When it comes to financial literacy, most Americans are alarmingly uninformed. According to a 2009 study, adults earned only a C grade when their financial acumen was assessed, little better than high school students, who mainly received failing grades. Lack of awareness is an economic millstone for millions of Americans, especially when coupled with the lingering effects of the recession, the troubling recent spikes in poverty, and escalating economic inequality. Add to that the increasing shift toward "you're-on-your-own economics," as President Obama referred to it recently, and you have the makings of economic vulnerability and even ruin for huge numbers of Americans.
Too often, Americans get their financial education the hard way -- when trouble arises. Whether it's realizing too late that they don't have the money to pay for college, or amassing huge college or credit card debt, or getting overextended on a mortgage -- many people find themselves stuck in an economic nightmare from which it is hard to wake up.
Clearly, it is crucially important for Americans to understand and take charge of their financial circumstances. Your future financial security will be determined by it. But how can you increase your financial literacy? Last week, I was glad to attend the White House's summit on financial capability and empowerment, highlighting information and tools Americans can use to manage their finances effectively. And a set of possible solutions has been put forth by the President's Advisory Council on Financial Capability, which was established by President George W. Bush in response to the financial crisis and whose mandate was expanded by President Obama to include financial education and financial access.
The council focuses on three primary recommendations:
- Financial education should take its rightful place in American
- We should build a financially capable workforce and retiree community, which is necessary for a stable and globally competitive economy.
- Americans also should learn the core concepts of personal finance at the heart of their lives -- in their families and in their communities.
The recommendations of the president's advisory council make sense. Families, communities and workplaces have important roles to play -- and so do our schools. Financial education should be incorporated into curricula in relevant and meaningful ways. Educators should be included in efforts to develop standards and implement curricula and training. At a time when our schools are being asked to do much more with much less, school systems must allow adequate time and resources for this important focus. Many educators already include such material in their lessons -- in economics, math or other courses. But many more feel ill-equipped to take on these topics. Fewer than 20 percent of teachers believe they are adequately prepared to teach personal finance topics, according to a 2009 study.
Teachers strive to prepare their students for future success, whether in college, career or life. They know that different educational paths carry different economic consequences and rewards -- for individuals and for society.
For example, someone who graduates from high school earns 50 to 100 percent more in lifetime income than someone who drops out. He or she contributes more through tax revenues and draws less on public resources such as healthcare and social services.
The economic benefits of a college education are even more substantial. According to the College Board, there is a correlation between higher levels of education and higher earnings for all racial and ethnic groups and for both men and women.
The current economic climate makes financial capability all the more important. Nearly half of all Americans are now poor or low-income, according to the U.S. Census Bureau. A recent study found that, since 2002, the number of low-income families in the United States has risen by 27 percent. Many of the factors contributing to rising poverty -- the financial meltdown, reckless lending procedures, the Great Recession and continuing high unemployment -- are beyond the control of individuals. But everyone should have access to the knowledge they need to stabilize and improve their own financial situation.
Knowledge is power, and in the case of financial education, knowledge is economic power, perhaps even economic destiny. Individuals, families, employers, communities and schools all have roles to play in ensuring that a secure economic destiny is available to all.