Financial literacy has been a hot topic in the financial services industry for more than a decade, and with good reason.
As financial professionals, we are constantly reminded that Americans have limited financial knowledge. An understanding of basic economic concepts is necessary for recognizing both the risks and the opportunities individuals encounter at every stage of their financial lives. Saving for a specific goal, managing a household budget, deciding on credit card plans, planning for retirement and investing money are all areas requiring informed financial decisions. These are decisions that can maximize one’s financial well-being or, in the case of uninformed decisions, put that financial well-being in serious jeopardy. Financial problems expand when consumers lack the basics of financial literacy. Our youngest Americans are most at risk.
The Organization for Economic Cooperation and Development recently conducted an international study to measure the financial proficiency of 15-year-olds in 18 countries. China scored the top spot, with 603 points. Our students scored eight points below the global mean of 500 points and ranked between eighth and 12th place. These results come as little surprise given that just 20 percent of U.S. adults received a passing score in The American College Retirement Income Literacy Survey conducted in 2014. Such dismal results underscore the tremendous need for increased financial education for our youth, and the sooner the better.
The level of outstanding student loan debt continues to rise at the rate of about 12 percent a year, doubling since 2009 to a whopping $1.3 trillion. A typical student will graduate with a loan balance of just under $29,000 — $28,973, to be exact.
It is important that we equip our young people with the tools needed to tackle the day-to-day financial decisions they will face in adulthood. This economic education should begin as early as possible and be reinforced throughout their lives. One way to teach financial lessons to children at a young age can be as simple as playing classic board games such as Life and Monopoly. These games helped pique my own interest in money and finance as a young child growing up in the 1970s, and I am sure they could have a similar impact even in this age of technology.
There is much more that can be done to address the need for financial education, and some organizations are already involved.
There are a number of nonprofit and private entities, such as the National Endowment for Financial Education (NEFE) High School Financial Planning Program, the Jump$tart Coalition for Personal Financial Literacy and the Federal Deposit Insurance Corp. Money Smart programs, that are committed to providing financial education to young people. These organizations have developed extensive educational material for every level of learning. Potential educators cannot assume that just because the organizations “built it” the students will come. These organizations need the support of individuals like us to make sure that the tools needed to develop financial literacy are delivered to students in schools, local community centers or Boys and Girls Clubs. They need volunteer instructors to deliver the curriculum to students. They need concerned parents and community groups to urge their local schools to take advantage of the free curriculum materials available for teachers. It takes a village to educate and we, as financial professionals, can and should be an integral part of that village.
As we set our goals for the coming year, make a commitment to promote financial literacy. I encourage you to include volunteering a few hours a month with one of the aforementioned organizations or another one of your choosing. I know that I will — starting with my alma mater.
There could be added bonuses to having more financial service professionals teaching students. Not only will the students increase their financial knowledge, but the regular interaction with financial professionals also could consider make future clients more comfortable about consulting financial planners. It also could acquaint more young women and men with the important roles financial professionals play in helping families reach a higher level of financial security. It may inspire more young people to pursue career opportunities in our industry.
At a time when we are facing a decline in the number of millennials entering the field, this could provide a valuable introduction to an important profession that is needed now more than ever. How about that for a win-win proposition?