Financial Literacy: If It's so Important, Why isn't It Improving?

Abstract

Financial literacy has assumed greater importance in our society as the result of the increasing complexity of financial products and the simultaneous cutting of economic safety nets by government, employers and even parents who worry about their own retirements. If the problem isn't solved and consumers don't look out for themselves, they may exercise a put option by throwing themselves on the mercy of taxpayers when they cannot support themselves in retirement. In addition, a lack of financial literacy may contribute to seemingly irrational behavior that distorts financial markets. Measured financial literacy scores among high school seniors is low and has even declined since 1997. More distressing is the fact that students who take a course in personal finance end up no more financially literate than those who don't. Tracking students who took such a course over a 5 year period shows no positive impact on financial literacy, attitudes toward thrift or behavior. The only bright spot is the stock market game which consistently increases literacy scores, indicating that teaching should be interactive, contemporary and fun. About the Author: From 1998 to 2001, Dr. Mandell served as dean of the School of Management, leading a successful effort to improve the school's national and regional reputation, as well as its educational facilities. In 2004, he was named Teacher of the Year by the Undergraduate Management Association. Previously he served as dean of the School of Business at Marquette University.