Financial Illiteracy Amongst U.S. Teens

According to an article in the Chicago Tribune, "young people don't know much about how money works."

* On average, high school seniors answered correctly only 52.4 percent of questions about personal finance and economics, according to a nationwide survey released Wednesday. Still, that was a smidgen better than the 52.3 percent in the previous survey in 2004 and was up from the lowest-ever score of 50.2 percent in 2002.

* 55.8 percent 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 15.1 percent knew they could be responsible to pay $50. Two years ago, 18.1 percent gave the correct answer.

* Only 14.2 percent correctly said that stocks likely would offer the higher growth over 18 years of saving for a child's education. That was down from 17.2 percent who knew the right answer in the 2004 survey. In this year's survey 44.8 percent thought a U.S. savings bond -- one of the most conservative investments -- would offer the highest growth.

* Just 22.7 percent knew that income tax may be charged on the interest earned from a savings account at a bank if a person's income is high enough. Nearly 51 percent said that earnings from savings account interest may not be taxed. In the last survey, 23.9 percent chose the correct answer.

* Nearly 38 percent correctly said that retirement income paid by a company is called a pension. That's up from 34.2 percent who answered right in the last survey. Still, close to 59 percent in the current survey thought it was called Social Security or a 401(k).

* Only 28.6 percent knew that a bond issued by one of the 50 states is not protected by the federal government against loss. In the previous survey, 35.3 percent chose the right answer -- that such bonds are not federally protected against loss.

Not surprisingly, "seniors from higher-income families scored better than those from lower-income households."

Is it any wonder that U.S. teens are financially illiterate? Lack of solid role models and mandatory education are two of the most likely culprits.