Financial (Il)Literacy Among the Young
We blogged a while back about the sad state of financial literacy in this country. This has been diligently investigated by Annamaria Lusardi and Olivia S. Mitchell, who insert a few financial questions in government longitudinal surveys. Here’s an example.
Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
They are now back with a new paper (co-authored with Vilsa Curto) about financial literacy among American youth. While their findings are perhaps unsurprising, they’re sobering nonetheless:
[F]ewer than one-third of young adults possess basic knowledge of interest rates, inflation, and risk diversification. Financial literacy is strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings is about 50 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy.
The abstract is here, the PDF here (see Table 2 for the good stuff). I may be crazy for saying so, but I believe financial literacy is one of the most important ingredients for a well-functioning society. If you know of a place — a school system, a government program, even a financial firm’s website — that you believe teaches financial literacy really well (and not just to the young people who, as in the paper above, have financially literate parents), tell us about it in the comments.