What exactly is financial literacy?
People talk about it and write about it. It is a buzzword of sorts now, bandied about in many ways and contexts, particularly during Financial Literacy Month, which just wrapped up in April.
In fact, it is important to understand what it means, and why it is important to all of us.
Financial literacy isn’t just understanding how to write a check and balance a checkbook (if that even applies anymore). It is having the confidence and understanding to manage one’s own finances, or lack thereof, and the wherewithal to figure out a prudent road forward that will support you and your family into retirement and beyond.
So why is increasing financial literacy important?
The growing divide between the “haves” and the “have nots” is real. And like education, being financially literate can help to lift a person from one category to the other.
The statistics tell the story: Women and people are color are most at-risk
- There has been a steep decline in financial literacy in recent years with regard to more complex topics, including inflation, financial risk and mortgages rates. The nation has seemingly backtracked, as the number of Americans surveyed by the FINRA Investor Education Foundation who could correctly answer most questions on important financial topics plummeted by 8 percentage points in 2018 compared with 2009 — 34% versus 42%, respectively.
- Specific segments of the population fared worse than others. The study showed a lower level of financial understanding among respondents who were Black, younger or had low incomes.
And, while the lack of financial literacy applies to both men and women, on average, women score lower when answering financial literacy questions than men, the Federal Reserve found. Although it is not entirely understood why the gap in financial literacy exists, one factor may be the gender roles that have defined societal standards in dealing with finances. For example, historically in affluent households, the male partner in a marriage has more often been the one in charge of making financial decisions. With the financial responsibility on the shoulders of one spouse, the other may not feel the need to expand their knowledge of making, saving and investing money.
Why are the numbers getting worse? There may be many reasons, but some point to smaller school budgets in the years since the Great Recession, which has yielded lower math literacy among students.
Financial education is one of the great dividers
So where do we start?
As we do with many issues, let’s start with education.
Teaching children from a young age about financial fundamentals is the …….