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Students and Money: Highlights from the OECD PISA Financial Literacy Assessment
1) The document summarizes key findings from the PISA 2012 assessment of financial literacy among 15-year-old students in 18 countries. 2) On average, students performed between levels 2 and 3 on the PISA financial literacy scale, indicating they can interpret basic financial documents but have difficulty with more complex tasks. 3) Performance varied widely between and within countries and was strongly linked to socioeconomic status. Girls, immigrant students, and those from rural areas tended to perform worse.
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Students and Money: Highlights from the OECD PISA Financial Literacy Assessment
- 1. OECD EMPLOYER BRAND Playbook 1 PISA 2012 Studentsand Money Financial literacy skills for the 21st Century HIGHLIGHTS 9 July 2014 Launch
- 2. What is PISA? Whatis Financial Literacy? CONTEXT AND DEFINITION
- 3. PISA in brief •Over half a million students… – representing 28 million 15-year-olds in 65 countries/economies … took an internationally agreed 2-hour test… – Goes beyond testing whether students can reproduce what they were taught… … to assess students’ capacity to extrapolate from what they know and creatively apply their knowledge in novel situations – Mathematics, reading, science, problem solving, financial literacy … and responded to questions on… – their personal background, their schools and their engagement with learning and school • Parents, principals and system leaders provided data on… – school policies, practices, resources and institutional factors that help explain performance differences . Financial literacy: 29 000 students in 18 countries/economies took a two hour paper test on financial literacy, mathematics and reading 3
- 4. PISA in brief PISAhas developed the first international framework for financial literacy. It defines financial literacy for youth as: “Knowledge and understanding of financial concepts and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life”. 4
- 5. 5 Examples ofwhat this might mean for 15 year olds • If they go to the cinema, will they still have enough money for the bus fare home? Balance their priority and plan what to spend money on • … a motorbike will need fuel and tyres and services and an insurance coverage. Remember that some of the purchases have implications • …Some emails that look like they came from their bank might not be legitimate, they should know what to do if they are not sure. Being alert to possible risk and fraud 5
- 6. Why does financialliteracy matter to 15-year-olds? RELEVANCE
- 7. Big decisions startearly: such as continuing education vs working Shrinking welfare systems; increased personal responsibility Shifting demographics- increased longevity Changing labour-markets and reduced job security Access to financial products at young ages Increasingly complex financial markets Relevance of financial literacy for 15-year-olds7
- 8. 0 20 4060 80 Shanghai-China Croatia Spain Italy Latvia OECD average-13 Estonia France Slovak Republic Israel Russian Federation Slovenia United States Czech Republic Flemish Community (Belgium) Australia New Zealand Most students receive money from some type of work (PISA data) …such as a holiday job, part-time work, or from working in a family business, or from occasional informal jobs (e.g. baby-sitting or gardening) (%) Students earning money outside of school hours 8
- 9. 0 20 4060 80 100 Poland Slovak Republic Israel Italy Croatia Czech Republic Latvia United States Shanghai-China OECD average-13 Spain Flemish Community (Belgium) France Australia Estonia New Zealand Slovenia Percentage of students with a bank account Many students have a bank account (PISA data)9
- 10. 0 10 20 30 40 50 60 70 80 China RussianFederation CzechRepublic Estonia SlovakRepublic Poland OECDaverage Germany Australia UnitedStates Belgium NewZealand Isreal Italy Spain France 2010 or latestavailable year 1970 or first available year Their decisions today will impact their future financial wellbeing: Source: OECD Factbook 2013: Economic, Environmental and Social Statistics - © OECD 2012 Life expectancy is high, and has been growing for the last decade. Young people today will need to be able to support themselves for many years. 10
- 11. What is in thePISA financial literacy assessment? FRAMEWORK AND ITEMS
- 12. Content Money and transactions Planning and managingfinances Risk and reward Financial landscape Processes Identifying financial information Analyse information in a financial context Evaluate financial issues Apply financial knowledge and understanding Contexts Education and work Home and family Individual Societal PISA financial literacy assessment framework12
- 13. http://www.oecd.org/pisa/test/ Take 5 questionsfrom the test yourself13
- 14. 14 Sara receives thisinvoice in the mail Sample Question: INVOICE This is an easy item – Level 1 on the financial literacy scale (below baseline) Difficulty: 360 The task is to recognise the purpose of an invoice Content: Money and transactions Process: Identify financial information INVOICE Question 1 Why was this invoice sent to Sarah? A. Because Sarah needs to pay the money to Breezy Clothing. B. Because Breezy Clothing needs to pay the money to Sarah. C. Because Sarah has paid the money to Breezy Clothing. D. Because Breezy Clothing has paid the money to Sarah. 14
- 15. 15 NEW OFFER Mrs Joneshas a loan of 8000 zeds with FirstZed Finance. The annual interest rate on the loan is 15%. Her repayments each month are 150 zeds. After one year Mrs Jones still owes 7400 zeds. Another finance company called Zedbest will give Mrs Jones a loan for 10 000 zeds with an annual interest rate of 13%. Her repayments each month would also be 150 zeds NEW OFFER- Question 1 If she takes the Zedbest loan, Mrs Jones will immediately pay off her existing loan. What are two other financial benefits for Mrs Jones if she takes the Zedbest loan? 1. ………………………………………………………………………………………………… 2. ………………………………………………………………………………………………… Sample Question: NEW OFFER Question type: Constructed response Description: Recognise positive consequences of transferring a loan to a lower interest rate Content: Planning and managing finances Process: Analyse information in a financial context Difficulty: Full credit: 663 (Level 5) 15
- 16. 16 SHARES This graph showsthe price of one Rich Rock share over a 12-month period. Rich Rock Share Price SHARES - Question Which statements about the graph are true? Sample Question: SHARES The best month to buy the shares was September. True / False The share price increased by about 50% over the year. True / False Price (zeds) Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Time (months) Question type: Complex Multiple Choice Description: Analyse information in a financial context by c onsidering the information in a line graph about an invest ment product Content: risk and reward Process: analyse information in a financial context Difficulty: 545 (Level 3) 16
- 17. Describing performance levels Level5 Level 4 Level 3 Level 2 Level 1 or below Financial literacy Performance levels Top performers Baseline • Apply understanding of a wide range of financial terms and concepts to contexts that may only become relevant to their lives in the long term. • Analyse complex financial products and take into account features of financial documents that are significant but unstated or not immediately evident. • Describe the potential outcomes of financial decisions, showing an understand ing of the wider financial landscape, such as income tax. • Apply understanding of less common financial concepts and terms to contexts that will be relevant to them as they move towards adulthood (e.g. bank account management and compound interest in saving products). • Interpret/ evaluate a range of detailed financial documents • Explain the functions of less commonly used financial products. • Make financial decisions taking into account longer-term consequences • Apply understanding of commonly used financial concepts, terms and products to situations that are relevant to them. • Begin to consider the consequences of financial decisions • Make simple financial plans in familiar contexts. • Interpretate a range of financial documents • Begin to apply knowledge of common financial products, terms and concepts. • Recognise the value of a simple budget. • Make financial decisions in contexts that are immediately relevant • They show an understanding of relationships such as the amount something is used and the costs incurred (such as running a car).• Identify common financial products and terms • Interpret information relating to basic financial concepts. • Recognise the difference between needs and wants; make simple decisions • Recognise the purpose of everyday financial documents such as an invoice 17
- 18. How well preparedare young people to make complex financial decisions? THE RESULTS
- 19. Strong performance in financialliteracy Low performance in financial literacy Average performance of 15-year-olds in financial literacy 19 Shanghai-China Flemish Community (Belgium) EstoniaAustralia New Zealand Czech Republic Poland Latvia United States France Russian FederationSlovenia Spain Croatia Israel Slovak Republic Italy Colombia375 385 395 405 415 425 435 445 455 465 475 485 495 505 515 525 535 545 555 565 575 585 595 605 Mean score
- 20. 15% 23% 30% 22% 10% OECD average-13 Distribution ofstudent performance 625 and above 550 to <625 475 to <550 400 to <475 Less than 400 points Financial literacy performance levels Top performers Baseline 20
- 21. Wide skill gapswithin countries… 190 290 390 490 590 690 Colombia SlovakRepublic Israel Italy France UnitedStates Slovenia Croatia Spain RussianFederation OECDaverage-13 NewZealand Latvia Poland CzechRepublic Australia Estonia FlemishCommunity(Belgium) Shanghai-China Difference 75th and 25th 5th 95th 21
- 22. United States Poland New Zealand Estonia Croatia Latvia SlovakRepublic Czech Republic France Australia Israel Spain Slovenia Colombia Russian Federation Italy R² = 0.1632 370 390 410 430 450 470 490 510 530 550 9 000 14 000 19 000 24 000 29 000 34 000 39 000 44 000 49 000 Scorepoints Per capita GDP (USD converted using PPPs), 2010 or the latest year GDP per capita explains only 16% of the country level variation in financial literacy Differences only partially explained by GDP per capita 22
- 23. How equitably are learningopportunities distributed? GROUPS TO BE TARGETED
- 24. Are there genderdifferences in financial literacy? Italy 350 400 450 500 550 600 650 350 400 450 500 550 600 650 Girls'meanscore Boys' mean score Boys perform better than girls Girls perform better than boys 17 22 28 22 11 14 24 32 22 8 0 10 20 30 40 Level 1 and below Level 2 Level 3 Level 4 Level 5 Girls Boys OECD analysis on adults finds that men outperform women. PISA indicates that among 15 year-olds, on average there are no gender differences (except in Italy) but there are fewer girls at the top and the bottom Policies should aim to enhance girls abilities and support underperforming boys 24
- 25. 0 2 4 6 8 10 12 14 16 18 20 Estonia Italy RussianFederation Croatia Australia FlemishCommunity (Belgium) Poland Shanghai-China Colombia Latvia CzechRepublic OECDaverage-13 Israel Spain France Slovenia UnitedStates SlovakRepublic NewZealand Financial literacy MathematicsReading Percentageofvariationinperformance explainedbysocio-economicstatus Socio-economic status matters and in some countries more than for mathematics or reading25
- 26. -40 -20 0 20 40 60 80 100 France13 FlemishCommunity(Belgium)10 Slovenia8 Spain11 Estonia10 CzechRepublic2 OECDaverage-1311 Italy7 RussianFederation10 NewZealand27 UnitedStates22 Croatia12 Israel17 Latvia3 Australia20 Statistically significantNot statistically significant Percentage of immigrant students Difference between the scores of non-immigrant students and immigrant students (not accounting for other factors) Students without an immigrant background perform better than those who are 1st or 2nd generation migrants26
- 27. 400 450 500 550 600 650 Shanghai-China FlemishCommunity… Estonia NewZealand Australia Poland CzechRepublic Latvia OECDaverage-13 Croatia Spain RussianFederation UnitedStates Slovenia SlovakRepublic Israel Italy Colombia Students attending schoolslocated in a village, hamlet or rural area (fewer than 3 000 people) Students attending schools located in a city (100 000 or more Students attending school in rural locations do less well than those in urban locations Mean scores of students in schools in different locations 27
- 28. How do students developfinancial literacy skills ? Importance of reading and mathematics as foundation skills Relevance of experience and attitudes
- 29. Israel Colombia Shanghai-China Latvia UnitedStates OECDaverage-13 Croatia Poland SlovakRepublic Spain Estonia FlemishCommunity(Belgium) NewZealand RussianFederation Australia CzechRepublic France Italy Slovenia -30 -20 -10 0 10 20 30% Mathematics and readingare foundations of financial literacy but the situation is uneven across countries Students' performance in financial literacy is higher than their expected performance in mathematics and reading 29 Students' performance in financial literacy is lower than their expected performance in mathematics and reading 29
- 30. 200 300 400 500 600 700 800 200 300 400500 600 700 800 Relative financial literacy performance when compared to mathematics Financial literacy performance Mathematics performance Average relationship between financial literacy and mathematics performance Australia performs better-than-expected in financial literacy. The difference between observed and expected performance is larger among strong performers in mathematics The Czech Republic perform better- than-expected in financial literacy. The difference between observed and expected performance is larger among low achievers in mathematics France’s performance is lower-than-expected in financial literacy. The gap between observed and expected performance is similar at all levels of mathematics performance. 30 Italy’s performance is lower-than- expected in financial literacy. The gap between observed and expected performance is wider among high achievers in mathematics. Students in the Flemish community (Belgium) and Israel perform as high as expected in financial literacy at all levels of mathematics performance 30
- 31. -25 -15 -5 5 15 25 35 45 55 65 75 SlovakRepublic Latvia Italy Croatia Israel Shanghai-China CzechRepublic Spain UnitedStates Australia Poland France OECDaverage-13 Estonia FlemishCommunity(Belgium) Slovenia NewZealand Learning financialliteracy through experience: Relevance of bank account holding (accounting for socio-demographics) On average across OECD countries and economies, students who hold a bank account score 21 points higher than students with similar socio-economic status who do not. 31
- 32. 0 10 20 30 40 50 60 70 80 90 Estonia Shanghai-China FlemishCommunity(Belgium) Croatia Latvia RussianFederation Poland CzechRepublic Italy SlovakRepublic Spain Israel OECDaverage-13 Slovenia Australia Colombia France NewZealand UnitedStates Score-point difference: Studentswho disagree minus students who agree with the statement "When confronted with a problem, I give up easily" Attitude such as perseverance matters32
- 33. -5 0 5 10 15 20 25 30 35 40 45 50 Colombia CzechRepublic Poland Israel FlemishCommunity(Belgium) Shanghai-China Croatia Italy SlovakRepublic Latvia OECDaverage-13 Spain RussianFederation Australia Estonia UnitedStates Slovenia France NewZealand Statistically significant Notstatistically significant 2 Openness to problem solving is also important Score-point difference: Students who agree minus students who disagree with the statement "I like to solve complex problems" 33
- 34. • This firstPISA Financial Literacy exercise revealed important gaps in the financial competencies of students in most countries and room for improvement in all • It however does not provide a definitive answer as to what model works best to strengthen financial literacy • More research and future PISA exercises will be instrumental in further exploring and gauging countries’ practices and policies. The bottom line and next steps34
- 35. Thank you Find outmore about PISA at www.pisa.oecd.org All national and international publications The complete micro-level database Find out more about the work of the OECD on financial at www.financial-education.org OECD publications, data and instruments Databases of financial education initiatives and research Email: Adrian.BLUNDELL-WIGNALL@oecd.org Flore-anne.MESSY@oecd.org Michael.DAVIDSON@oecd.org
Editor's Notes
- #4 “Financial literacy in PISA is primarily conceived of as personal financial literacy, distinguished from economic literacy, which includes both broader concepts, such as the theories of demand and supply, market structures and so on. Financial literacy is concerned with the way individuals understand, manage and plan their own and their households’ financial affairs, and with their awareness and understanding of the overall financial and economic landscape they live in. It is also recognised that good understanding, management and planning on the part of individuals has some collective impact on the wider society in contributing to national and even global stability, productivity and development.” 13 OECD countries and economies: Australia, Belgium (Flemish), Czech Republic, Estonia, France, Israel, Italy, New Zealand, Poland, Slovak Republic, Slovenia, Spain, and the US 5 partner countries and economies: Shanghai-China, Colombia, Croatia, Latvia and the Russian Federation
- #6 In practice a 15-year-olds’ might… - Estimate the amount of change they should get when they pay for something in cash, and remember to check - Make decisions about what to spend their money on, taking into account the things that they might really need to pay for. For example, if they go to the cinema, will they still have enough money for the bus fare home? If not, maybe they should buy pizza and invite friends round to theirs to watch a DVD instead? - Remember that some of the things that they buy will have ongoing costs. A games console will need new games, a motorbike will need fuel and tyres and services and so on. - Some emails that look like they came from their bank might not be legitimate , but they will know what to do if they are not sure. - If their phone gets stolen, they will ask their parents if it is covered by their household insurance - Make an informed decision about credit: (those with higher levels of proficiency) …will know that if they use credit to buy a computer, they will have to pay interest on the loan as well as paying the advertised price for the computer. ..and they will realise that the less they repay of that loan each month, the more they will pay in interest - Understand risk diversification …they will be able to explain why the saying ‘don’t put all your eggs in one basket’ might apply to investment. Realise that buying something on credit is likely to make an item cost more in the long run. They will understand why the saying ‘don’t put all your eggs in one basket’ might apply to investment.
- #9 Almost all students have access to some earned income at age 15.
- #10 And many have a bank account
- #11 Life expectancy is high, and growing. Young people of today will need to be able to support themselves for many years.
- #18 .
- #20 This chart illustrates the financial literacy scale, from below the OECD average, marked in red, to around the OECD average, marked in yellow, to high performance, marked in green
- #23 The 16 countries (excluding Flemish community of Belgium and Shanghai-China).
- #25 And, among students with comparable performance in mathematics and reading, boys perform better than girls in financial literacy in 11 out of 18 countries and economies.
- #31 (more patterns can be added) Germany: same as Spain