One additional social issue the pandemic revealed is poor money management and a lack of financial literacy. Many people found themselves in the middle of a financial emergency and were totally unprepared. From not having any extra cash on hand for an emergency fund, or even knowing what an emergency fund is, to not understanding their own retirement funds and the consequences for tapping those funds. Pew Research Center reported way back in 2018 that some high school seniors did not know about interest rates and how they work with credit. It seems the lack of financial literacy is only getting worse despite the plethora of personal finance websites, apps, books, and other media.
We’re not even talking about complicated concepts. We’re talking about the very basics of banking, finance, saving, and investing. There’s a real disconnect, especially with younger consumers, about anything personal finance. Concepts such as knowing the difference between a regular retail savings account, and a designated high-yield savings account. Forget about even trying to understand balancing a checking account. Granted, these days it’s not necessarily a monthly to-do item like it once was given our reliance on technology. But when a new checking account user assumes it’s ok to spend beyond one’s deposit limits because the bank offers overdraft protection, we have a problem!
The lack of familiarity with credit products is also an issue. Somehow, an adage got wedged in the consumer psyche that you should carry a 30% balance on your credit cards. Wrong! Nothing could be more inaccurate. Experian recommends that one should limit credit utilization to below 30%, not carry a 30% balance. There is a big difference and it can be costly to let your balance ride at 30% while paying interest on that balance each month. Your credit score can also take a hit.
Getting these basics down before leaving school and becoming and adult is a must. To that end, many states are now rethinking the need for financial literacy. California has set a goal to have all high school students take a personal finance course. In partnership with Next Gen Personal Finance and Mission 2030, the goal is that by 2030 all students will take at least a one semester course in personal finance. Next Gen found that 77% of students wanted a personal finance course and 88% of adults surveyed wanted a year-long course.
Other states are taking note as well. Currently, according to Next Gen Personal Finance, only 17 states require a single personal finance course for high school students. A single course! Further, those courses are not created equal. Some focus on personal finance for the entire course, others simply incorporate concepts into existing non-related courses. This means the courses are not in-depth and not focused on personal finance.
If you are concerned about your student, lobby the school board to add a real personal finance course. Provide them references such as Next Gen Personal Finance and ChooseFI as a starting point. Adding personal finance courses to public education can help break the cycle of poverty, help build wealth, and even improve the retirement crisis. Please consider getting involved.
As an independent Certified Financial Planner™, I can help you discuss this issue. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #FinancialLiteracyMonth #NFLM #NationalFinancialLiteracyMonth #financialsavvy #stressfree #savings #personal #personalfinance #moneyeducation #financialeducation #CFPPro