FINANCIAL LITERACY
By Karl Arnold Belser
12 July 2014



The Organization for Economic Cooperation and Development (OECD) conducts a periodic test of 15-year old students to assess how well the students can apply their math, science and reading skills. Central to the testing is the assessment of financial literacy. The test is called the Programme for International Student Assessment (PISA).  The US placed 37th, 28th and 24th respectively in the three categories out of 65 participating countries. China (in Shanghai) ranks first in every category and most Asian countries place near the top.  See the PISA 2012 Results.

The under achievement of the US suggests that the K  through 12 educational system is lacking. But are the colleges and universities any better?

Last year (2013) the OECD conducted a test similar to that of PIZA on adults between the ages of 16 and 65; This test is called the Programme for the International Assessment of Adult Competencies (PIAAC). The US was below average in all categories even for those with a university education. Kevin
Carey's June 2014 article in The Upshot American's Think We Have the World's Best Colleges, We Don't brought this serious situation to my attention.

It is true that  of the 25 best universities in the world, the US has about 18 of them. However, academic achievement of the students is not the  measure of goodnesss. Rather the goodness measure is that of the academic achievement of the professors. the implication is that even the US universities are not imparting practical education to their graduates. A simple solution would be to pay universities with scholarships that are based on the success they have in getting their students into productive and gainful work in society. This is another public policy issue associated with my post on The Student Loan Dilemma. In this case students with poor SAT scores would not be admitted with scholarships because they would have a low probability of graduation and success in general. Over time this could fix the moral hazard of the student loan crisis.

There may be an alternate explanation than that the schools are deficient. I observe that Asian people tend to have a higher IQ than do non-Asians. The Bell Curve by Charles Murray assesses IQ using the Armed Forces Qualification Test (AFQT), which is probably the best IQ test in existence. This IQ issue is such a political correctness hot potato that one cannot even discuss it with most people. i note that even the Wikipedia article on the Bell Curve has removed the IQ probability density functions for people by race. It may be that it is the quality of the students and not the universities that is at issue. But remember that correlation does not prove causation. One has to be careful.

The under achievement of the people in the US is a negative leading indicator for future US prosperity.

As an aside I wondered: How difficult can it be to teach people about 
financial literacy.  The article from VOX called  Why is it so difficult to teach people to manage money? gives a plausible explanation. In short, training in personal finance does not in general help a person apply what they have learned. It is hard to teach financial literacy.
   
Last updated July 12, 2014
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