Filed under: Bad news, Adobe Systems (ADBE), Economic data, Housing, Federal Reserve
American high school students know little about the basics of finance and economics, and the problem is getting worse, according to a report from the AP today.
The majority of high school seniors answered basic questions about finance incorrectly in a nationwide poll conducted by the Federal Reserve. Fed chairman Ben Bernanke called for better financial education, and linked the woeful state of basic economic knowledge to the housing crisis.
Bernanke said, “In light of the problems that have arisen in the subprime mortgage market, we are reminded of how critically important it is for individuals to become financially literate at an early age so that they are better prepared to make decisions and navigate an increasingly complex financial marketplace.”
It’s hard to disagree with him on this point, but a cynic might wonder if a poorly educated population is really the source of the housing crisis. Sure, Americans don’t know much about the power of compound interest or how to calculate net present value, but that’s not why the economy is in trouble. The housing bubble was produced by people who knew what they were doing — mortgage brokers who winked at “liar’s loans” and sophisticated bankers who created new financial instruments to get rid of the bad debt. All of these people were highly educated in economics and finance. The problem isn’t ignorance but a lack of integrity and regulation.
Whatever the cause of the housing crisis, it’s hard not to be concerned about how poorly educated many Americans are. Here are some of the findings from this year’s survey:
- On average, high school seniors answered correctly only 48% of questions about personal finance and economics — this is down from 52% last year.
- Only 16.8% knew that stocks likely would offer the higher growth over 18 years of saving for a child’s education, while 37.3% thought a U.S. savings bond — one of the most conservative investments — would offer the highest growth.
- Nearly 53% said they would have no liability if their credit card was stolen and a thief ran up $1,000 worth of debt. (Liability is limited to $50 after the credit-card issuer is notified.) Only 13% knew they might have to be responsible for $50.
Bernanke is certainly right when he calls for better education for American high school students. Fortunately, we have a national election coming up, and education policy is a good thing to pay attention to as you head to the polls.
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