American Kids Are Really Bad at Handling Money

A new report shows U.S. teenagers falling behind peers in China — and raises concerns about their financial futures.

Price Waterhouse Cooper staff teach financial literacy to students in Belize in 2013 as part of the company's Project Belize program.
National Journal
Nancy Cook
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Nancy Cook
July 9, 2014, 7:14 a.m.

Score an­oth­er one for Chinese teen­agers, who leave U.S. kids in their dust when it comes to know­ing how to handle money. That’s the latest anxi­ety-pro­du­cing stat­ist­ic (for Amer­ic­an par­ents, any­way) to emerge out of a newly re­leased in­ter­na­tion­al study of the fin­an­cial habits of roughly 29,000 teens from coun­tries as far flung as Aus­tralia, China, Colom­bia, France, Is­rael, Rus­sia, Spain, and the U.S.

The goal of this first-ever in­ter­na­tion­al study of fin­an­cial lit­er­acy, con­duc­ted by the Or­gan­iz­a­tion for Eco­nom­ic Co-op­er­a­tion and De­vel­op­ment, was to gauge the fin­an­cial know-how of 15-year-olds world­wide. Many of the teen­agers have reached or are near­ing the end of their re­quired school­ing, and must now de­cide wheth­er to pur­sue a job or uni­versity edu­ca­tion. 

The study aims to see if teens are pre­pared to make such de­cisions about their fin­an­cial fu­tures at a time when a middle-class life­style no longer seems guar­an­teed. “Shrink­ing wel­fare sys­tems, shift­ing demo­graph­ics, and the in­creased soph­ist­ic­a­tion and ex­pan­sion of fin­an­cial ser­vices have all con­trib­uted to a great­er aware­ness of the im­port­ance of en­sur­ing that cit­izens and con­sumers of all ages are fin­an­cially lit­er­ate,” write the study’s au­thors.

The res­ults? Many teens still fall woe­fully be­hind in un­der­stand­ing fin­an­cial in­stru­ments, in­sti­tu­tions, and the best ba­sic ways to build wealth. Among the study’s start­ling data points:

· Just one in 10 of the stu­dents sur­veyed could an­swer the toughest fin­an­cial-lit­er­acy ques­tions on the 2012 sur­vey, such as the im­pact of in­come-tax brack­ets on people’s fin­ances.

· On av­er­age, teens from high­er-so­cioeco­nom­ic back­grounds scored a full 41 points high­er on the fin­an­cial-lit­er­acy sec­tion than poorer kids. That holds true across coun­tries, mean­ing that thou­sands of poor kids world­wide be­gin their fin­an­cial lives with less know­ledge and at a dis­ad­vant­age.

· Sim­il­arly, huge gaps ex­ist in teens who say they hold bank ac­counts — an easy, im­port­ant way to ac­cu­mu­late sav­ings. In Aus­tralia, Bel­gi­um, Es­to­nia, France, New Zea­l­and, and Slov­e­nia, more than 70 per­cent of 15-year-old stu­dents re­por­ted that they has opened an ac­count, where­as in Is­rael and Po­land, few­er than 30 per­cent of stu­dents had.

· Back to that anxi­ety-pro­du­cing stat for Amer­ic­an par­ents for a brief mo­ment. Teen­agers in China scored the highest av­er­ages on the fin­an­cial-lit­er­acy por­tion of the test, fol­lowed by kids in Bel­gi­um, Es­to­nia, Aus­tralia, and New Zea­l­and. Amer­ic­an teens were firmly in the middle, ranked ninth on the fin­an­cial-lit­er­acy sec­tion out of 18 OECD eco­nom­ies and coun­tries. They can take small solace in the fact that Rus­si­an and Itali­an kids know even less about man­aging money than they do. 

The study comes at a pre­cari­ous mo­ment for fin­an­cial-lit­er­acy edu­ca­tion, as coun­tries across the globe (es­pe­cially the U.S.) struggle to fig­ure out the best way to im­part fin­an­cial wis­dom to the next gen­er­a­tion. Al­though the U.S. alone boasts roughly 800 dif­fer­ent fin­an­cial-lit­er­acy cur­ricula, no aca­dem­ic, in­sti­tu­tion­al, or per­son­al-fin­ance ex­pert has yet un­covered the most ef­fect­ive meth­od for teach­ing these key money skills. In many ways, it’s an un­fair battle against the prowess of the fin­an­cial-ser­vices in­dustry that an­nu­ally spends about $54 per per­son on fin­an­cial mar­ket­ing versus the roughly $2 per per­son spent in the U.S. on fin­an­cial edu­ca­tion.

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