Two-fifths (42%) of 14 to 25-year-olds were unable to interpret the difference between being in credit and overdrawn on a bank statement and about one in eight (13%) did not know what an overdraft was, according to Barclays and charity pfeg (Personal Finance Education Group).
The findings mark the start of My Money Week - a series of activities involving the two organisations and thousands of schools across the UK.
The survey of more than 1,800 young people found that just 58% correctly identified "£200CR" as meaning on a bank statement that someone's account was in credit.
Meanwhile, 8% of those surveyed wrongly thought an overdraft was a one-off loan from a bank with special low charges.
A further significant finding was that more than a quarter (28%) of young people did not know that it would be better to opt for a lower APR (annual percentage rate) than a higher one when taking out a credit card or a loan.
The findings come at a time when Government moves are taking place to improve young people's ability to handle their finances.
Tracey Bleakley, pfeg chief executive, said: "It is clear that many young people are entering adult life with dangerous gaps in their financial knowledge that could lead them into serious financial difficulty.
"These findings underline the need for all schools to teach their pupils about personal finance, to equip them with the skills, knowledge and confidence they need to manage their money well."