Every day, we make decisions that involve our financial resources. Money is an integral part of our world, and we spend most of our lives earning it or spending it. As we drive to work, we may stop to pick up coffee and a bagel for breakfast, or we may stop at a gas station to fill up our car. We make countless decisions each day that impact our financial wellbeing, but are we making them wisely? Are we financially literate?
What Is Financial Literacy?
We typically think of a person’s ability to read or write when we hear the word “literacy,” but the term “financial literacy” has garnered attention in the world of personal finance over the past few decades. In simple terms, financial literacy represents a person’s basic understanding of what constitutes a good financial decision. This can include a knowledge of loans and interest, investing, credit, insurance, saving for retirement, and other common financial skills. While some may find these concepts to be basic, current trends and research indicate that many Americans lack knowledge in these areas.
The Growing Problem
Financial literacy begins with the foundational knowledge necessary to make sound financial decisions. In a survey performed in January 2018 by the George Washington University School of Business and the Global Financial Literacy Excellence Center in a partnership with the TIAA Institute, the average American adult surveyed was only able to answer about 50% of the proposed personal finance questions correctly. In addition, the results also indicated a disparity in financial literacy among the generations. Those over 60 years of age had the highest average score, while scores continually decreased with age. Those in the 18- to 29- age bracket had the lowest average score. The results of the survey indicated that adults are lacking basic knowledge in areas like investments, insurance, loans, and other areas, and the level of competency is decreasing with each new generation. With the rise in online banking and other advancements in technology, younger generations are losing the ability to perform basic tasks like writing checks, reading bank statements, and balancing checkbooks. While modern conveniences are certainly helpful, reliance on technology should not lead to negligence of one’s financial resources.
Not only does research indicate a lack of financial knowledge, it also indicates that adults are struggling to implement the basics of financial literacy. GOBankingRates, a company that specializes in providing the public with educational resources related to personal finance, surveys American adults annually regarding their savings for retirement. The most recent survey, published in March 2018, showed that 42% of Americans have less than $10,000 saved for retirement. A closer look at the data showed that approximately 33% of those over 55 have less than $10,000 saved for retirement, while 57% of those in the 18- to 34- age bracket had saved less than $10,000. It is alarming that such a large percentage of those in older generations have not prepared for retirement, while an even larger percentage of younger generations are similarly not prioritizing their retirement.
What Can We Do?
As a community, it is important for us to recognize the importance of financial literacy. Our economy is impacted by the financial decisions of consumers, so we have a responsibility to our country and our local community to ensure that American adults have the skills they need to make sound fiscal decisions.
There are numerous organizations, such as the Financial Literacy and Education Commission, the National Endowment for Financial Education, and the Global Financial Literacy Excellence Center, that have been created specifically to improve financial literacy. However, the simple availability of these resources is not sufficient. Communities must respond by utilizing these resources to ensure that each new generation of American adults is taught the skills necessary to function as healthy, responsible adults.
While reading and writing are the most important aspects of literacy, we cannot ignore the importance of financial literacy in our everyday lives. We must each obtain these skills ourselves, and then actively work to pass that knowledge on to future generations by teaching our own children, and ensuring that they are integrated into public and private school curriculum. It begins with you—are you financially literate?