Financial literacy is very important for any society to be successful and competitive in a global community. Financially and economically literate people will make informed decisions as consumers, producers, investors, and citizens. This topic becomes especially urgent in times of economic and financial turmoil and uncertainty. It's a well known fact that lack of financial knowledge and skills have contributed to the latest economic and financial crisis. Many people, young in particular, have limited understanding of such important personal finance topics as budgeting, investment, credit, and spending which leads to making wrong financial decisions and aggravating the crises. These issues are wide spread all over the world, as well as in Belarus, and we find it interesting to conduct research on the status of financial education and the level of personal finance knowledge and skills. In particular, we wish to examine the skill level across countries as compared to Belarus in order to raise awareness of the importance of education on these vital financial issues.
Evidently, effective management of money and finances requires special training. Economic and personal finance education is highly debated in developed countries. There is much research (see Mandell 1998, 2002, 2004; Fetterman and Hansen, 2006; Walstad and Rebeck, 2005; Jump$tart Coalition for Personal Finance, 2008; Orton, 2007 among others) that suggests there is an urgent need for wide-ranging financial training and education of the general public. Numerous educational and business organizations put their forces together to develop personal finance curricula for secondary and college levels and try to disseminate the materials that can help teach young people to be financially literate, to make better decisions about earning income, managing finances, spending and saving, borrowing and investing.
The authors collected baseline information on financial literacy among both high school and college students in Belarus, a country with transitional economy and an underdeveloped financial sector, using existing test instruments and methods and, then, compare those results with results from the U.S. and Japan.
The need for personal finance education has been identified in many countries and is well-documented by current research in the field. For instance, it is widely reported that many young people do not feel prepared for the financial challenges they will face, such as financing their education, buying a car, using credit, saving and investing, or purchasing a home. Recent analysis shows that sixty percent of young people in their 20s "feel they're facing tougher financial pressures than young people did in previous generations. And thirty percent say they worry frequently about their debt" (www.nefe.org). High credit card debt and relatively low savings rates have become a national concern in many developed, as well as developing, countries.
U.S. President's Advisory Council on Financial Literacy (2009) summarized the results of multiple surveys and tests on financial knowledge and reported consistently low average performance of teenagers. Jump$tart coalition (2008) also reported the lowest scores of 48.3% demonstrated by the 12th graders for over a decade of testing in personal finance.
Even a brief overview of the previously conducted research on the topic demonstrates the evidence of palpable lack of financial competency among the young people in various countries. For example, Larry Orton (2007) provides a thorough overview of the major reasons for increased importance of financial education such as, changing demographics, growing complexity of the financial sector, declining personal savings along with rising indebtedness. International experience drawn on such countries as United Kingdom, the United States, and Australia shows similarities in poor results on recently conducted surveys to evaluate personal finance literacy. They also proved existing correlation between the levels of education and income as well as overall overestimation of the level of personal finance knowledge by the majority of respondents (Orton, 2007).
RESEARCH INSTRUMENT AND METHODS
A reliable test instrument that allows evaluating the level of personal finance literacy at secondary and college levels was developed by professors W. Walstad and K. Rebeck in 2005. The Financial Fitness for Life High School Test (Walstad & Rebeck, 2005) (further called FFFL test) includes 50 questions categorized into five content themes: The Economic Way of Thinking, Earning Income, Saving, Spending and Using Credit, and Money Management. The test items are also classified by cognitive levels as knowledge, comprehension, and application questions. The FFFL test is a valid and reliable instrument for analysis and, thus, was chosen for the purposes of this research. It was translated into Russian by the authors of the paper and was administered in Belarus in May of 2007 following standard test administrative procedures. The FFFL test examiner's manual contains data on comparing results demonstrated by high school students without prior financial training to those who took a course in personal finance. In Belarus, personal finance courses are not part of high school curricula while university students get some basic financial knowledge through the required courses on general principles or introductory economics that allows analyzing the role of personal finance training in raising the level of financial literacy. The U.S. data serve as a point of reference for the comparative analysis among the countries. Our design is consistent with the existing research conducted in Japan using the same test instrument for high school and university students.
Data in Belarus was collected using cluster sampling. There are currently 31 state universities in Belarus. Only three of them have traditionally been classic universities, while the other 28 are former technical or pedagogical institutes, which have been granted the new title of 'University' only recently as part of educational reform. We invited colleagues from the three classic universities, Belarusian State University, Grodno State University, and Gomel State University, to participate in our project and received administrative permission from the first two. To control for regional differences, we sent out invitations to 30 high schools also from the areas surrounding Minsk and Grodno and got positive responses from 13 (43% response rate). Two state universities and 13 secondary public schools participated in the project, 790 total subjects, including 219 university and 571 high school students.
We empirically address the following questions:
* What is the level of personal finance literacy of high school and university students in Belarus?
* What was student performance by specific personal finance themes and by cognitive levels identified in the test instrument?
* On what personal finance themes and items did students demonstrate better (above 67%) or worse (below 33%) achievement?
* What were the differences and/or similarities in student performance in the U.S., Japan, and Belarus based on the data published in FFFL-HS Test Examiner's Manual (2005) for the U.S. sample; reported at the NCEE Annual conference in 2005 for the Japanese sample (Yamaoka, et. al. 2005), and obtained for the Belarusian sample in 2007.
Aggregate statistics for Belarusian, USA, and Japanese samples are presented in Table 1. As seen in Table 1, university students in Belarus showed higher degree of personal financial literacy than high school students (51.9% and 45.5% of correct responses respectively) while both Japanese university and high school students showed almost identical (57.2% and 57.3%) results on the test.
The results of Belarusian and U.S. high school students without personal finance training are similar which is somewhat unexpected given that Belarus is a country in transition with a relatively undeveloped financial system and some test items are U.S. specific. Japanese high school students did significantly better than both Belarusian and U.S. groups. The U.S. students who had a personal finance course did better than those who didn't have any special personal finance training (55.7 % and 44.7%) and also performed better than Belarusian university students and slightly worse than the Japanese university students.
Table 2 shows the distribution of the mean percentage of correct answers by themes for the samples from Belarus, Japan, and USA.
As seen in Table 2, the "Saving" theme appeared to be the most difficult part of the test for all students across the three countries with the average percent of correct answers being less than 50%. The best results were demonstrated on the theme "Earning Income" also being consistent for all three countries. This could be explained by the fact that students usually have either part-time jobs or temporary summer jobs, providing them with first-hand experience in these areas; they are interviewed for those jobs, pay taxes and social security contributions, and all these experiences can help answer questions related to the theme of "Earning Income". Students of that age may also be in the process of deciding what career to pursue or what major to chose, thus, they most likely discuss questions related to entrepreneurship, lifetime income, competitive job markets, and human capital with their parents, teachers, and friends.
On the other hand, savings is a more complicated concept …