Financial Literacy Update
It is coming to the close of April — the end of Financial Literacy month. Are we making progress?
In 2016, I wrote an e-book titled Reduce Your Income Inequality Through Financial Literacy. The e-book describes what financial literacy is, why it is important and how we know people are not financially literate. It also describes the cost of financial illiteracy. What is clear from the studies referred to in the e-book is that people are unable to answer some basic finance questions; but over time, as the respondents experience life, the percentage of correct answers to these questions improves.
In 2018, Financial Industry Regulatory Authority (FINRA) issued a five-question test which measured consumers’ knowledge about interest, compounding, inflation, diversification, and bond prices. Only 34% of the participants got all 5 questions correct. These results were worse than in the prior study performed 5 years earlier.
The 5 questions were:
Can you answer these questions correctly? The answers are in the e-book.
Financial Literacy Grows Over a Lifetime
The earlier we start educating ourselves in personal finance, the better off we are – as Financial Literacy Grows Over a Lifetime.
Since we improve from our life’s experience, this article lays out the stages of life and what our focus should be from Children and Adolescence, to Young Adults, to Midlife and Mature Adults, to Retirement.
Is Education the Answer?
One would think the answer to improving financial literacy in the United States is education. However, there are only 23 States that require a personal finance course for students and much of the State’s course work is not standalone personal finance but integrated into another class.
We are however, trending in the right direction. 47 States now have some sort of personal finance included in their education standards.
Call to Action
I believe our progress toward financial literacy is much too slow. Whether it be the need for education in schools or parents taking a larger role – we need to do better!
If you are financially literate, continue to grow and teach others.
If you are not financially literate, take action. Take a course, read books, use checklists. Although our education system has not yet put the right resources in place for our young people, there are plenty of tools online to help us improve. As an added incentive to increase your financial skills remember Financial Literacy Will Make Your Child Happier!