Teenage Students Flunk Finance 101 Most Lack Money Management Skills, Survey Shows

Most high school seniors lack basic personal finance knowledge that they will need to manage their lives, such as handling credit cards, paying taxes, even saving for the future, a national survey suggested Thursday.

In a 40-minute, multiple-choice examination administered in March and April, 1,509 soon-to-graduate seniors on average answered correctly only 57 percent of the 31 questions. That’s an “F” based on a typical high-school grading scale.

They should be learning from their parents, but such national trends as personal bankruptcies in record numbers and inadequate retirement savings suggests parents are setting poor examples. Fifty-eight percent said they learned most about money management from their parents, while only 11 percent said they learned more in class.

In response, the Federal Reserve Board and U.S. Office of Consumer Affairs are joining financial industry representatives to encourage schools to teach personal finance as a fundamental life skill, along with reading and math.

“Many adults lack the skills and knowledge to make sound financial decisions. … Our kids are headed toward the same direction, unless we take action to stop this cycle from repeating itself,” said Randy Lively, chairman of the newly formed Jump$tart Coalition for Personal Financial Literacy.

Its goal is to raise teen-agers’ flunking grade to passing by 2007. The survey, conducted by Lewis Mandell, Marquette University dean of business, will provide a base to gauge students’ progress. The coalition plans to repeat it every two years.

The coalition also is using the survey to fine-tune its guidelines for helping schools teach personal finance to the 50 million youngsters in kindergarten through grade 12. During the next school year, it plans to operate a clearinghouse offering training materials ranging from a game that allows classes to make imaginary stock investments to a 10-session lesson plan on buying and financing a car.

In the survey, students showed a good knowledge of terminology but demonstrated poor financial reasoning ability.

For instance, 89 percent knew that wages, salaries and tips represented the primary sources of income for people age 20 to 35. But just 49 percent suspected that if a person’s income doubled from $12,000 to $24,000, income taxes would at least double.

Here’s some other survey results:

Only 32 percent knew they might have to pay income tax on savings account interest, though 72 percent had a savings or checking account.

62 percent said they would have no liability if their credit card was stolen and a thief ran up a $1,000 bill. (Liability is limited to $50 after the credit-card issuer is notified.) Twenty-nine percent used a credit card, either theirs or their parents’.

14 percent correctly said stocks likely would offer the highest growth over 18 years of saving for a child’s education. But 85 percent said a U.S. savings bond or a checking savings account would offer the highest growth.

51 percent mistakenly said a bank certificate of deposit is not protected by the government, and 18 percent thought U.S. savings and treasury bonds are unprotected.

30 percent thought retirement income received from a company was called Social Security.

Only 43 percent realized they could lose their health insurance if their parents become unemployed.

Participants filled out written survey forms in social studies and English classes at 64 high schools selected to provide a representative sampling of urban, suburban and rural pupils. By sex, the breakdown was 45 percent male, 55 percent female.