“The college educated are more likely to own stocks and less prone to use high-cost borrowing.” —Journal of Economic Literature
Financial literacy is important, but sadly, only a handful of states require students to take personal finance or an investment course. You can get a Ph. D. in economics and never take a class in accounting, business or personal finance!
How bad is financial education in this country? In 2008, two economists came up with three simple questions to test the financial knowledge of citizens 55 years or older. See how well you do:
1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow?
A. More than $102.
B. Exactly $102.
C. Less than $102.
D. I do not know.
2. Imagine that the interest rate on your savings account was 1 percent per year and price inflation was 2 percent per year. After 1 year, would you be able to buy:
A. More than today with money in this account.
B. Exactly the same amount as with the money in this account.
C. Less than today with the money in this account.
D. I do not know.
3. Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
C. I do not know.
The answers to these three questions are: 1 (A); 2 (C); and 3 (B).
When I first read these questions, I thought they were so easy that nobody with any experience could get them wrong. And yet only a third (34%) of U.S. respondents aged 55 and older could answer all three questions correctly.
Among foreigners, the Germans and the Swiss did the best (over 50% correct), while the Russians did the worst (4% correct) and the Japanese were in between (27% correct). There’s a gender difference, too. Men were generally more financially knowledgeable than women, no matter what the age.
Clearly the education systems throughout the world need to do a better job in educating their people about basic finance.
America Is Becoming the Land of the Financially Illiterate
Benjamin Franklin once said: “An investment in knowledge pays the best interest.” We seem to have forgotten those wise words when it comes to personal finance. Financial literacy is the foundation of building wealth. If you fail to understand the role of money and how it works in the world, it’s virtually impossible to secure your financial future. Unfortunately, financial knowledge is absent in the education system.
The majority of Americans have not received a formal financial education. According to a new poll from MoneyRates.com, 64 percent of respondents say they received little or no financial education in high school. In fact, only 43 percent of men say they received some or a lot of financial education in high school, while just 29 percent of women report the same. Not receiving lessons about money in high school has damaging effects.
Naturally, respondents who learn about money at an earlier age are more likely to be comfortable with financial topics later in life. Sixty-one percent of adults who say they received a lot of personal finance instruction in high school now consider themselves as fluent in both basic and advanced financial topics, compared to 22 percent for people who received only some but not a lot of instruction. This figure drops to 19 percent for people who received little or no personal financial education.
Most people in the survey believe financial education should be taught in schools in some capacity. Sixty-two percent of poll respondents say it should be a requirement in high school, and a total of 88 percent indicate that financial classes should at least be available as an elective. However, considering how slow change can occur, the responsibility falls on individuals to prepare themselves as well as their children to handle money matters.
Parents should remember that schools are not the only outlet for kids to learn about personal finance. “Financial topics come up all the time when you have kids — just think how often they ask for their allowance. Use those moments to teach them something about the thought process you use when making decisions about money,” explains Richard Barrington, MoneyRates.com.
“Also, periodically review your financial situation with your family, because every member of the household has a stake in it. Education is often described as an investment in the future. Nowhere could the potential return on that investment be more clear than in educating students to make better decisions about money.”
The Scary State of Financial Literacy in America
Only 40 percent of adults keep a budget and track their spending. Three-fourths of American families say they live paycheck to paycheck. More than one-fourth of American families have no savings at all. These troubling statistics are some of the reasons that we need to boost financial literacy.
Being financially literate means you understand how to manage money, how money works in real-world applications, and how you can use money as a tool to help others and grow your own stability and security.
Studies from organizations like the Jump$tart Coalition indicate that the average American doesn’t have enough financial education — or at least doesn’t understand how to apply this knowledge in the real world.
A Lack of Financial Literacy Creates a Big Problem
This has serious consequences. Look at our consumer debt problem. Collectively, American consumers owe $11.52 trillion to lenders and creditors. This debt burden balloons year after year. Last year alone student loan debt soared by more than 11 percent. The result is that many Americans fear for their financial stability and freedom. Only 50 percent of American families have more than three months’ worth of expenses saved. Nearly as many –- 43 percent –- are concerned that their savings won’t be enough to cover unexpected costs or emergencies.
Americans feel uncertain about their ability to retire — and for good reason. Statistics compiled by LearnVest and Chase Blueprint show what Americans, divided by age group, have saved for their retirement. For those 45 to 54, the median saved was only $101,000. It’s no wonder that 38 percent of adults are concerned about being able to retire on time, if they’ll be able to retire at all.
The good news is that efforts to raise awareness for financial literacy seem to be working. Three-quarters of American adults would like help with basic money matters and would appreciate the advice of a professional.
Most adults wish they had financial coursework. Only 5 percent say they were taught about money by a teacher, and 40 percent say they would give themselves C’s, D’s and F’s on their grasp of personal finance concepts. A full 85 percent of American parents believe that financial education courses should be a requirement for high school graduation. And 52 percent of teenagers want to learn more about money, and they’re most interested in budgeting, saving and investing.
What You Can Do Today to Increase Your Financial Literacy
We may be a long way from seeing approved financial education classes in public schools, but a wealth of information is available online. You can become more financially literate, and more prepared to deal with your finances, if you’re willing to do a little research.
• Get your finances in order. It’s hard to know where to go if you don’t know where you’re starting. Make a budget and track your spending; cut frivolous expenses and make sure you’re money is going to things you truly value (and not stuff you think you have to have because everyone else does).
• Make a plan to pay off any student loans or credit card debt and try to max out your retirement contributions if you can. Even if you can’t make that happen today, it’s a great goal to set for yourself –- and goals help keep your finances on track.
• Keep up the savings and investing habit once you’ve established it. And don’t stop learning. By continuing to educate yourself, it will be easier to build financial security for you and your family.
• Today, we are caught up in a real life Monopoly Game playing with Fake Money. We are hoping to stay out of jail and don’t land on bankrupt. If you work a job today or get paid for your services through self employment and they give you a check or give you cash you lose because that is fake money. People with cash in their pockets are the losers today.
• Technology today has change our outlook on money today. Banks hate paper money because the Banks money is Digital. Banks convert the federal reserve notes that you give them into gold because their money is digital and can be back by gold. You need to learn how to make digital money like the banks.
The LADA Groups Financial Literacy Training will cover the following areas:
• What is a 770 Account?
• Technology and E-payments
• The Need to become an Entrepreneur
• Purpose of Insurance
• Purpose of Banks
• Difference between a Financial Statement and Credit Report
• Purpose of FDIC and What’s Covered
• What is a Federal Reserve Note?
• What is the U.S. Federal Reserve Bank?
• Who owns The Federal Reserve?
• Purpose of a Credit Union
• What is a Safe Deposit Box? What is Money?
• How is Money Created?
• What is Digital Money? (All the banks money is digital)
• What is Electronic Money? What is Bitcoin?
• What is Electronic Currency Trading?
• What is the Forex Market? What’s a savings account?
• What’s interest? What’s a stock? What’s a mutual fund?
• What is an Asset? What is a Liability?
• What the US Constitution Says is Money
• The Reason why the FEDS had JFK Killed Executive Order 11110
• The Employee Retirement Income Security Act (ERISA) 401K
• Financial Terms That Every Investor Show Know
• So Let’s get started…….