How Bad is Financial Literacy in the United States?
Financial literacy is defined as being knowledgeable about financial, credit, and debt management in order to make sound financial decisions. It has repeatedly been shown, through issues like the financial crisis, that although many assume that developing countries are the only ones facing financial illiteracy, it is a significant issue in developed states as well. Not having sufficient knowledge of markets and financial principles has led to a majority of the population suffering with heavy debts, yet the sheer extent of this issue has not been adequately addressed in today’s day and age.
According to a study by the FINRA Foundation, nearly two-third of the American population cannot pass a basic financial literacy test. Although it may be a seemingly harmless issue to many, this has several spillover effects for not only individuals but the global economy as well. 44% of Americans do not have enough cash to cover a $400 medical emergency bill, but with the average healthcare bill costing over $1000, this leaves people merely one accident away from being able to cover their necessities. This emergency fund also comes into play when a person becomes unemployed. However, with less than $400 available to them in such situations, individuals will face a massive drop in their income stability.
An additional problem faced by most college graduates in the United States are student loans. The tradeoff of a high tuition for a college degree is often one that is considered acceptable in society, but this leaves several students with monthly debt repayments that they cannot often afford. With research showing that nearly 43% of student loan borrowers do not actually make any payments toward their loans, the credit score of these individuals is likely to be compromised. This can have long-term effects on the ability of an individual to take a loan during an actual time of need. Another destroyer of credit scores is credit card debt–an issue that often goes unrecognized by many. Most people are unaware of the large payments required to pay off these debts, taking an additional toll on the income stability of many.
These issues, then, bring up the big question of what we can do to solve this issue. To bridge this information gap within society, it is important to start at the fundamental level of improving education on finances. With the implementation of classes that address how to pay taxes, handle loans, and invest, we can help ensure that future students entering the workforce are sufficiently skilled to manage their finances and escape heavy debt. The other solution that is often put forward but is rather difficult to
implement is this idea of breaking the taboo around the discussion of money. With 18% of parents never talking to their children about this matter, several kids remain unaware of how money even functions in the real world. We should work towards collectively having more transparency with income and how we choose to save and spend it. Both of these actions together provide the perfect platform for the future labor force to become aware of financial risks and necessities they will face and how to be responsible with their money.
Edited by Haejin Kang
References
https://www.fatherly.com/love-money/financial-literacy-schools-failing-what-to-do/ https://www.forbes.com/sites/danipascarella/2018/04/03/4-stats-that-reveal-how-badly-america-is-failing-at-financial-literacy/#4ccfa67c2bb7 http://fortune.com/2016/07/12/financial-literacy/ https://www.investopedia.com/articles/investing/100615/why-financial-literacy-and-education-so-important.asp
