Your 15-year-old may be tech-savvy enough to debug your computer, back-up data on your mobile devices, and help you stream episodes of Game of Thrones, but chances are you can’t expect them to display the same level of sophistication when it comes to understanding even the most basic financial concepts, according to an recent international assessment of financial literacy.
This summer, the results of the first ever Organization for Economic Cooperation and Development (OECD)/PISA international assessment of financial literacy revealed American teens are sitting squarely in the middle of the pack, or dead average as it were, of the 18 countries and economies that participated in the exam when it comes to financial literacy.
The OECD assessment, released July 9, details how approximately 29,000 15-year-olds in 18 countries and economies performed on a 2012 Program for International Student Assessment (PISA) financial literacy exam.
The exam assessed the knowledge and skills of teenagers in dealing with financial issues such as understanding a bank statement, the long- term cost of a loan, or knowing how insurance works.
How the U.S. Stacks Up
Students in the United States performed in the average range, finishing directly in the middle of the field, which means their performance was “not measurably different” from average performance in Croatia, France, Israel, Latvia, the Russian Federation, Slovenia, and Spain.
Students in Shanghai, China had the highest average score in financial literacy, followed by the Flemish Community of Belgium, Estonia, Australia, New Zealand, the Czech Republic, and Poland, while Italy and Colombia rounded out the bottom.
In the United States, 1,133 students in 158 schools completed the assessment of financial literacy.
The OECD assessment reveals some fascinating statistics on financial literacy across the globe, as well as outlining how U.S. teens compare to their international peers. Findings include:
- Approximately one in seven students in the 13 OECD countries and economies that took part in the assessment “are unable to make even simple decisions about everyday spending, and only one in ten can solve complex financial tasks.”
- The United States performs around the average of the 13 OECD countries and economies that participated in the financial literacy assessment. Among the 18 countries and economies that participated in the assessment, the United States ranks somewhere between 8 and 12.
- More than one in six students in the United States – 17.8 percent compared with 15.3 percent across OECD countries – does not reach the baseline level of proficiency in financial literacy, meaning “at best, they recognize the difference between needs and wants, can make simple decisions on everyday spending, and can recognize the purpose of everyday financial documents such as an invoice.”
- About one in ten students in the United States is a top performer (9.4 percent, similar to the average of 9.7 percent across OECD countries). A top performer is defined as a one who can “look ahead to solve financial problems, and take into account features of financial documents that are significant but unstated or not immediately evident, such as transaction costs, and can describe the potential outcomes of financial decisions.”
The study found gender played no significant role in financial literacy, with male and female students performing more or less evenly, except in Italy, across the board.
The study did find, however, that a student’s socio-economic background does impact their understanding of key financial concepts, with the “inequality gap mirroring that in key school subjects.”
According to the OECD, “more socio-economically advantaged students scored much higher than less-advantaged students on average across participating OECD countries and economies.”
In the United States for example, the assessment found approximately 50 percent of 15-year-old students report they have a bank account, and they perform better than those who do not, “but this performance gap disappears after accounting for socio-economic status.”
The assessment also found that in the United States, financial literacy is strongly linked to students’ performance in math and reading.
The Accounting Profession Responds
So what are financial literacy proponents, particularly those in the CPA community and private industry who have tried to close the financial literacy gap in the American school curriculum, to make of this latest round of mediocre financial lit scores from American students?
Many in the CPA and financial literacy communities say the OECD/PISA assessment simply lends more evidence to their longstanding argument that American schools need to adopt formal financial literacy classes as part of their standard public education curriculum.
“The countries whose teens scored higher than the U.S. that also have similar economies provide financial literacy classes as a part of their standard public education curriculum, which I believe is the main reason our teens score lower,” said Kelley C. Long, CPA, member of the AICPA’s National CPA Financial Literacy Commission (NFLC). “It points to a clear need for a national educational mandate to teach financial literacy as a core subject in schooling.”
Virginia Society of CPAs (VSCPA) member Dr. Phil Umansky, CPA, concurs, saying it’s a sad irony that “America has the most developed economy in the world and the most financial services of any country, but we still score in the average range on these tests because financial literacy is not part of our public education system.”
Carol Topp, CPA, a member of the Ohio Society of CPAs (OSCPA), agrees financial literacy is “underemphasized” in U.S. schools, but takes a more cautious approach to the assessment and the national curriculum argument. “I would point out that this is an assessment of 15-year-olds—students in early high school—who are just being introduced to financial concepts such as investing and budgeting. If this were an assessment of 18-year-olds, I would be more concerned,” Topp said.
She is wary, however, that if a standardized financial literacy curriculum is adopted it could simply become another subject “taught to the test.”
“Financial literacy is best learned through real life experiences like handling money, having a bank account, or running a micro business,” Topp said. “(If financial literacy is taught in schools) I’d like to see a de-emphasis on standardized testing so vital, real-life skills can be taught.”
Not surprisingly, few CPAs were surprised that the OECD assessment found the financial learning sinkhole only grows when socio-economic factors and poverty come into play.
“A person’s economic background often influences the amount of financial knowledge they possess,” said Ted Sarenski, member of the National CPA Financial Literacy Commission. “As a CPA financial planner, I see this as the biggest reason people are not able to surpass the limits of their economic upbringing—keeping the rich rich and preventing the poor from becoming rich. We need to even the playing field by making sure that children—regardless of their family’s financial situation—have equal access to financial literacy lessons at the K-12 level.”
Unfortunately, those same experts say, the public school programs designed to even that playing field are few and far between right now.
According to Long, there are only six states that require testing of students’ personal finance knowledge as a requirement for high school graduation and only seventeen that require a class or weave financial literacy into an economics or civics class.
Until more states join those ranks, it remains imperative, CPAs like Layne R. McDaniel, a member of the Society of Louisiana CPAs (LCPA) Financial Literacy Committee say, that private enterprises step up to fill the void—and lobby for change.
“I think there is a tremendous need for those in the business community, especially CPAs, to promote and bolster financial literacy in the U.S. But, more importantly, I think it is important for these same individuals to actively pursue legislation at both the state and federal level which will prioritize the importance of financial literacy by requiring financial education be taught as a part of the K-12 curriculum,” McDaniel said.
“Until we as a nation place the priority on financial literacy that it requires, and as other nations have done, it will never be perceived as a priority by those who need it most.”