БEACH month, Jane’s salary is paid into her bank account. This is Jane’s pay slip for July. Gross salary: 2,800 zeds. Deductions: 300 zeds.
Net salary: 2,500 zeds. Gross salary to date this year: 19,600 zeds. How much money did JaneБs employer pay into her bank account on 31 July. A) 300 zeds, B) 2,500 zeds, C) 2,800 zeds or D) 19,600 zeds.
Б So reads a sample question from the first PISA financial literacy test that some 29,000 students from 13 member states of the OECD, an intergovernmental think-tank, and five partner countries have taken (a mock exam is available ). The results were on Wednesday and are sobering. Among OECD countries, less than a third of the 15-year-old test takers could correctly answer questions of the same difficulty level as the one above. While most students had no problem recognising the purpose of an invoice and performing rudimentary numerical operations, identifying a net salaryБwhich was put in the second-most difficult category of questionsБproved to be much tougher.
The hardest questions involved concepts such as transaction costs and only one in ten students were able to successfully tackle those. That many youngsters are confused by money matters is clearly a problem. What to do about it, on the other hand, is less certain. The OECD researchers note that two countries that did much better on the financial literacy test than on the math and reading testБNew Zealand and the Czech RepublicБare among the few where the ministry of education has an overarching responsibility for financial literacy and where a national strategy has been put in place.
It thus appears as if there is room for policymakers to have an impact through schooling. But there are two problems. First, boosting financial literacy is hard. Jump$tart Coalition for Personal Financial Literacy, an American non-profit organisation, has surveyed high-school seniors every other year since 2000.
These surveys consistently that students who have taken a full-semester course in personal finance do no better on a standard financial literacy test than those who have not taken such a course. Similarly, a by Tzu-Chin Martina Peng and her co-authors found that having taken a personal finance course in school is unrelated to investment knowledge. Second, and perhaps most important, courses in personal finance do not appear to have an impact on adult behaviour. As Buttonwood has, the knowledge that students acquire in school when they are in their teens does not necessary translate into action when they have to deal with mortgages and credit-card payments later in life.
One study, for example, that financial education has no impact on household saving behaviour. As a by Lewis Mandell and Linda Schmid Klein suggests, the long-term effectiveness of high-school classes in financial literacy is highly doubtful. It may simply be the case that the gap in time is too wide between when individuals acquire their financial knowledge, as high-school students, and when they’re in a position to apply what they have learned. One potential solution may be to teach people when they are closer to the making of financial decisions.
Since many children do not remember their financial lessons from school when they are older, it could make more sense to focus on helping them as young adults instead. However, even among those who struggle with debt, few take financial literacy courses when offered at no cost. For adult financial education to have an impact it may therefore need to be compulsory. This would come with its own set of issues, monetary and regulatory.
Nonetheless, it is a path worth exploring, not least since evidence suggests that schooling for adults actually has a positive effect. A recent, for example, found that for individuals aged 20 or above, four different educational programs all boosted financial literacy significantly. None of this is to say that teaching financial literacy to teenagers is unimportant or meaningless. But it may still be the case that prioritising education to adults rather than courses to high-school students may result in a bigger bang for the buck.