not confident that they can teach these courses,” he says.

Rouse notes that SPARK member groups are well-positioned to help educate teachers, both through expertise and via financial education tools and products in which they’ve invested for their businesses.

Currently, 25 states guarantee a “standalone personal finance course” for high schoolers, according to a tracker by Next Gen Personal Finance. Only eight states have fully implemented such an offering, with the other 17 in progress, according to the nonprofit that provides personal finance educational programs.

Education Matters

The SPARK and Corporate Insight researchers found some bright spots for high school students, as those planning to go to college tended to do better. But students who do not plan to go to college did not fare well, indicating an issue when they budget, plan and save in their working lives, according to the report.

“The financial services industry spends significant resources on educating employees on how to save and invest for the future,” said Snezana Zlatar, chair of SPARK’s financial literacy committee, in a statement accompanying the report. “However, there is not enough focus on providing education to high school and college age students build good financial habits early in life.”

The education level of a students’ parents also played a role: Students with parents who attended college got more than half of the answers correct, at a rate of 70% for high school students and 66% for college students. Of students whose parents did not attend college, only 30% of high schoolers got half of the answers correct, and 58% of college students got half right.

“You’re going to start to see this growing gap between the more affluent and the less affluent, which is a big concern,” Rouse says. “Poor minorities are likely to suffer more, simply because their parents aren’t in the position to provide the right information, and they’re not getting it from schools.”

Behavior to Match

The majority of college students (55%) have plans for a “large expense” in the near term, but a number of them are not exhibiting the best behaviors to meet that goal, according to the study.

Over the past six months from when the survey was taken in July, 29% of college students surveyed reported overdrafted their checking accounts, and 16% said they missed credit card payments.

When asked to do a self-assessment of their financial know-how, just 18% of high schoolers and 26% of college students said they have a “somewhat high” or “very high” knowledge of finance. Looking ahead, only 46% of high schoolers and 55% of college students marked that they know enough to reach their financial goals.

Finally, the researchers asked students about the schools themselves. In that case, just 11% of high schoolers and 18% of college students said their schools did “well” or “extremely well” in preparing them to make personal finance decisions.

The survey was conducted by the SPARK Institute in partnership with Corporate Insight Inc. in July, examining aptitude, behavior and confidence levels of 956 high school students and 910 college students regarding foundational principles of personal financial management (the ABCs of Financial Literacy).