One of the most significant findings of the study is that fewer than half of the students realized that credit card users who pay only the minimum amount each month run up the highest finance charges. This proportion was 70.6 percent in 2006 and had never fallen below 60 percent in all the years of the survey. Considering the record amount of household consumer debt, there should be significant cause for concern if people do not understand the terms of their credit cards (if the high school survey is any indication).
Other findings are similarly worrisome: Just 27.3 percent realized that interest on savings accounts could be taxed if incomes were high enough. Thus, by and large, students have a poor understanding of our tax system. Moreover, only 40.4 percent of students realized that they could lose their health insurance benefits if their parents became unemployed. And with the economy not doing well, students may end up learn about this fact the hard way.
Financial illiteracy is not only widespread but is particularly severe among some demographic group. Students in the highest family income category—over $80,000 per year—had average scores of 52.3 percent. This contrasts strongly with the scores of students from the lowest income families who averaged just 43.4 percent. Moreover, while White or Caucasian students averaged 52.5 percent on the financial literacy test, Black or African-American students averaged only 41.3 percent, Hispanic students 45.1 percent and Native-American students 37.7 percent. I have found these differences to be large among the older population as well, and this finding shows that differences are already present at a young age.
As I mentioned in my previous blog, April was Financial Literacy Month. These findings show there is a long road ahead to address the lack of financial literacy. We certainly need to keep working hard at it all year long!