Solving the Financial Literacy Problem

“A compelling body of evidence demonstrates a strong association between financial literacy and household well-being. Survey after survey shows that households that demonstrate low levels of financial literacy are those that tend not to plan for retirement, borrow at high interest rates, and acquire fewer assets.” Shawn Cole

Numerous reports show that a majority of American adults lack basic financial knowledge, behaviors, habits or skills to make good decisions about managing their money. Poor money management habits and a lack of financial literacy continue to be significant concerns for Americans and might pose a future a threat to the continued prosperity of America, since we cannot expect government to run huge fiscal deficits to provide essential needs of its citizens.

Additionally, it is one problem that has caused many Americans to be left behind despite ten years of economic expansion and a roaring bull stock market over that same timeframe. The economic good times have benefited high income and high net worth Americans; and it has led to an ever widening income gap, wealth gap and retirement gap within the United States.

Lack of Financial Literacy

“The number one problem in today’s generation and economy is the lack of financial literacy.” Alan Greenspan, Former Chairman, Federal Reserve

Forty-seven percent of college students surveyed said they do not feel prepared to manage their money. Managing money remains the most daunting challenge for college students for the fourth year in a row.

A recent survey, by financial firm AIG and education training company EVERFI of more than 25,000 college students, revealed that students struggle with even basic financial literacy about things like student loans, credit cards and investing.

When asked six personal finance questions, the survey revealed that more than one in 10 college students answered none of questions correctly, and another 20% got just one question right. Still, more than half got just two or fewer questions correct — even incorrectly answering simple questions about net worth and savings.

Furthermore, fewer than 1% of college students taking the test got them all right.

This survey reveals a widespread problem inside America. It reveals that there is a Financial literacy problem in America and one that we must solve.

This is a major issue because of the financial realities facing college students and all Americans. For example, according to Sallie US:SLM data revealed that 83% of college grads have a credit card, though only about six in 10 say they pay the balance on time and in full each month.

Not Taught in High School

“You can come from humble beginnings, live frugally, invest as much as you can, save 10% to 20% of your paycheck, invest in low-cost ETFs, and become a millionaire.’—Dan LaSalle, Olney Charter School’s assistant principal

Why the shortfall in financial literacy? The reason is because not many students in the U.S. learn about personal finance in school, regardless of the income-level where they live. According to the nonprofit Next Gen Personal Finance, only five states require high-school students to take a personal-finance class: Virginia, Alabama, Utah, Missouri and Tennessee.

In other states, personal finance classes are often offered as an elective. (https://www.marketwatch.com/story/how-one-high-school-is-teaching-hundreds-of-students-to-become-millionaires-2019-05-03). As a result, we have a nation where a vast majority do not understand or even the basics of smart money management habits and behaviors.

“The single biggest difference between financial success and financial failure is how well you manage your money. It’s simple: to master money, you must manage money.” T. Harv Eker, author Millionaire Mind

Financial Literacy is one solution

Financial literacy is about knowing how money is made, spent, and saved, as well as the skills and ability to use financial resources to make decisions. These decisions include how to generate, invest, spend, and save money.

This concept is applicable to both individuals and organizations. Individuals must be able to balance a checkbook, comprehend personal income taxes, and understand the concept of budgeting in order to make wise decisions with money. These skills are vitally important; yet, many individuals lack this basic knowledge and consequently are unable to meet their daily expenses.

References:

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