In 2008, the federal government spent 700 billion dollars to bail out the banks and insurers who have brought the world economy to the brink. And now, in 2022, we find ourselves in the midst of another financial crisis that could cost the country around $700 billion every two years. It doesn’t get as much attention as the budget deficit or the national debt, but it’s just as painful and far more personal for families across the country.
This particular crisis is the lack of basic financial knowledge among many Americans – and data extrapolated from recent polls place the price of this deficiency staggeringly high. $352 billion in 2021 alone. Collectively, we lose hundreds of billions of dollars every year because we don’t know how to manage our personal finances — and those are dollars we simply can’t live without.
Fifty-six percent of Americans don’t have enough savings to cover a $1,000 emergency costs. Thirty-two percent of American workers running out of money before payday (a figure that includes those who earn $100,000 or even $200,000 a year), according to a recent survey of 2,700 American adults working in companies with more than 500 employees. Household debt continues to rise, rising by $3.5 billion in the third quarter of 2021 alone. Considering all of this, it’s no surprise that four out of seven Americans can be categorized as “financially literate” and only 24% of millennials understand basic financial concepts.
So how did one of the richest nations in the world get here? Tanya Van Court, founder and CEO of the goal-based savings app Guardianrecently said that, for most of us, the problem begins at an early age and continues into adulthood. “Parents can’t teach what they were never taught,” she says. “That means we have generation after generation just trying to get by. Children without financial education become adults without financial education, and so on. »
Almost eight out of ten American teenagers don’t have a savings account. Eighty-seven percent say they don’t really understand their personal finances. And only 27% know what inflation is and can do a simple interest rate calculation. According to Van Court, this is not just a problem for the working poor or disadvantaged. “It’s as much of a problem for the families at Morgan Stanley as it is for the families at McDonald’s,” she says. “Even 90% of wealthy families are expected to lose that wealth by the 3rd generation.”
Some think that all of this leaves us with only one choice. Paraphrase entrepreneur and financial literacy advocate John Hope Bryant, we can start giving people a helping hand, or we can keep giving them freebies – in the form of a massive social safety net that itself amounts to hundreds of billions of dollars every year. The smart choice, says Bryant, would be to go with the former — and, already, there are approaches underway that, if scaled up, could have a significant positive impact.
Catch ’em while they’re young
Studies show that children with savings accounts are six times more likely to go to college and four times more likely to own stocks as young adults. So we see more and more school districts are instituting programs whereby children as young as kindergarten children have their own savings accounts. At the same time, organizations such as jump start formalize a financial education program that is already taught in 15 states and Washington, DC Globally, 20 states had started requiring some form of personal finance education by October 2021 – and these programs are already starting to show moderate results.
Of course, that leaves 30 states that have yet to officially require financial literacy in the program. If we want to stop the generational cycle of fiscal mismanagement that Van Court warns us about, it’s time these states got on board.
Don’t forget the big ones
So what about those who are past their teens, but could still benefit from some form of personal finance education? Van Court sees a big opportunity for employers to fill the void – especially at a time when they are competing for workers like never before.
“We are working with more and more employers who want to offer Goalsetter as a benefit,” she says. “And that’s a trend we expect to see continue.”
Indeed, there was significant growth in financial literacy programs offered by employers since the start of the pandemic. According to Bank of America’s Workplace Benefits report, 40% of companies offered these types of programs in 2020. In 2021, that figure rose to 46%. Going forward, we must find ways to incentivize more employers to do the same, or we risk leaving an entire generation of American workers behind.
Resolve for all, fairly
Although financial illiteracy is a problem that transcends racial and socioeconomic boundaries, it is a problem that felt more intensely in communities of color. As such, we need to identify ways to infuse smart financial decision-making programs into these communities – and Bryant recently told me on such an effort that goes in the right direction. Operation HOPE, which he founded, began offering a smarter alternative to the same-day check-cashing establishments that so many people in underserved communities use as their only financial service.
“We’ve opened 183 Hope Inside bank branches – and they’re all rooted in a simple philosophy,” he says. “People go to Starbucks not just for the coffee, but because they see it every day. It’s familiar. It’s reliable. You know what you’re going to get. The working poor need the same level of trust and familiarity with a financial services provider, so we aim to be the Starbucks of financial inclusion – a known and trusted entity that can help people make smarter financial decisions.
It takes a village – and a sense of urgency
It’s clear that parents, schools, employers and financial service providers all have a role to play in helping Americans make smarter choices with their money. All we need now is the same sense of urgency that has accompanied other financial crises we have faced in recent years.
Just like families struggling to make ends meet, the longer we wait to take financial literacy seriously, the deeper we dig the hole we will eventually have to climb out of. Let’s invest in ourselves now – and start making better use of those billions of dollars lost each year.