Don’t Know Much About Economy: Teens Have Low Financial IQs

By Martin Brown

College fundIn 1958 Sam Cooke wrote a hit song, Wonderful World, which bemoaned how high school students knew about love and lust, but little about history, biology, science and French. Now you can add “economics” to that long list of subjects that so many of us know so little about.

As recently reported in an article entitled, “Shouldn’t All Students Learn Economics?” by Maurice Black & Erin O’Connor on the website, the number of students leaving high school and college or the workplace knowing little if anything about basic economics, or worse, managing their own finances is staggeringly high.

Here is some of what Black and O’Connor reported:

“The current upheavals in the financial markets have left everyone confused. But in the midst of all the confusion, one thing has become crystal clear: A free country simply must be an economically and financially literate country. Amid the waves of failing banks, roiling stock exchanges, massive government bailouts, and wildly fluctuating currency and energy markets, we have become newly aware of how much our nation’s wellbeing, and, indeed, our freedom, depends on our financial security. Disturbingly, we have also become newly aware of how little most Americans understand about financial markets, or even about their personal finances….

“Younger Americans are deplorably uninformed about economic and financial matters. In 1999, researchers at the Securities and Exchange Commission concluded that 66 percent of high school seniors could not pass a basic economic literacy test.

“Unfortunately, things have not changed for the better since then. In 2008, the Jump$tart Coalition for Personal Financial Literacy administered its biennial thirty-question financial literacy test to 6,856 high school seniors in 40 states. The respondents averaged an overall score of just 48 percent, down four percentage points from 2006. Students were most oblivious when it came to investment strategies: Overall, only 17 percent knew that investing in stocks would probably generate the greatest financial return over an eighteen-year period…

“A 2007 Charles Schwab study revealed that while 45 percent of teens know how to use credit cards, only 26 percent understand how credit card companies assess interest rates and fees. Meanwhile, Jump$tart discovered that more than half of all high-school seniors do not realize that paying off a credit card balance more slowly will result in higher finance charges. Only one in three teens knows how to read a bank statement, balance a checkbook, or pay a bill. In short, young adults have ready access to finance, but not to education about finance….

“Meanwhile, colleges and universities are failing to integrate financial and economic education into their core curricula. The extent of the negligence registered by this widespread curricular gap is suggested by a 2008 Intercollegiate Studies Institute survey that revealed stunning levels of economic ignorance among the American people. The study found that only 16 percent of Americans could differentiate free markets from central government planning. Less than 30 percent of those surveyed understood the relationship between taxes and government spending, and less than 40 percent knew what sort of fiscal policy would produce economic stimulus.

“All of this is to say that college students today are woefully uninformed on two vitally important, interlocking fronts: they lack a basic grasp of the economic principles behind today’s soaring deficits, frozen credit markets, and volatile commodity markets, and they are also sorely in need of practical training in budgeting, saving, and investing.
And that’s not all. These problems are deepened by severe pre-existing deficits in essential literacy and basic math skills.

“A 2006 study by the American Institutes of Research found that fully a fifth of college seniors lacked the ability to perform such simple computations as totaling up the cost of office supplies, or calculating whether a car has enough gas to get to the next filling station. Small wonder, some schools have no math requirements at all. And even at schools that require students to fulfill quantitative reasoning requirements, it’s often easy to avoid doing math….

“Students who can’t do basic math are not likely to make informed choices about spending, debt, investments, or retirement planning. We have produced a generation of students that is functionally disabled when it comes to managing money, and that lacks even the most rudimentary financial literacy. Today’s students do not know how to pay bills, balance their checkbooks, or handle loan payments.

“Today’s college students are tomorrow’s civic and political leaders. They belong to a generation that will inherit trillions in national debt and an unprecedented ratio of retirees to workers. They are going to have to solve the many financial problems that our nation now faces. But they are extraordinarily uninformed and unprepared for that task.”

All told, this is pretty scary stuff. For years I wondered how George W. Bush could tell Americans that we could cut taxes, drastically increase spending, and save for our future. Why would people believe such nonsense?

Now I understand: they just couldn’t do the math.

Lyrics to “Wonderful World”:

Don’t know much about history
Don’t know much biology
Don’t know much about a science book
Don’t know much about the French I took

But I do know that I love you
And I know that if you love me too
What a wonderful world this would be…

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