US teens are just 'average' at financial literacy, study finds. How can they improve?

US 15-year-olds rank average on financial literacy, according to the Organization for Economic Co-operation and Development. About 20 percent of US teens didn’t reach the baseline level of financial literacy, which some say is evidence that more finance education is needed.

Are American teens more money savvy than teens in China, Estonia, and Poland? No, but they know more about money matters than Croatian and Italian teens do, the Organization for Economic Co-operation and Development says.

For the first time ever, the OECD tested 15-year-olds in 18 countries on their knowledge of personal finances and ability to apply it to their financial problems.

“Developing financial literacy skills and knowledge is critical now that individuals are becoming increasingly responsible at an ever earlier age for financial risks affecting their future,” OECD Secretary-General Angel Gurría says in a press release. The 18 countries were part of 65 countries and regions participating in the OECD Program for International Student Assessment (PISA) for mathematics literacy. The US scored in the middle of pack with Russia and Latvia.

About 20 percent of the US test takers didn’t reach the baseline level of financial literacy, according to the results. Without a standard across all 50 states in financial literacy education, the figure isn’t that surprising, says Jerry Love, a National CPA Financial Literacy Commission member based in Abilene, Texas.

“What it says is we’re not educating them for the most part about finance literacy,” he says in a phone interview with the Monitor. “There is a big void in what we teach our children when they grow up about money.”

The results reflect that the American public in general needs more financial literacy, Mr. Love argues. A large portion of the US population living paycheck to paycheck, he says, which could be evidence that adults may not do well on the test if they took it.

“If you don’t understand [financial literacy] … then you’re not likely to teach it to your kid,” he adds. 

In the US, only four states require high schoolers to take a personal finance course. Having a nation-wide standard for financial literacy education would be ideal, Love says, but it easier said than done. Adding finance education requirement brings in other logistical questions, such as how teachers can incorporate it into their curriculum in the limited time they have in the school year, or if schools need longer days to teach students everything, he adds. 

The financial literacy questions tested students’ understanding of financial terms, such as why someone would receive an invoice, and comprehending graphs with data. When Love took sample questions, he noticed that while some problems were purely finance-based, others had some math involve, he says. 

Teaching financial literacy does not have to be overwhelming, Love says. In fact, there are many 'teachable moments' in people's daily routines.

"When you’re sitting there in the grocery store, deciding whether to buy the name brand or the generic brand, you’re making a decision on a financial principal," Love says. These everyday financial tasks can be big money lessons for children. 

So, which countries did the best and the worst in the OECD study? China had 63.5 percent of high scorers, while Colombia had only 2.1 percent of high scorers. However, the teens taking the test in China were all from Shanghai, China’s largest and wealthiest city. The gender gap in financial literacy was much smaller than in OECD PISA tests in math or reading, with there being no significant difference between the performance of boys and girls, except in Italy.