The Road to Financial Security
With an all-time high for jobless claims, the unpredictable events of 2020 have impacted everyone financially. I recently discussed The Policy Circle brief on Financial Literacy with Nicole Cline, a Policy Circle leader who is passionate about financial literacy. The data is worthy of our attention. Young Americans owe $1 trillion of debt - a record high. Not only are younger Americans saddled with credit card debt, they are struggling to pay their balances. Among 18 to 29-year-olds, more than one in ten have credit card debt that is more than 90 days past due, according to Bloomberg.
Student Loan Debt is Surging
Credit card debt is not the only financial concern for young adults, however. Student loan debt in America - which has exceeded a record $1.68 trillion - grows more than six times faster than our nation’s economy and now represents the second-highest consumer debt category, according to Education Data. More than one in six of our nation’s 45 million student loan borrowers are in default on their loans. The U.S. Financial Capability Study, conducted by the Investor Education Foundation and USA Today found that nearly half of college students with student loans did not fully understand how much they would owe to pay for their education when taking out loans. Furthermore, more than half of young Americans (35 years old and younger) cite that their personal finances were a cause of anxiety and stress.
Americans Are Struggling with Debt
Education spending has upended the lives of millions of people across our country- resulting in Americans delaying life milestones like buying a home or car, getting married, or starting a family. Existing debt and coming up with the funds for closing costs are two of the top three barriers to homeownership, based on a survey conducted by Discover and the National Foundation for Credit Counseling.
Although the private sector and federal government agencies have a combined annual spend of more than $670 million in financial literacy for adults, Americans are struggling to meet their daily needs. A survey by the National Endowment for Financial Education found that 54% of people were worried they did not have enough money saved and 48% said they were worried about their ability to pay their bills. Nearly 60% of Americans claimed it was difficult for them to manage their existing debt due to unexpected emergency financial situations. According to the Federal Reserve Bank, less than 4 in 10 non-retired American adults are on track to retire. Unfortunately, the pandemic has ushered in a period of unprecedented financial instability that some households are unprepared to withstand.
The Road to Financial Security
Financial literacy is defined as “‘the ability to use knowledge and skills to manage one’s financial resources effectively for lifetime financial security’.” Financial literacy is more than knowing financial facts; it is also understanding and applying this financial knowledge to the parts of our lives that depend on sound financial management: managing monthly bills, budgets, credit cards, and loans; having a savings plan for the future; deciding where to live and buying a first home; getting married and providing for a family, or starting a business and planning for retirement.
As our nation faces the current economic crisis, financial education is imperative as we work toward economic recovery and growth. Nearly 8 out of 10 American adults agree that based on their existing financial knowledge, they could use financial advice from a professional.
Without a stable foundation of money management skills and an understanding of financial issues, individuals are less equipped to optimize their welfare and are more vulnerable to making questionable investments or to exploitations. This can have even larger repercussions on a state and national level, as it can lead to higher social safety net usage, inability to achieve independence, and overall lower quality of life for society, communities, and families. As citizens, if we are not financially responsible, how can we hold our elected officials accountable to manage public finances?
Educate teens and young adults: Only 21 states require that students take a personal finance course and 25 require that students take an economics course in order to graduate from high school. Data from the Council for Economic Education indicates that more than 1 in 6 students in the United States graduate does not have a basic level of financial literacy. Teens should have an understanding of personal finance before they graduate high school in order for them to make informed decisions regarding their post-secondary plans. For example, attending a community college for two years before transferring to a four-year institution might be more economically feasible for some families. The Mint and Everfi offer tools to teach kids and teens good financial habits. Find out what your local schools are doing to teach financial literacy. Financial education should begin as early as kindergarten and continue throughout high school and the rest of our lives. You could be the champion of financial literacy in your local school.
Get the conversations started early and remove the taboos: T. Rowe Price’s 2019 Parents, Kids & Money Survey found that parents were almost as uncomfortable discussing saving for college with their children as they were with discussing topics like drugs, sex, and school safety with them. Data from Guidant indicates that 1 out of 4 parents never speaks to their children about household finances. Talking to children about money from an early age will help them develop good spending habits and teach them how to establish financial goals. Watch Warren Buffett’s Secret Millionaires Club, an animated YouTube series, with children to help initiate the conversation.
Fill in your knowledge gaps: One in three households, according to CNBC, were living paycheck to paycheck before the pandemic. Consider working with a financial coach or financial advisor to help you make your financial goals a reality. If personal finance planning is your strength, consider becoming a financial coach. The Jobs Creators Network’s Information Station offers quizzes and resources to learn basic economics. Smart Women Smart Money is an educational program offered by the State Treasurers Foundation. The Policy Circle Financial Literacy brief could be the topic of a “lunch and learn” in the workplace. What is being done in your company to raise financial literacy skills? Perhaps you could be the catalyst.
Set your business up for success: Despite the pandemic, our nation is experiencing a boom in startups. Business applications were up 40% in the third quarter of 2020 - the highest quarter the U.S. Census Bureau has ever seen since it began tracking data. Whether you are an aspiring or current entrepreneur, improving your financial knowledge will help you minimize risk and enable you to make better informed financial decisions, ensuring the longevity of your operations. Check out the FDIC’s Money Smart for Small Business for practical advice and resources for starting and maintaining a business.
To start the discussion with your network, check out The Policy Circle Financial Literacy brief or listen to my conversation with Nicole Cline on The Civic Leader podcast.