OPINION: 3 major ways financial illiteracy is harming Americans
America is consumed with higher education — going to college and earning a degree — as the necessary means to a well-paying job.
Yet with parents emphasizing the importance of academic excellence, and their children graduating and going on to successful employment, why do many still remain uneducated in fundamental financial matters?
Numerous statistics show financial illiteracy is a major problem in the U.S., reflected in enormous personal debt, woefully small savings and irresponsible spending. Despite being home to many millionaires and billionaires, the U.S. ranks only 14th in the world in financial literacy, according to Financial Literacy Around the World, a Standard and Poor’s Rating Services Survey.
“A lack of knowledge or interest in financial matters comes from the family culture early on, and often as adults people have to teach themselves,” says Alexander Joyce, a retirement planner and president and CEO of ReJoyce Financial LLC (www.ReJoyceFinancial.com). “They’re not teaching financial literacy in high school, certainly not even the basics, like how compound interest works.
“People need to self-educate and research. All the information is out there.
“Financial illiteracy is a widespread problem and its consequences reach far, from having no emergency funds to having little set aside for retirement.”
Joyce comments on three areas where the costly effects of financial illiteracy are significantly felt:
Low Savings. A 2017 survey of more than 8,000 people by GOBankingRates found that 57 percent had less than $1,000 in their savings account. “There’s an overall lack of education there as well from our schools,” Joyce says. “But at home if you don’t set examples for your children, I don’t think it will ever change. At the end of the day, you’ve got to put a little aside and say to yourself, ‘I’m not going to touch it.’”
Credit card debt. In December, NerdWallet revealed in its Household Credit Card Debt Study that the average American household owes $15,654 in credit card debt. Forty-one percent in the study admitted to spending more than they should, which leads to paying more interest and lingering high debt. “It’s a lack of discipline and not knowing the effect of interest rates,” Joyce says. “Most people are well-educated enough to understand what living outside their means actually means. But many adults act like a child making a decision and not really thinking about the consequences until they actually happen. This is especially true with the younger generation. The way the world is progressing with technology makes it easier to buy, and I think people easily get trapped in that.”
College debt. Five-figure college loan debts are common and continue to be a major drag on the economy. Joyce says parents of normal to low-income means might want to re-evaluate saddling their child and themselves with such a burden. But he also points the finger at colleges and employers. “The colleges are to blame as well, because they make it seem as though in order to get a good job, everybody must go to college,” Joyce says. “There’s nothing wrong with trade school. The cost of college is ridiculous. And I think employers can do a better job of having a benefits package that would absorb a lot of that college debt cost for a long-term valuable employee.
“People lack financial discipline,” Joyce says. “They need to stop and think about their needs versus their wants, about their short-term and long-term goals.”
Alexander Joyce is CEO and president of ReJoyce Financial LLC, a full-service retirement income planning firm in Indianapolis, Indiana.
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