Financial literacy weaknesses seen

I was among a generation of students who attended skills-based classes like sewing, cooking, typing and shop. I did not master any of these areas, but I am very happy to have had some basic knowledge about each of them and in fact, typing has come in very handy in my career.

In the ensuing years, some of those classes still remain, but one area where there is a gaping hole is personal financial education. According to the Council for Economic Education's bi-annual report, 2018 Survey of the States: Economic and Personal Finance Education in Our Nation’s Schools, just 17 states require their students to graduate having taken a personal finance class and only 22 require a course in economics.

Could our lack of a firm financial foundation contribute to the subpar results in adult financial literacy?

According to the 2019 survey of financial knowledge released by the TIAA Institute and the Global Financial Literacy Excellence Center at the George Washington University School of Business, U.S. adults answered, on average, only one-half (51 percent) of the 28 survey questions correctly, which is just a tiny improvement from the 2017 and 2018 results (49 and 50 percent respectively).

The researchers attempted to measure overall personal finance knowledge across eight areas of our lives and the results may surprise you.

Borrowing is where financial literacy is highest; comprehending risk is where it is lowest. Here is the percentage of questions answered correctly by topic:

Borrowing (relationship between loan features and repayments): 62 percent

Saving (factors that maximize accumulations): 62 percent

Earning (determinants of wages and takehome pay): 53 percent

Consuming (budgets and managing spending): 52 percent

Go-to info sources (recognizing appropriate sources and advice): 50 percent

Investing (investment types, risk and return): 48 percent

Insuring (types of coverage and how insurance works): 46 percent

Comprehending risk (understanding uncertain financial outcomes): 38 percent

Over the past few years, when I get on a soapbox to argue for financial education, someone sends me a link to a 2015 study from the Journal of Human Resources, which found “there is little evidence that education intended to improve financial decision-making is successful.”

But that's not the end of the story. In fact, the study finds that while traditional personal finance courses may not be the best solution, “additional mathematics training leads to greater financial market participation, investment income, and better credit management, including fewer foreclosures.”

In other words, if we want to improve the quality of financial decision-making, the key may be to enhance mathematics curricula, not to provide a straight up “here’s how you balance a checkbook” course.

The stakes are high. The TIAA Institute found that those with greater financial literacy are much less likely to be financially fragile and more likely to track their spending, save for a rainy day and to plan for retirement. As the researchers note, “achieving and maintaining financial well-being, or financial wellness, is a goal shared across individuals.”

What does financial wellness mean? That you have control over day-to-day, month-tomonth finances; that you have the capacity to absorb a financial shock; that you are on track to meet your financial goals and, as a result, have the financial freedom to make choices that allow you to better enjoy your life.

Jill Schlesinger, CFP, is a CBS News business analyst.