ICFE eNEWS #17-09 - March 1st 2017
How Do We Get Teens To Care About Their Financial Future?
U.S. Lags in International Financial Literacy
(from the National Endowment for Financial Education (NEFE))
DENVER - A recent analysis on the financial proficiency of
teenagers shows Americans are uniquely in peril as the U.S. is
the only country demonstrating low financial literacy levels
compounded with low retirement income replacement rates.
Analyzing data from the 2012 Program for International Student
Assessment (PISA), which was administered to approximately
29,000 students in 18 competing countries, a study funded by the
National Endowment for Financial Education® (NEFE®) and
conducted by researchers at George Washington University links
financial literacy to how much working income one can expect to
receive from their national pension system. For example, in the
U.S. Social Security payments on average only cover 45 percent
of worker's former income in retirement, compared to countries
like Spain, which covers 89 percent, and Italy, which covers 80
"The rules of retirement have changed and people
are living longer. The challenge for all is how you will fund a
30-year retirement with a 40-year career. The bigger question is
how we get teens to care about retirement," says Billy Hensley,
Ph.D., senior director of education with NEFE. "Financial
literacy helps people understand the importance of saving and
reaching goals. But without financial education many Americans
struggle to make up the additional 55 percent of expenses that
are not covered by Social Security. Young adults in particular
need to start thinking about how they will cover this
Researchers at George Washington University
analyzed the PISA financial literacy data alongside pension
generosity data from the Organization for Economic Cooperation
and Development (OECD), the PISA study's oversight agency. In
countries with higher retirement income replacement rates it's
not uncommon to find students with lower financial literacy
"In countries like Spain, Italy and Russia, lower
financial literacy is less of a concern because higher pensions
take care of retirees," says Hensley. "We also find students
with higher financial literacy scores in countries where there
are lower retirement income replacement rates. Since more of the
burden falls on individuals, they have an incentive to boost
their financial capability to save and invest for the long
term," adds Hensley.
The U.S. is the only country in the
study with both comparatively low income replacement rates and
lower financial literacy scores.
"Within the U.S. there
is promise. There are many random acts of success on the state
level from those who offer financial education and do it well.
What we need are stronger mandates for personal finance
education," says Hensley.
According to the
JumpStart Coalition for Personal Financial Literacy, 22
states have a requirement in place to offer a high school course
in personal finance education, 17 states require a high school
course to be taken for graduation, and seven states have
standardized testing of personal finance concepts.
George Washington University study underscores the importance of
financial education”early and repeatedly at home and in school,"
says Hensley. "We need to continue to support the financial
education infrastructure by improving teacher preparedness and
promoting a coherent set of national standards for teaching
personal finances in middle and high schools."
findings of the research,
This research analyzes findings from the Organization for
Economic Cooperation and Development (OECD) 2012 Program for
International Student Assessment (PISA) financial literacy data
and their implications for the development of sustainable
retirement systems. The study was led by Annamaria Lusardi,
Ph.D., academic director of the Global Financial Literacy
Excellence Center (GFLEC) and Denit Trust Chair of Economics and
Accountancy at the George Washington University School of
Business; and Carlo de Bassa Scheresberg, senior research
associate at GFLEC.
About the National Endowment
for Financial Education (NEFE)
NEFE is a nonprofit foundation that inspires empowered financial
decision making for individuals and families through every stage
of life. For more information, visit www.nefe.org.