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Higher-Income Teenagers Are More Financially Literate, Global Test Finds

At age 15, students around the world from higher-income families knew significantly more about financial concepts than their peers from lower-income families. And students who are more financially literate are more likely to report that they expect to go on to university education.

That's according to the Organization for Economic Co-operation and Development's latest Program for International Student Assessment, or PISA, exam for financial literacy, the results of which were released today. Students in 10 OECD countries and several partnering countries took the second-ever PISA exam in financial literacy in 2015.

The PISA test evaluates students' ability to answer questions related to personal finance, not bigger-picture economics. For instance, they might be asked to identify an invoice or figure out how to respond to a message from a bank.

The OECD says that basic financial literacy is "an essential life skill." In the United States, at least, providing students this kind of information is not a task that most schools have historically assumed, but more states are beginning to require that students have access to or take a financial literacy course. The OECD notes in this report that there is not a research consensus on the effectiveness of financial literacy classes.

The scores of U.S. students dipped slightly from the first test in 2012—from an average of 492 in 2012 to 487 in 2015—but the researchers said that dip was not statistically significant. Overall, U.S. students scored close to the average of students in the 10 participating countries—but they scored below students from China, Belgium, Canada, Russia, the Netherlands, and Australia. 

Screen Shot 2017-05-23 at 1.48.39 PM.png

Note: Italics indicate non-OECD countries and education systems that also took the test.

Different income, different experiences

In an introduction to the exam's results, Angel Gurría, the Secretary-General of the OECD, notes that much of students' financial knowledge comes from parents—but that gaps in scores between students from different income brackets indicate that students have very different experiences and opportunties to learn about finances. 

The PISA results seem to indicate that having more financial education from parents at home is associated with more financial literacy: Students who reported talking to their parents about money matters also scored higher on the test. 

Those differences were present in the United States, where 45 percent of students in higher-income schools earned the top score on a five-point scale, compared to 3 percent of lower-income students.

In the United States, there's evidence that students' financial experiences by age 15 are significantly different: In a survey, 53 percent of 15-year-olds reported having a bank account, but some 67 percent of students in higher-income schools had an account, compared to 18 percent of those in lower-income schools.

There were also racial differences in the United States. Just 1 percent of black students and 5 percent of Hispanic students earned top scores on the test, while 16 percent of white students and 20 percent of Asian students earned a top score. 

A distinct skill

Financial literacy seems to be distinct from literacy or math ability: High scores on math tests weren't directly connected to high scores on the financial literacy exam.

A look at the kinds of questions students were asked shows why. In addition to questions about rates and costs, students were asked to evaluate how to respond to different kinds of financial situations. Here's one sample: 

Screen Shot 2017-05-23 at 2.53.34 PM.pngAnd its possible answers:

Screen Shot 2017-05-23 at 2.51.00 PM.png

The OECD's report on the scores strongly suggests that students should be learning about financial literacy in school:

"...it is important that young people can access financial products and services that are safe and regulated, that they begin to know their rights and responsibilities as consumers, and that they start to have an understanding of the risks associated with the different products and services, so that they can safely approach the financial system even before they acquire full legal rights to enter into financial contracts by themselves. Again, socio-economically disadvantaged students should be supported even more, as they have lower financial literacy, are less likely to have first-hand experience with holding a bank account, and are less likely to receive gifts of money than advantaged students." 

But there's less clarity on how to do it well, and on what students need to learn in an era of ever-evolving financial rules and regulations—and when many banks and financial services organizations are purveying financial literacy curricula themselves. In an interview with Education Week last year, Anand Marri, an associate professor at Teachers College, Columbia University, said that schools should beware of curricula that seem to aim more at creating customers for banks than at helping students understand how to manage their money, understand financial concepts, and avoid scams. 


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