Kids and Money: Taking Financial Education to the Next Level

Last Updated Oct 27, 2010 3:14 PM EDT

Financial education is moving ahead much slower than the need most people have for understanding how the heck to handle their cash. The good news is that we're about to pick up the pace of instruction.

I'll get to that. But first consider that in about a generation we've all but wiped out private pensions and reduced Social Security to little more than a meal plan. In roughly the same period, few folks have come to really understand their 401(k), which was designed to fill the gap. The participation rate in 401(k) plans is just 60% -- and the trend is down, not up.

Maybe that's the nature of change; we have to live without something valuable for a while before we figure out what replaced it. Yet if we had a coherent vision for financial education in this country we could probably speed the process along and limit the damage that people do to themselves as they try to figure it all out.

Which brings me to the good news.

The gold standard for financial literacy testing has been JumpStart Coalition's 31-question exam given to high school students every other year since the late 1990s. Regular readers of this blog know that these test scores have been flat to falling for a decade. Despite intensifying efforts to teach money to kids, the poorest scores were registered on the most recent test -- when the average grade fell below 50% for the first time.

The worsening failure rate has set off alarms in education circles and in Washington. The Obama administration recently cleaned house at the President's Advisory Council on Financial Capability, replacing all but one of the high-profile volunteer board members. Now the financial literacy test itself is being refigured.

JumpStart skipped the scheduled 2010 round of testing and outsourced the job to Learning Point Associates, a highly regarded education consultant that will begin testing students anew in spring 2011. The new test will be more scientific, rigorous and sweeping, and it will reflect the very latest thinking as to what students should know about money -- and when they should know it.

No one expects test scores to lurch higher. The goal is to measure money proficiency in a wider range of areas. So the new test will ask more questions about financial planning and decision-making, and risk tolerance and insurance. It won't simply laser in on the obvious: debt, saving and investing.

In other words, we are beginning to bore in on more nuanced areas of personal finance as it relates to what kids know about money. With a clearer picture, maybe next we can speed up the learning curve.

Of course, the onus will always be on parents to teach their kids about money by, among other things, paying an allowance and requiring them to budget for immediate needs and long-term goals. But more pointed institutional research that shapes how we approach financial education in school will sure help.

If you have a question about kids and money, I'll find the answer. Email me at

Photo courtesy Flickr user waywuwei

  • Dan Kadlec

    Daniel J. Kadlec is an author and journalist whose work appears regularly in Time and Money magazines. He is the former editor of Time’s Generations section, which was written and edited for boomers. Kadlec came to Time from USA Today, where he was the creator and author of the daily column Street Talk, which anchored the newspaper's business coverage. He has co-written three books, including, most recently, With Purpose: Going from Success to Significance in Work and Life. He has won a New York Press Club award and a National Headliner Award for columns on the economy and investing.