According to experts who study and teach economics, American students have a strong understanding of broad economic principles but lack basic knowledge of the facts, rules, and institutions that affect their daily lives. These findings were based on the latest results from the National Assessment of Educational Progress (NAEP), which tested students on economics for the first time. Despite this, experts were somewhat encouraged by the results, which showed that nearly 80 percent of high school seniors scored at or above the "basic" level on the exam, and 42 percent reached the "proficient" level or higher. Only 3 percent scored at the highest level, "advanced."
The recent results revealed that US students have a fundamental understanding of economic forces such as supply and demand and how they impact their daily lives. However, they struggled when asked to explain certain concepts and terminology, such as interest rates or gross domestic product, as well as the role of institutions like the Federal Reserve. While students demonstrated competence in consumer economics, their understanding of the macro side of economics and the market side was weaker. Experts noted that students had a solid grasp of the logic of economics, but lacked specific knowledge.
The test was administered to a nationally representative sample of 11,500 12th graders from public and private schools. Because the economics NAEP was introduced in 2006, student progress on the exam cannot be accurately assessed until after 2012, when the test will be administered again.
Federal officials stated that despite the limited data available, some conclusions can be drawn from students’ scores on the test. Those who achieved a proficient score demonstrated a broad understanding of concepts and relationships related to the market economy, national economy, and international economy, which were the three main areas covered on the exam. Students at the basic level understood a more restricted set of economic concepts and relationships, such as the connection between market prices and buyers’ affordability. Those at the advanced level displayed a more extensive understanding of economic principles, such as the impact of compound interest rates on consumers or the effect of exchange rate changes on purchasing power. The chairman of the National Assessment Governing Board also suggested a link between the test results and students’ understanding of other subjects.
The phrase "School of Hard Knocks" has been used to describe the experience of learning through tough life lessons. Gary H. Stern, the president of the Federal Reserve Bank of Minneapolis, expressed that the recent test results exceeded his expectations but still fell short of satisfaction. He emphasized that the public’s limited understanding of economic issues can have significant implications for the country. Stern believes that a well-informed public is more likely to support prudent economic proposals put forth by policymakers. He also argues that an educated citizenry would make wiser financial decisions and avoid the need for stricter consumer safeguards.
Stern stated during a Washington event that economic policymaking becomes more manageable when the public is knowledgeable about the subject. According to Mr. Damasio from the economics teachers’ association, students nowadays have several opportunities to expand their understanding of economics. The subject is experiencing a renaissance in general culture, with newspapers frequently covering business and economic matters. Numerous newspapers even employ or syndicate columnists who specialize in these topics. Additionally, there is an increasing popularity of economics-themed books like Freakonomics, which attempt to explain how economic principles apply to various aspects of everyday life.
However, Mr. Damasio noted that students who lack a basic understanding of economic mechanisms, such as the role of the Federal Reserve in determining interest rates, or the principles of spending, borrowing, and debt, often face difficulties when they reach adulthood. They struggle with making decisions related to credit cards, mortgages, and business. Damasio likened their learning experience to the "school of hard knocks," where they learn through the harsh realities of daily life, making it challenging to recover from their mistakes.
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