Dollars and sense? Financial literacy among 15-year-olds

by Andreas Schleicher 
Director of the Directorate for Education and Skills, OECD
Pierre Poret
Director of the Directorate for Financial and Enterprise Affairs, OECD

Two in three 15-year-old students earn money from work activity, and more than one in two hold a bank account. And yet, among students in OECD countries who took the 2015 PISA test in financial literacy, fewer than one in three of them reached Level 4 on the assessment – the level that signals the kinds of knowledge and skills that are essential for managing a bank account or a financial task of similar complexity. And the demands on their financial skills rise as students get older: 79% of Australian students took out a public loan in 2013; in the Netherlands, students graduate with an average debt of USD18 000.

Being able to interpret financial documents and make financial decisions that take into account longer-term consequences, such as understanding the overall cost implications of a loan, are precisely the kinds of things that students are expected to do in the PISA test. More generally, the PISA assessment seeks to assess students’ knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make sound decisions across a range of financial contexts.

Among the countries with data for 2012 and 2015, only students in Italy and Russia made any headway in their performance in financial literacy. This is worrying because it’s an uphill struggle. Everywhere, people face more challenging financial choices. The spread of digital financial services opens up new opportunities for people once excluded from the financial system; but the digitised system also exposes consumers to new security threats and risks of fraud that are compounded when low financial literacy is combined with poor digital skills and ignorance of cyber security.

There are also greater financial risks. More individualised pensions, and more uncertain economic and job prospects due to digitalisation, technological change and globalisation are just some of these. Last but not least, growing inequality means that those with poor skills face particular risks. We don’t expect 15-year-olds to be able to meet all of these challenges. But we should expect them to be able to define their priorities and plan what to spend money on; to remember that some purchases have ongoing costs; to be aware that they can become the victims of fraud; and to know what risk is and what insurance is meant for. Again, that is exactly what the PISA assessment of financial literacy is all about.

Parents and families play an important role. PISA results show that when students discuss money matters with their parents, they have significantly higher financial literacy skills, even after accounting for differences in socio-economic background. Young people can also learn on their own by using appropriately regulated financial products in a context where young consumers are adequately protected.

The trouble is that all this seems to work just for students from more privileged backgrounds. Advantaged students score the equivalent of more than one PISA proficiency level higher in financial literacy than their disadvantaged peers. That’s equivalent to the difference between being able only to identify a delivery cost that is stated on an invoice and interpreting the various elements of the same invoice to correct a mistake in the billing.

This shows how important it is for schools and school systems to play a role in giving all children a fair chance to succeed. Some school systems already do this very well. Students in the four Chinese provinces and municipalities that took part in the test – Beijing, Jiangsu, Guandongand Shanghai – came out well ahead of their peers in every other country. Even more impressive, the socially and economically most disadvantaged quarter of students in these provinces did as well as the second wealthiest quarter of students in the United States, and better than the wealthiest quarter of students in Brazil, Chile and Peru.

That raises the question of whether a great school system will automatically help its students to acquire strong financial skills. The answer is not straightforward. On the one hand, having a solid foundation in mathematics and reading is crucial for navigating the financial landscape, from computing percentages to reading a bank statement. On the other hand, the PISA financial literacy assessment reveals that 38% of the variation in financial literacy is not explained by mathematics and reading skills. Many features of financial literacy are unique to the subject. These include being aware that some deals really are too good to be true, understanding the role of income tax, being vigilant for fraudulent e-mails, and knowing one’s rights and responsibilities in the financial marketplace. It is also interesting to see that some countries do much better in financial literacy than they do in reading and mathematics. This is the case in the Flemish Community of Belgium, the Canadian provinces that took part in the test, in the four provinces in China and in Russia, where students do better in financial literacy than predicted by mathematics or reading.

Educators should not see this as a zero-sum game, where more financial education will take something away from the rigour, focus and coherence that is needed to give students strong foundations in mathematics or reading. Instead, they should look for complementarities, where financial education becomes a context that helps make learning in traditional school disciplines more relevant and interesting. We already find good examples of this in Australia, Belgium, Canada, Lithuania, Peru, the Slovak Republic and the United States.

Evidence that there is a positive relationship between performance in financial literacy and holding a bank account or receiving gifts of money, all other things being equal, suggests that some kind of experience with money or financial products can provide students with an opportunity to reinforce financial literacy, or that students who are more financially literate are more motivated to use financial products, and perhaps more confident in doing so. Young people can also learn through after-school initiatives. In some countries, governments and not-for-profits are offering young people videos, competitions, interactive tools and serious games via digital and/or traditional platforms.

But the more financial education initiatives are developed, both in and outside of school, the more important it is for governments and other stakeholders to evaluate and prioritise such initiatives and to scale and spread good practice. PISA tells countries how well they are succeeding; the OECD International Network on Financial Education will continue to build and share relevant international expertise and help countries provide the right combination of financial literacy and consumer protection.


PISA 2015 Results (Volume IV): Financial Literacy
PISA in Focus No. 72: What do 15-year-olds really know about money?
Programme for International Student Assessment (PISA)

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