Millenials’ declining financial literacy skills

by Grace

Studies show that a majority of young people in the United States have poor financial literacy, a trend that has been consistent over the past decade and shows few signs of improving. This at a time when young adults face a difficult job market and more personal debt, and yet must take greater responsibility for their financial future.

Today’s twentysomethings hold an average debt of about $45,000, which includes everything from cars to credit cards to student loans to mortgages, according to a PNC  financial independence survey released last month. Unemployment for those 18-29 is 12.4%, well above the national rate of 8.2%; and young people face an increasingly complex global economy that is credit-driven and puts more responsibility on individuals to plan for and manage their retirement accounts….

How bad is the problem? The Treasury Department and Department of Education have teamed the past three years to assess financial literacy in U.S. high schools, and the results haven’t been pretty: the average score of almost 76,900 students in 2010 was 70%. Last year’s testing of about 84,000 students and this year’s of about 80,000 students were both a point lower: 69%….

The problem has been a long time coming. A biennial survey by Jumpstart Coalition for Personal Financial Literacy, conducted from 1997 to 2008 (when many Millennials were in high school) showed high school seniors doing even worse. In 1997, the average score on a 31-question financial literacy exam given as part of the survey was 57.3%. In 2008, the average score was at its lowest ever, 48.3%.

Surveys show that parents, not teachers, have the greatest influence on a child’s financial literacy….

“Today’s parents are concerned, busy, overwhelmed, trying to keep kids off drugs and alcohol. They do not wake up in the middle of the night in a cold sweat thinking, ‘Oh my God, I didn’t teach them about money,’ ” she says.

Parents may not be teaching their children about personal financial planning, and in fact may be over-indulging them and shielding them from the realities of living within their means.  Schools have so far taken a limited role in teaching financial literacy.  Only 13 states require a personal finance class, and fewer than half mandate economics instruction.


… Students who had taken such courses were more likely to go on to save money and pay off a credit card bill in full each month, and less likely to be compulsive buyers, max out credit cards and make late payments.

New York State requires a one-half semester economics class that focuses primarily on personal finance.  My son, who took the course in high school a few years ago, tells me he learned the basics of interest rates, mortgages, investments, and other similar topics.  I’m glad he took it, but other resources like the free online FoolProof program are also available to help educate young people about money, financial responsibility, and the realities of the free enterprise system.

You can test yourself with some sample questions from a financial capability test given to high school students each year.  When I saw question 4, I realized that poor math skills could be a factor in declining financial literacy.  Click the link below to take the quiz.

Financial Literacy Quiz


6 Comments to “Millenials’ declining financial literacy skills”

  1. There were no required economics or financial literacy classes back when I was in school. Well, when I got stuck in 8th grade “business math” (aka math for dummies), we spent a couple of weeks learning how to fill out a check, and took a field trip to the local bank. But my financial literacy when I went off to college was abysmal, and I doubt my peers were any better. One difference, though – back then, college students couldn’t get credit cards, so they could do less financial damage.


  2. I suspect plastic is very bad for students’ number sense and numeracy generally. Also, having mom and dad buy stuff rather than encouraging the kids to use their money eliminates an opportunity for real life practice. My school-age kids have piggies with real change and bills, and it certainly encourages their number sense to have to figure out whether they can afford their latest object of desire. Of course, for this to work, you have to ensure that they have cash flow.

    Believe it or not, a number of school “financial literacy” programs are produced by credit card companies.


  3. It became much harder for college students to get credit cards after the Credit Card Act three years ago, so that put some limits on spendthrift plastic spending.

    That being said, I find giving a kid a credit card is a handy way to manage expenses. I just have to monitor and make sure he’s keeping within his budget. Actually, the credit card my college kid uses is one where’s he’s listed as a “user” on our account. Therefore, he doesn’t have sole responsibility for monitoring and paying bills. It might be time for him to get one, which we would have to co-sign for I’m sure.


  4. “It became much harder for college students to get credit cards after the Credit Card Act three years ago, so that put some limits on spendthrift plastic spending.”

    Even debit cards remove the sort of visual cue that an empty wallet provides. Of course, it can be very convenient and very easy to monitor electronically, but that’s an extra step.


  5. Yes, Amy – It has been more work to monitor the bank and credit card accounts that my kids have used. In some ways an empty wallet is much easier, and makes further spending simply impossible. But I figure they need training on the use of electronic paying methods, and having a digital record of spending is good.


  6. I guess even back in the day, people got in trouble with checks. One of my siblings had an embarrassing growing-up experience at college when he or she (not to identify the guilty party) discovered that having checks is not the same as having money. Oops!

    It was so embarrassing an experience that I think it has never happened again.


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