Financial Illiteracy

Recently Time magazine ran the story, “Nearly Two-Thirds of Americans Can’t Pass a Basic Test of Financial Literacy”. This is from a study done by the FINRA Investor Education Foundation. FINRA is the Financial Industry Regulatory Authority, a quasi-government thingy that purports to control Wall Street and us (but it is a corporation, go figure). Their survey of 25,000 Americans talks about how people are using money in America. The Time magazine article focused on a short quiz given about standard financial products, and how two thirds of those people didn’t do very well (answered 3 of 5 correctly).  Also, one-third of Americans either used payday loans or paid only the minimum balances on their credit cards. Bad ideas.

Over half of Americans couldn’t finance emergency expenses for three months, and 34% probably or could not dig up $2000 for an unexpected expense in the next 30 days. 9% report having ever tried to figure out how much they need to save for retirement, and over half worry about running out of money in retirement.

It does seem that the lost knowledge of personal banking is well supported by these numbers. Actually not a surprise. Ask yourself: what kind of financial education did we receive in public school?  Maybe Home Economics class? I didn’t take that, and I have no recollection of any discussion of savings, investment, budgeting or financing of large ticket items. What about you?

With something so is important as money in our daily lives, why is it that education has no focus upon it? I’ll leave the answer up to you. For those of you who were finance majors or business majors in college, did your studies address this at a personal level? For your household?

I have always held (along with most historians) that real change comes when financial realities hit the individual wallet or purse. I still believe that is true. The future that faces even the most conservative and careful savers is not good. There is another way: Personal banking.