- The Washington Times - Thursday, August 9, 2007

About 42 percent of high school seniors in the United States are proficient in economics, according to a first-of-its-kind national test that covered national and international economics, as well as personal finance.

The government’s National Assessment of Educational Progress (NAEP) — often called “the nation’s report card” — periodically tests students in a range of subjects including math, reading, history and science, but hasn’t examined economics proficiency until now.

Last year, an NAEP economics test was administered to a nationally representative sample of about 11,500 12th-graders from 590 public and private schools.

A panel of financial leaders and economists announced the results of the test with the hope that it would encourage educators to put more emphasis on economics, saying such knowledge is important to the nation’s future.

“Economic policy-making becomes easier and more effective the better the general public understands economics,” said Gary H. Stern, president of the Federal Reserve Bank of Minneapolis.

About 79 percent of the students scored at or above an NAEP level deemed “basic,” 42 percent were at or above the “proficient” level and 3 percent reached the “advanced” level.

“That’s a good base to build on,” Mr. Stern said.

“While there is clear room for improvement, the results are not discouraging,” said Darvin Winick, chairman of the National Assessment Governing Board. “Given the number of students who finish high school with a limited vocabulary, not reading well and weak in math, the results may be as good as or better than we could expect.”

The questions fell into three categories: national economy, international economy and market economy.

Under market economy, 72 percent of those tested were able to describe a benefit and risk of leaving a full-time job to further one’s education, 46 percent correctly interpreted a supply-and-demand graph to figure out the effect of establishing a price control, and 52 percent knew that banks loan checking account deposits to other customers.

Under national economy, 60 percent identified factors that increase the national debt and 36 percent knew that personal income tax is the federal government’s primary source of revenue.

The test highlighted some gaps in economics education. Bruce Damasio, a high school economics and social studies teacher from Towson, Md., said students tended to score better on plain-language questions, such as one that discussed pay rates for baby-sitting, than on questions that used basic economics terminology, such as one that discussed a firm’s “capital.”

White students and Asian students scored higher on the test, on average, than Hispanic and black students, and boys on average scored slightly better than girls.

Mr. Winick said that raising reading and math scores — the goal of the federal No Child Left Behind Act — will help improve students’ economics scores as well.

Finance professionals have long expressed concern that young people don’t have an adequate understanding of basic financial concepts such as compound interest or the cost of a credit card.

Personal financial adviser Suze Orman testified at a Senate hearing in February that young people often find themselves trapped with heavy debt because of financial illiteracy. She said adults are to blame.

“It is a failure on our part when we hand money to young adults, be it credit cards or student loans, without truly making sure they understand the mechanics of how these agreements work,” she said.

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