Consumer Awareness of Personal Finance
The term “financial literacy” has gone from irrelevant to a buzzword peppering the national discourse in only a matter of years, and for good reason. The United States sank into the worst financial downturn since the Great Depression during that time, largely as a result of the risky lending practices and widespread overleveraging of a populace that had and continues to have very little confidence in its own financial acumen.
The Financial Literacy Landscape in America
According to the National Foundation for Credit Counseling’s 2016 Financial Literacy Survey, 45% of US adults gave their personal finance knowledge a grade of “C” or worse, an increase of 5% from results of the same survey in 2009.
It’s therefore no surprise that consumers are still displaying flawed financial logic. For example, after cutting back on spending in reaction to the economic woes of the Great Recession, US consumers have begun to incur credit card debt at an alarmingly rapid and consistent rate. We managed to increase our credit card debt in 2015 by 2768% when compared with 2010, according to WalletHub’s 2016 Credit Card Debt Study.
The future doesn’t appear too bright either. According to OECD PISA financial literacy test which assessed the knowledge and skills of teenagers in dealing with financial issues, the U.S. ranked 8th among 18 countries that participated and U.S. teens scored 8 points below global average (492/500).
Consumer Financial Protection Bureau (CFPB)
Moreover, a recent study undertaken by the Consumer Financial Protection Bureau (CFPB) underlines the immense disparity that exists in the amount of money spent on marketing financial services to Americans compared with that spent on financial education. In fact, for every $54 spent on marketing financial services, only $2 are spent on financial education. Richard Cordray, Director of the CFPB, highlights the high amount of biased information to which American consumers are exposed when financial services companies are promoting their products.
In light of all this and the still-tenuous international economic outlook, financial literacy is being increasingly emphasized across the country, not only by federal and state governments, but also by a number of private companies, non-profits, and international groups. Financial illiteracy is truly a problem in which we all have a stake and below we will explore some of the most notable efforts designed to confront it.
- Consumer Financial Protection Bureau’s Office of Financial Education: The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 called for the creation of the Consumer Financial Protection Bureau (CFPB) in order to consolidate many of the watchdog duties that were previously the domain of a number of different federal bodies. Not only does the CFPB work to prevent anti-consumer business activity, but it also helps educate consumers on myriad personal finance topics through its office of Financial Education
- MyMoney.gov: This is the federal government’s website for personal finance education. It has various personal finance resources and tools, including teaching curricula for parents and teachers.
- Presidential Declarations: United States has recognized April as financial literacy month since 2003 and governments since have striven to draw attention to the nation’s financial literacy deficit by spreading awareness during this month.
- Mandatory Public School Personal Finance Education: Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Michigan, Missouri, New Hampshire, New Jersey, New York, North Carolina, North Dakota, Tennessee, Texas, Utah and Virginia have all made financial literacy a mandatory part of their public school curricula.
- State-sponsored Personal Finance Initiatives: The Iowa Financial Literacy Program is designed to bring financial literacy education to every public school in the state. Wisconsin also boasts a program that gives students and educators access to personal finance resource and disseminates performance-based grants.
- Take Charge America: The University of Arizona is home to the Take Charge Institute for Personal Finance Education and Research, which plans to use its research-oriented outreach programs to advance personal finance education programs and policy
We can also expect financial education to become an increasingly important part of higher education in the United States, as studies of the potential benefits of such programs have been conducted by the likes of the American Association of State Colleges and Universities.
- State Farm Financial Literacy Lab: A large donation from the State Farm to Florida International University allowed the school to build this research and teaching facility.
- Practical Money Skills: This Visa-run website is home to comprehensive financial literacy resources and teaching tools, including the popular game Financial Football, which has gotten a good deal of exposure thanks to the involvement of the National Football League, one of Visa’s corporate partners, and many of its celebrity athletes.
- Financial Literacy Center: A joint venture from the RAND Corporation, Dartmouth College, and the Wharton School of Business at the University of Pennsylvania, the Financial Literacy Center develops and tests programs to improve financial literacy in the United States.
- National Foundation for Credit Counseling: Aside from conducting well-publicized surveys that gauge the state of personal finance in the US, the NFCC strives to create a national culture of financial responsibility through its nationwide counseling efforts.
- Jump$tart Coalition for Personal Financial Literacy: This Washington, D.C.-based non-profit coalition of 150 national organizations seeks to advance financial literacy among young people from Pre-K all the way through college. Central to this effort are events like Financial Literacy Day on Capitol Hill.
- Program for International Student Assessment: This international consortium, which boasts involvement from organizations hailing from Australia, Belgium, Germany, the United States, Norway, Japan, and Luxembourg, tests 15 year-olds from around the world on their personal-finance know how and ability to incorporate their knowledge into practical financial problems
- Financial Literacy Summit: This annual summit co-hosted by Visa Inc. and the Federal Reserve Bank of Chicago brings together senior financial education experts from around the globe to discuss challenges and solutions to improve financial literacy resources for people all over the world.
Ultimately, the amount of attention now being paid financial literacy in the United States and around the globe is quite encouraging. Discourse about financial problems and solutions has been lacking since the Great Recession turned money into a taboo subject on par with politics, religion, and sex.
Nevertheless, there are some who doubt that openness and educational reform are enough to solve the knowledge deficit. They argue that systematic changes to the personal finance industry are needed as well. More specifically, many are calling for a simplification of the way banks and similar companies operate, and they have a point. Simplified disclosures for financial products as well as increased uniformity for the way these products are marketed would make comparison shopping and sound personal finance decision making much easier. So too would the elimination of the credit bureau conflicts of interest that prevent innovation within the industry.
Only time will reveal the effects of the aforementioned efforts to boost financial literacy, and while hindsight tells us they should have been initiated far earlier, at least we are giving the situation its proper due now.
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