Middle School Students Get Top Marks on Needs vs. Wants Distinction
Findings from a Money School Canada financial literacy assessment of 550+ Grade 7 & 8 students as part of a knowledge benchmarking exercise for participants in a series of Financial Basics workshops delivered March-May 2011.
Less than Half Middle School Students Know that Banks Pay Interest on Savings
When it comes to understanding the difference between a ‘need’ and a ‘want’ Grade 7 & 8 students in Toronto get top marks. Much of the financial literacy education discussion these days is centred in the importance of teaching the difference between a ‘need’ and a ‘want’ however kids themselves are telling us that this is a little too elementary. “Let’s face it – it is in a young person’s best interest to present everything they ‘want’ to their parents as essential for life however, in most cases, kids know perfectly well how to make the distinction,”
Money School Canada conducted a basic financial literacy assessment with more than 550 Toronto area Grade 7 & 8 students as part of a benchmarking exercise for students who participated in a series of three-hour, in-class Financial Basics workshops delivered between March and May 2011.
The financial literacy assessment results revealed that the majority of Grade 7 & 8 students know that a budget can help you save up for things [86%], that you should read agreements before you sign them [76%], that you should try and save something every month [72%] and, for the most part, students grasp the concept that shopping around for bank products and services is a good idea.
It is when you dive into the details surrounding the real-life impact of interest earned/ charged and interest rates that things get a little fuzzy for this group. More than 70% of students know that you have to pay interest when you borrow money however just over half would try to get the very lowest interest rate they could when borrowing. Less than half knew that things will cost more if bought with borrowed money versus using their own savings. “The real cost of goods purchased using borrowed money and, in particular bought using credit cards, is a real eye opener for students,” added Ms. Barry. “Making young people aware of the impact that interest payments can have on their overall purchasing power is foundational to forming early attitudes toward credit and to helping them make more responsible spending choices over the long-term”.
Surprisingly, less than half of the students knew that banks would pay them interest on money they have in a savings account and well under one-third knew that banks pay a lower interest rate on savings than the interest rate they charge on credit card balances. “It always causes a stir when young people are taught about compound interest. Students are shocked to find out that the banks actually pay interest on the interest already paid into the savings account and how this can grow balances over time,” added Ms. Barry. “However, the biggest reaction always comes when students learn how banks make money through interest rate spread – by paying a lower interest rate on savings than they charge when they lend money.”
Money management is a big topic and knowing where to start a child's education can often be overwhelming for parents. The Money School Canada What Kid$ Know™ Financial Literacy Assessment results help parents to understand where they can make a significant impact on their child’s financial literacy know-how. “To make a big difference, closing the financial literacy knowledge gap, parents can get started by focusing on three areas: 1] teaching about interest earned on savings 2] teaching about interest that must be paid on borrowed money and 3] giving kids a real-life experience making a budget and sticking to it” adds Ms. Barry “back-to-school shopping is a perfect opportunity to introduce kids to budgeting.”
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Executive Director, Money School Canada
METHODOLOGY & DETAILED RESULTS
Grade 7 & 8 students, in the Greater Toronto Area, were provided with a series of plain-language, money-related statements centered in basic money management concepts. The financial literacy assessment was completed in March to May, 2011. A multiple choice format was used where students were asked to select from four possible responses including: 1] True, 2] False, 3] Not Sure and 4] New Word. The expanded suite of possible answers, beyond simply True or False, ensures a higher integrity in the results as guessing is reduced [a 50/50 chance of a correct answer] and, with the option to indicate if a certain word is new to the respondent – “I don’t understand the statement therefore I can’t answer”, there is greater assurance that that student’s financial literacy is being measured rather than their proficiency with the English language. The addition of a ‘New Word’ answer option is a critical aspect in this type of knowledge assessment, particularly in cases where there is a higher concentration of ESL students, such as in the GTA. Percentage correct data reflects those students who chose the correct answer – all other answers were considered incorrect.
Money School Canada What Kid$ Know™ Financial Literacy Assessment
MONEY MANAGEMENT KNOWLEDGE
Spending priorities should be set based on 'Needs' first then 'Wants'.
Making a budget can help you save up for the things you want or need. 86%
It is important to read agreements and application forms prior to signing them. 76%
Interest must be paid on unpaid credit card balances.
It is a good idea to save 10% of your income every month.
You must pay interest when you borrow money from a bank. 71%
You must sign a legal agreement promising to repay when you
borrow the bank's money.
Banks are not the same - you should shop around for products and services.
People with good credit scores are more likely to get bank loans approved.
When borrowing money you want the lowest interest rate you can get. 54%
It can sometimes be a good idea to use savings to repay credit cards.
When you buy things on a credit card you are spending the bank's money.
You will be paid interest by the bank on money held in savings accounts.
Things will cost you more if you take out a bank loan to buy them
rather than using your own money.
The interest rate banks pay on savings accounts is lower than
the rate they charge on credit card balances.
Assessment conducted with 560 respondents. Grade 7 & 8 students attending schools across the GTA. Assessment conducted between March and May, 2011.