Understand Money

Understand Money

There’s a Dire Need for Financial Literacy Education: Here’s Why!

There’s no kind way to say this, so let’s just be blunt. The absolutely abysmal lack of financial literacy education is failing our American kids and stealing some of the best years of their future. The verdict is in: financial problems are a leading cause of depression, divorce, stress, illness and hopelessness.  And the COVID-19 pandemic caused a chain of events that left the global financial market messier than it’s ever been.

Financial literacy is parallel to language literacy in that it’s not good enough to just be able to read what’s there, you need to be able to understand and interpret the language of finance in order to prepare for your financial future and protect it long-term. The process of financial literacy education should include lessons and application on basic budgeting, credit and debt management, planning for big decisions, saving and how to make your money work harder and better for you.

Sometimes financial literacy education begins with sitting down with a local bank manager or agent and simply going through each aspect of a typical financial situation. Checking accounts, debit cards, credit cards, savings accounts, mortgages, auto loans, signature loans … the works. Not from a sales standpoint, but from an education standpoint.

This is vital, because if a young adult walks into a bank for the first time when it really matters, they won’t find “help,” they find a salesman looking to move a product. That simply the way commercial banks are set up these days. They are there to make money, and to do that, they need customers. It’s not up to the bank to educate those customers beyond explaining what their products are and what they do. It’s up to the consumer to know and understand before they sign. And that’s where financial literacy education comes into play.

Young people need to know what they’re looking at when they see bank forms and loan applications for the first time. They need to understand “term” and “rate” and “cost of borrowing”. Kids need to understand how to use debt, not just be told “it’s bad.” They need to understand financial literacy is as much about right now – budgeting – as it is about long-term planning for retirement.

Despite these basic facts that most people agree on, financial literacy is, at best, subpar … and not just in young people. Many older adults don’t fare much better, and they’ve been floundering, making mistakes, for years.

Surprisingly, income level is not necessarily an across-the-board indicator of financial literacy. While most less-educated people tend to be more financially illiterate, many more wealthy people also have significant blank spots in their financial understanding. Perhaps this is why people compare choosing a retirement account with a visit to the dentist. It’s something they know they need to do, but they say it causes significant stress.

 But people still have to learn, despite the stress involved. The days of depending on a pension for retirement planning are over. Because of this, more people are directly responsible for their financial planning. That means deciding on the best fund vehicles, keeping up to date on how they are performing and deciding when it’s time to try something different.

People are also living longer, so that means they will need their money to work better and for a longer period than their parents did. Giving kids the tools they need, now, literally increases their opportunities and odds of leading a happy, successful life. That’s why we need more financial literacy education now!

What’s the best way to boost America’s financial literacy standards? 

Americans are in debt. Deeply, many feel hopelessly, in debt. Credit cards and student loans, beginning at age 18 mean millions of younger Americans have begun their lives tragically in debt. But surveys of older adults reveal similar, and in many cases worse, pictures. Financial literacy is pretty dreadful, and that has many calling for higher financial literacy standards in American education.

Some are now advocating a national standard for financial literacy in order to provide an actionable series of lessons that teach children the information they will need to know in order to have the best shot at a successful life. These efforts are based on the notion that avoiding poor financial choices begins with understanding how to make good, positive financial choices. These groups believe if people better understood the consequences of their economic choices, they would get the information and motivation they need to make better decisions. 

Proposed standard metrics include the study of subjects that are integral to building a sound financial future, including: income earning and increasing your value, buying goods or services, wise use of credit, how and why to save, why insurance matters and how to invest to protect your long-term future. These concepts can be split into these six section segments:

  • Spending and saving lessons teach kids to monitor expenses, track their spending and save rather than buying on credit.
  • Credit and debt content helps students understand healthy credit management.
  • Employment and income helps students understand the long-term importance of building income potential.
  • The investing segment teaches students about diversification and smart investment strategies.
  • Risk management helps students understand the importance of insurance in their overall financial picture.
  • Financial decision making teaches students to discern and apply reliable information on a consistent basis. 

Those calling for financial literacy standards would like to see metrics applied to measure adequate and superior understanding at the elementary, middle school and high school levels. These metrics include assessments that allow students to demonstrate understanding and application. Further benchmarks would illustrate better decision-making, as well as long-term strategic thinking including how to set and achieve financial goals. 

The overarching goal of the financial literacy standards is to develop a systematic way to convey financial literacy and motivation to application in a gradual way. Program teaching and assessment would begin in lower elementary with very basic concepts and build on that foundation year after year. The eventual goal would be to graduate a student who is not only financially literate but also prepared and enthusiastically willing to take charge of their own financial decisions in order to build a strong and healthy financial future.

While the principles and curricula are meant for a traditional school setting, the metrics, assessments and information could easily translate to another environment. Nonprofits could use the system to create workshops or application opportunities outside of the school setting in order to both reinforce the program and expand on the concepts being taught. 

Any or all of the included topics contained in the programs could be used in multiple different educational and inspirational forums to increase financial literacy standards.

Free Financial Literacy Education Resources

People of all ages can use help with their financial decisions. There are many companies that charge a fee for this information, and in certain situations this may be warranted, but a little digging online will reveal a wealth of financial education resources for free.

National Endowment for Financial Education (NEFE)

This organization offers financial advice for a variety of people in various stages of life. The NeFe.org site has the following sections of quick links:

  • High School
  • College
  • Financial Education
  • Retirement Planning
  • Smart About Money
  • Overspenders
  • On Your Own

NEFE’s mission statement is very simple, “Everyone deserves a financial education.”

How is NEFE Funded?

The National Endowment for Financial Education is independently funded by the organization’s own endowment, which was established from the 1997 sale of the College for Financial Planning’s assets, including a building to house the office. NEFE is a nonprofit organization free from financial ties to any other organizations. Additional growth and funding for its programs are realized only through the interest, dividends and gains from the endowment’s own funds.

NEFE do not accept financial support from individuals, governments or corporations, nor does it raise money through the sale of any of its products or services. All of NEFE’s programs are provided at no cost to anyone.

Office of the Controller of the Currency

This organization is part of the U.S. Treasury Department. This website, www.occ.gov, provides information on financial literacy resources, issues that are important to financial institutions, organizations, and consumers of all ages.

Here is a list of topics covered on the site:

  • Asset Building Programs
  • Bank On Programs
  • Basic Financial Literacy
  • Consumer Financial Protection Bureau
  • Consumer Protection
  • Credit Management
  • Elder Financial Exploitation
  • Financial Literacy and Education Commission (including nationwide conference materials)
  • Financial literacy for Multilingual Populations
  • Housing
  • Military Resources
  • OCC Financial Literacy Updates
  • OCC Resources
  • Reaching Out on Financial Literacy
  • Recognizing and Avoiding Abusive Lending Practices
  • Retirement and Financial Security
  • Small Business and Microenterprise Technical Assistance
  • Tax Assistance
  • Unbanked and Underbanked
  • Youth Programs

The site also refers people to a long list of organizations that offer basic financial literacy, including the NEFE. Others include:

  • MoneySmart, supported by the FDIC
  • The Society for Financial Education and Professional Development, Inc. (SFEPD) develops and presents financial literacy and development training for individuals and organizations
  • The American Institute of Certified Public Accountants’ 360 Degrees of Financial Literacy, this program helps people understand finances through every stage of life.

Money Management International (MMI)

MMI is the largest nonprofit, full-service credit counseling firm in the U.S.. Since 1958, they have been helping consumers find tools and solutions needed to achieve financial freedom. They provide financial guidance, credit counseling, community educational programs, debt management services, bankruptcy counseling, student loan counseling, and housing advising assistance to consumers via the telephone, internet and in-person. MMI is a member of the National Foundation for Credit Counseling (NFCC), Consumer Federation of America (CFA), and National Council of Higher Education Resources (NCHER).

MMI Services

  • Budgeting
  • Debt Counseling
  • Review of Credit Reports
  • Student Loan Repayment Advice
  • Foreclosure
  • Reverse Mortgages
  • Bankruptcy
  • General Financial Workshops

Rest assured, if one needs help or advice with financial issues, there are a variety of resources available that will not add to the financial burden of an individual.