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.

Beekey Cheung

I think teaching financial literacy in a school is difficult, though probably necessary. Ideally it would be parents would teach it since financial literacy requires a constant lesson (such as every time a child wants to buy something they need to go "do you really need it?). I would argue that financial literacy does little good without a healthy amount of self control.

Douglas Warren

Dave Ramsey has created a Financial Literacy class for high school students that is being used in about 1000 schools.

Jason D

I think one of the best places to learn about financial concepts and devices is the site The site's core functionality is to help people track their spending and investments, but they also have a blog which discusses many financial topics. The founder's stated goal is to increase the US savings rate, so I think their hearts are in the right place.

Another great resources is, which offers articles and blogs on finance, particularly the values of frugality and the effects of interest rates.

Douglas Warren

I forgot to include the link:


Young Americans Bank in Denver has some great financial literacy programs and community outreach.


In the late 90's I went to high school in Rancho Palos Verdes, CA - a wealthy area. We had a semester of financial education including a stock project where we had a practice portfolio on Yahoo Finance and even learned shorting.

The class is outlined here:

I get the impression my high school is the exception, not the rule.


Financial literacy should be required of all US high school students in their senior year. A full understanding of the value of a buck (rapidly changing, I know) would go a long way towards solving many of our problems.


"I believe financial literacy is one of the most important ingredients for a well-functioning society"

I will have to respectfully disagree, sir. In my humble opinion, I would expect 100 or so items to be more important.

Max Rockbin

Despite all of the financial advice on TV (some of it pretty good), there are really only a couple of lines to the needed mantra:

Don't abuse credit.

The rest of it (including understanding the time value of money) creates the sound basis for those two admonitions

If only they could be pounded in instead of "For Everything Else, there's Mastercard..."


Suze Orman's "The Money Book for the Young Fabulous and Broke" was the most helpful to me in learning financial basics.


I'm saving my pennies to send my kids to Money Camp, once they're old enough:


Here's a link for the paper:


I don't think there's much more to it than common sense. There's no class for buying a house, finding a date, paying bills, fixing your car, or hooking up your TV. Life can't be taught, it just has to be lived. I think the best we can do is to teach people how to teach themselves.

Average 10th Grader

Ummm...I guess I'll go with B.


You would definitely have less than $102 because the bank has a minimum funds limit of $200 and charged you $2 per month as a service fee.

I learned this lesson the hard way at age 15 when I found that my savings account(which was opened when I was 5) became subject to service charges and my $100 of birthday and Christmas money quickly became $50.

I didn't read bank statements at the time... Now I have my account at a credit union where they don't pull so many shenanigans.

Panem et Circanses

Ouch! And I wondered why so many otherwise smart adults didn't comprehend that cars cost more to drive than the cost of their gas.

Ray K

The correct answer to the example question is either C or D. We don't know monthly fee for maintaining such a low balance in a savings account at this fictional bank, but I'd bet it adds up to more than $2 per year!

Grant Baldwin

Thanks for this link. I work with students as a full-time youth speaker and completely agree with you on the need for financial education.

In fact, I created a website to help: Everyday we answer questions from students about personal finance 101.

Feel free to send your students to the site and let us know how we can best help you!


Steve Roth

Doug Warren, re: Dave Ramsey's "course":

From the site: "The course is easy to implement—just pop in the DVD and press play."

It shocks me that basic money info, finance, and economics are absent from almost all high school curricula.

One of my daughters is lucky enough to be studying finance/econ with Yoram Baumann--but only because she goes to one of the top high school in the country. Private, natch.

The other, she and I put together an independent study titled "Game Theory in Economics and Evolution" because her private school had nada in the area.

Public schools? Fuggedaboudit.


Utah State University's course on Family Finance, provided for free online through their OpenCourseWare site:

or if the above URL doesn't quite work, try this one: