In a 45-minute multiple choice examination administered in December, January and February, 4,024 soon-to-graduate high school seniors on average answered correctly only 50.2 percent of the 31 questions about personal finance and economics. That's a failing grade based on the typical high-school grading scale.
Two years ago, 723 students took a similar test and the average score was 51.9 percent. In 1997, the average score was 57.3 percent.
Improving financial literacy among young people is particularly crucial given the ever-expanding financial choices facing consumers, says Federal Reserve Chairman Alan Greenspan. It also might prevent them from making poor financial decisions later in life that could take years to overcome, he says.
Greenspan, who learned as a youngster to work percentages by keeping up with baseball batting averages, has said schools should teach basic financial concepts better in elementary and secondary schools. A good foundation in math would also help students to become more financially literate, he says.
All three surveys were sponsored by the Jump$tart Coalition for Personal Financial Literacy, a nonprofit group that wants students to have the skills to be financially competent. Lewis Mandell, professor of finance and managerial economics at the University of Buffalo School of Management, conducted the surveys.
The latest were being released Tuesday by the Federal Reserve. A copy was obtained by The Associated Press.
Lynn Reaser, chief economist at Banc of America Capital Management, said the drop in financial literacy scores since 1997 might be related to the slide in the once high-flying stock market.
"All of the euphoria in the market may have induced young people to take some interest in understanding money matters, but much of that interest probably subsided when the market went into a major downturn," Reaser said.
The lack of a financial grounding for teen-agers could come back to haunt them. "It's not just the lack of financial literacy but the lack of financial discipline that's a problem," Reaser said. "Poor decisions could lead them to accumulate debt or be unable to save and plan for a secure retirement."
In the survey, 69.3 percent said they would have no liability if their credit cards was stolen and a thief ran up a $1,000 bill. (Liability is limited to $50 after the credit-card issuer is notified.) Only 7.7 percent knew they would be responsible to pay $50. Two years ago, 14.5 percent answered the question right.
Only 18.7 percent correctly said stocks likely would offer the highest growth over 18 years of saving for a child's education, down from 23.4 percent who answered correctly in the last survey. However, 77.7 percent said a U.S savings bonds or a savings account would offer the highest growth.
Approximately, 35.1 percent knew that retirement income paid by a company is called a pension, but 33.3 percent thought it was called Social Security. Two years ago, 46 percent answered correctly.
Some other results in the current survey:
- 50.8 percent mistakenly said a bank certificate of deposit is not protected by the federal government and 22 percent thought U.S. savings and Treasury bonds are unprotected. Just 27.1 percent answered correctly that a bond issued by one of the 50 states is not protected by the federal government against loss. That compares with 32.4 percent who got the answer right in the last examination.
- Just 39.8 percent knew that people turned down for credit based on a credit report can check their credit record for free. But that's a slight improvement from the 31.7 percent who answered correctly in 2000. Nearly 41 percent in this year's test mistakenly though their credit record could be checked anytime for free.
- 44.2 percent incorrectly thought that periods of high inflation would cause the most difficulty for young working couples. Only 34.7 percent knew that older people living on fixed retirement incomes would be hardest hit, down from 38.6 percent who previously got the answer right.
By Jeannine Aversa