We blogged a while back about the sad state of financial literacy in this country. This has been diligently investigated by Annamaria Lusardi and Olivia S. Mitchell, who insert a few financial questions in government longitudinal surveys. Here’s an example.
Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
They are now back with a new paper (co-authored with Vilsa Curto) about financial literacy among American youth. While their findings are perhaps unsurprising, they’re sobering nonetheless:
[F]ewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification. Financial literacy is strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings is about 50 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy.
The abstract is here, the PDF here (see Table 2 for the good stuff). I may be crazy for saying so, but I believe financial literacy is one of the most important ingredients for a well-functioning society. If you know of a place — a school system, a government program, even a financial firm’s website — that you believe teaches financial literacy really well (and not just to the young people who, as in the paper above, have financially literate parents), tell us about it in the comments.
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I think teaching financial literacy in a school is difficult, though probably necessary. Ideally it would be parents would teach it since financial literacy requires a constant lesson (such as every time a child wants to buy something they need to go “do you really need it?). I would argue that financial literacy does little good without a healthy amount of self control.
Dave Ramsey has created a Financial Literacy class for high school students that is being used in about 1000 schools.
I think one of the best places to learn about financial concepts and devices is the site Mint.com. The site’s core functionality is to help people track their spending and investments, but they also have a blog which discusses many financial topics. The founder’s stated goal is to increase the US savings rate, so I think their hearts are in the right place.
Another great resources is getrichslowly.org, which offers articles and blogs on finance, particularly the values of frugality and the effects of interest rates.
I forgot to include the link:
http://www.daveramsey.com/school/index.cfm?event=dspHighSchoolFAQ
Young Americans Bank in Denver has some great financial literacy programs and community outreach.
In the late 90′s I went to high school in Rancho Palos Verdes, CA – a wealthy area. We had a semester of financial education including a stock project where we had a practice portfolio on Yahoo Finance and even learned shorting.
The class is outlined here: http://www.pvphs.com/?pid=26&viewclass=76
I get the impression my high school is the exception, not the rule.
Financial literacy should be required of all US high school students in their senior year. A full understanding of the value of a buck (rapidly changing, I know) would go a long way towards solving many of our problems.
“I believe financial literacy is one of the most important ingredients for a well-functioning society”
I will have to respectfully disagree, sir. In my humble opinion, I would expect 100 or so items to be more important.