Financial literacy is important, and it needs to begin early, but the U.S. falling behind.
According to Forbes, an estimated 44% of Americans can’t cover a $400 emergency without going into debt. And 56% of Americans have less than $10,000 in savings for their retirement.
It’s difficult for parents to instill healthy financial habits they don’t possess. A 2017 T. Rowe Price Survey found that 69% of parents have some reluctance about discussing financial matters with their kids. In fact, parents are nearly as uncomfortable talking to their children about sex as they are about money. Only 23% of kids surveyed indicated that they talk to their parents frequently about money, and 35% stated that their parents are uncomfortable talking to them about money.
The basics of personal financial planning, including teaching young people about money, its value, how to save, invest and spend, and how not to waste it should start early at both home and school, Finance Digest reports. Ideally, personal finance concepts should be taught in elementary, middle and high school, and should continue into college.
As Axios reports, a personal finance education course is a high school requirement in 21 states. In 24 states, high schools must offer personal finance education, but it’s not a requirement for students to take it.
According to the National Center for Education Statistics, in 2020, 63% of students enrolled in college in the fall immediately following high school completion. That means that about 37% of students are likely entering the workforce after high school.
For those graduates who choose to go on to higher education, personal finance education in college is often scant, with few colleges offering a personal finance elective and even fewer requiring personal finance instruction as a graduation requirement, CNBC reports. Regardless of when a young person’s formal education ends, they will be thrust into situations where they need to know how to manage daily living expenses.
This is where personal finance education provides students with the knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.
Young people often do not understand the details of healthy financial activity, including debit and credit cards, mortgages, banking, investment and insurance, the Washington Post reports. However, according to Consumer Finance, the number of financial decisions an individual must make continues to increase, and the variety and complexity of financial products continues to grow.
According to the Federal Trade Commission, many students do not understand that one of the most important financial decisions they will make in their lives is choosing whether they should go to college after high school, and if they decide to pursue additional education, what field to specialize in. When they have an opportunity to go to college, most students borrow to finance their education. But they don’t always understanding how much debt is appropriate, let alone financial aid, loans, and their impact on credit scores.
After college, student debt can be very high, from tens of thousands to hundreds of thousands of dollars, the Consumerist reports. For the first time in half a decade, the rate of education loan defaults among recent college students has risen. More than five million borrowers who entered repayment in 2014, 11.5% (or 580,671) defaulted on their loans.
Financial literacy leads to better personal finance behavior. There are a variety of studies that indicate that individuals with higher levels of financial literacy make better personal finance decisions, Business Review reports. Further, those who are financially illiterate are less likely to have a checking account, rainy day emergency fund or retirement plan, or to own stocks. They are also more likely to fall into bad habits like using payday loans, pay only the minimum amount owed on their credit cards, have high-cost mortgages, and have higher debt and credit delinquency levels, CNBC reports.
Financial literacy classes in schools can have a positive impact on knowledge and measurable financial behaviors, just as poor financial decisions by individuals can have negative consequences on our country. As a society, we need more training programs that increase the number of financially literate citizens who are able to make better and wiser financial decisions in their own lives.
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