September 5, 2007 — Economics 101

High school students show room for improvement in a nationwide economics exam
By Doug Campbell

Question: If there was a decrease in the worldwide production of oil, which of the following would most likely occur?

1. Global consumption of oil would increase.
2. Economic growth in oil-importing countries would decrease.
3. International spending on research into alternative energy sources would decrease.
4. Global exploration for new oil reserves would decrease.

The correct answer is B. When oil production decreases, there is an accompanying increase in the cost of oil in importing countries, making it more expensive to produce goods and services. If you got that right, count yourself among the 63 percent of high school seniors who also did in what was billed as the first nationwide economics test.

In August, the U.S. Department of Education released results from the National Assessment of Educational Progress' inaugural report card on economic literacy among 12th graders. Almost eight out of 10 test takers demonstrated "basic" knowledge of economics and personal finance, displaying "partial mastery of the knowledge and skills that are fundamental for proficient work at a given grade." Forty-two percent scored at the "proficient level or higher," including the 3 percent who were "advanced" and showed superior performance.

The test was administered to 11,500 seniors in 590 public and private high schools. Headlines of late have pointed to general financial illiteracy in the United States, whether among consumers racking up credit card debt or misunderstanding the terms of adjustable rate mortgages. Economic educators hope that the nationwide test results will provide motivation for more economics in classrooms.

"I think the kids did really well," says Bruce Damasio, a teacher in Maryland who has taught economics to high schoolers for 34 years and now serves as president of the Global Association of Teachers of Economics. "When eight out of 10 kids are at the basic level, that's not bad."

The National Assessment project has been administering tests for three decades in topics ranging from reading to geography, but until now, not in economics. Students were quizzed on three areas: market, national, and international economics. Male students scored better than females; whites and Asians better than other groups; and students with highly educated parents better than average. Most students, according to the examiners, had some exposure to economics in high school.

But in the market economy section, more than seven out of 10 students could describe a "benefit and a risk of leaving a full-time job to further one's education." In national economy, only 11 percent were able to analyze how a change in unemployment affects income, spending, and production.

Questions also measured comprehension of the institutions that make a market economy work, such as this one: What happens to most of the money deposited in checking accounts at a commercial bank?

1. It is used to pay the bank's expenses.
2. It is loaned to other bank customers.
3. It is kept in the bank's vault until depositors withdraw the funds.
4. It is paid to the owners of the bank as a return on their investment.

Fifty-two percent correctly identified B as the answer. Thirty-five percent said C.

Tim Schilling, associate director of the Powell Center for Economic Literacy in Richmond, thinks those kinds of results aren't all that encouraging. For one, he notes that the "proficient" level of knowledge that 42 percent of students achieved is about what most would consider B- or C-level work. Only one-third of students knew that an increase in interest rates would affect borrowing costs.

To Schilling, there needs to be more emphasis on fundamental economics, not just financial literacy, such as showing students how to balance checkbooks. "Yes, in an economy where people have to be more responsible for handling their own [financial] resources, these are vital skills. But there has to be some economic underpinning on these things to understand the larger environment in which this is going on," Schilling says. "We have to start integrating some basic economic concepts at the lower grades. Opportunity costs, choice — these are concepts that kids can grasp really easily."

To Damasio, one of the most encouraging things about the test was that it was given at all. With all the emphasis on curriculum to boost standardized test scores, it historically has been difficult for administrators to make room in their classrooms for economics. "This kind of moves us into the big leagues," he says. "It gives the economics field a little more validity to the people who make curriculum decisions and staffing decisions on whether we should offer courses in economics."

The next time the government tests high schoolers on economics will be 2012, at which time it will be possible to judge how much progress has been made.