Some teens excel in financial literacy

Kids generally get a bad rap when it comes to their knowledge of personal finance. In the 2008 survey of high school seniors by the Jump$tart Coalition for Personal Financial Literacy, the average score was 48 percent, down from 52 percent in 2006.

So it's nice to be able to salute students for their proficiency in money matters. In the first-ever National Financial Literacy Challenge, sponsored by the U.S. Treasury, 10 regional winners from around the country were honored with scholarships from the Charles Schwab Foundation for achieving perfect scores.

Separately, more than 20,000 high school students in 20 states took the spring 2008 Financial Literacy Certification Test, sponsored by the group Working In Support of Education (www.wise-ny.org). After studying a personal-finance curriculum for a minimum of seven to eight weeks, about 74 percent of the students were able to pass WISE's proficiency exam.

Part of the challenge in testing kids on their financial knowledge is coming up with the right questions, and how much teenagers can reasonably be expected to know is a topic in itself. It seems to me that the questions should be simple, straightforward and practical. When I asked my 19-year-old son to take a look at a few sample tests, he had some interesting observations.

For instance, he thought it was more important for students to understand how homeowners insurance works than to know the definition of a deductible. He liked a question that compared a pay hike of 3 percent with a 5 percent inflation rate because it helped him figure out whether a 25-cent increase in his hourly salary was a "real" raise.

Similarly, he knew that a person who paid only the minimum on a credit-card balance would end up paying the most in finance charges, and he found that information useful.

But he didn't think most teens would intuitively know what it meant to "diversify" investments with a mutual fund, or "hedge" inflation by taking out a fixed-rate mortgage (many adults would probably have trouble with that one).

Of course, kids can (and do) learn about all those things as they get older. For the first time, the Jump$tart survey was also given to college students, who scored an average of 62 percent.

Jump$tart has a wealth of curriculum material available in its clearinghouse (www.jumpstart.org), much of it free. But there are no uniform requirements for financial education, and teachers have a lot on their plates. So what's taught in schools often depends on the time, interest and expertise of individual schools and teachers.

Most important, surveys consistently show that kids still learn most of what they know about money from their parents.

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Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95) and "Money Smart Women" (Kaplan, $15.95). Send your questions and comments to moneypower@kiplinger.com