A few weeks ago, the results of the OECD’s PISA (Programme for International Student Assessment) module on financial literacy were revealed, with Shanghai taking top honors in this category – just as it has in the last two rounds (in 2009 and 2012) on the traditional academic curriculum (reading, math and science).
This is no coincidence, as the OECD results and many other studies suggest a close relationship between education levels and academic performance in math and reading comprehension and scores on financial literacy tests.
In the PISA report, the correlation coefficients between financial literacy scores and performance in mathematics and reading were 0.83 and 0.79 respectively across 13 OECD countries in the survey sample. For high performers like Shanghai and New Zealand, these correlations were even stronger: 0.88 for mathematics, 0.86 for reading.
While waiting for general improvement in academic performance is one path to improved financial literacy, the urgency of addressing financial skills for today’s youth has led many educators and policymakers to look for more immediate steps that can be taken, including financial education interventions at school. The PISA results, however, don’t include an assessment of the value of possible financial literacy curricula, due to the “limited and uneven provision of financial education in schools.” That factor makes comparisons across countries difficult, as described in the report.
Studies of personal-finance programs, both school-based and community-based, have offered varying evidence. In a recent study based on U.S. data, state-level financial-literacy mandates for high school were found to have no effect on financial outcomes, while additional training in mathematics was found to be linked to greater financial market participation, investment income and credit management (Cole, Paulson and Shastry 2012).
However, a three-semester financial education program in Brazil, which was rigorously evaluated by the World Bank, showed significant gains in several financial outcomes including savings rates (Bruhn and others, 2013). The strong performance of New Zealand and Australia in the PISA financial-literacy assessment also suggests that outreach can matter, since both countries have involved the education establishment in teaching finance together with having well-established financial literacy programs for the general population. (A New York Times article, “Learning Personal Finance as a Life Skill,” published on July 27, 2014 discusses the PISA results and country experiences, but it does not mention the many gaps in knowledge of what works.)
Since many countries are considering adding financial capability to their school curriculum, it is important to understand what could account for different outcomes, beyond simply strengthening mathematical and general analytical training.
- The role of psychological traits and motivation
The findings from Fernandes et. al. on the importance of psychological traits is in line with findings from research based on the U.S. Jump$tart surveys of financial literacy among high-school students. While the authors (Mandell and Klein, 2007 ) find little evidence of generalized impact for mandated courses, they do find that students who express a motivation to learn about finance benefit from finance curricula. For people who aren’t already motivated to improve their financial skills, a variety of approaches are possible, including the use of engaging teaching materials and the design of the curriculum in a way that meets the unique needs of the target population. For example, in Brazil, the materials were colorful and were designed with cartoons and other graphics used in teen magazines. Exercises in Brazil also reflected students’ lives – such as estimating the cost of the senior trip that many students take with friends when finishing high school.
- The intensity and quality of the intervention (number of hours, teacher training, parent involvement) matter.
- Some financial topics may be relatively easier to teach and teaching should happen when skills and information are needed.
Building the knowledge base
The 2012 PISA results of financial literacy provide a valuable first look at the financial knowledge and skills of high school students worldwide. Another 40 countries are expected to complete this module in 2015. In the context of what we already know about financial capability and the many issues where knowledge gaps remain, here are some suggestions for the next iteration of the survey.
- Include a question related to whether students have had any exposure to financial concepts and information, either in a self-standing course, a workshop or within other classes such as math.
- Include some questions related to motivation and psychological traits. Questions of these types are relatively easy and quick to answer (examples can be found in the national financial capability surveys developed at the World Bank) and may be very helpful in explaining differences in performance.
- Ask questions about use of financial services, such as whether students already have a savings account or transaction account and whether they use it regularly.
- In the medium term (2018 or 2021), return to some of the students who were tested in 2012 or 2015 to evaluate the extent to which early success with financial literacy translates into improved financial behaviors.