Most agree that financial literacy is not a skill that comes innately to most. With the labyrinth of interest rates, taxes and financial products to navigate, financial education would seem like a valuable tool for guiding consumers into making responsible choices regarding their money. Yet, is it really working?
From the appearance of the latest financial statistics, it is not. According to June 2011's Financial Security Index Poll, half of American families are not saving enough to cover their emergency expenses. Financial experts recommend saving a bare minimum of six months' worth of expenses in an emergency fund. In the poll, 24% percent had no emergency savings at all, while another 22% had about 3 months of living expenses saved. This means that roughly half of Americans would face financial ruin in the event of unexpected injury, illness, job loss, or worse, the advent of another recession.
Yet most adults have had some form of financial education, usually at the high school level. So why aren't Americans in better shape financially? Many experts assert that education is lacking when people truly need it, which is when they actually have a financial decision to make. When considered in abstract, most people have a hard time retaining financial information, yet if offered when relevant, most people will not only retain such information but also apply it to their individual situations.
Financial Education in America
Many would argue that financial literacy should begin early and be a part of a young person's education as much as science or math, yet even childhood financial education doesn't seem to stick with people for much the same reason adults don't retain complicated financial concepts. Children need financial lessons that apply to their current life. Teaching a middle school student about life insurance isn't relevant to their life experiences, but giving said child an allowance that they must manage to pay for their clothing or activities can build important skills that will carry over into their adult lives.
How to Make It Better
For adults, offering classes or more easily understood guides for consumers purchasing financial products like life insurance can not only help them make the best choices for their futures, but also provide lessons that can carry over into other areas of financial literacy, like debt repayment or saving for retirement. Also, offering financial classes to college students about the wise use of credit, especially when they are being bombarded with credit offers, can help lessen the massive load of debt that some take on unwittingly due to ignorance of how the credit system works.
Financial Education Could Work, with Some Changes
In short, does financial education work? Yes, but only if it is relevant, effective, and stresses the link between today's financial choices and tomorrow's financial outcomes. Making financial education more effective can help you build a more solid financial foundation, which can keep your family strong and thriving.
Jessica Bosari is a freelance writer and blogger for various publications and her own blog. You can read more of Jessica's work here. If you have any comments or questions about SavingTools or about saving money, leave your comments in the form below or email firstname.lastname@example.org. Thanks!