Financial Illiteracy Is More Common Than You Think
Welcome to this post called, “Financial Illiteracy Is More Common Than You Think”!
I’ve always been fascinated how some people know so much about money, and others know hardly anything. Whatever side of the spectrum you fall on, this post is for you.
If you know already know a lot about money, hopefully this post shows you that others aren’t as fortunate as you and it is your responsibility to try to teach others what you know.
If you don’t know much about money, it’s not your fault. After all, you probably were never taught this in school. If that’s the case, I hope this post shows you why financial literacy is important and grows your awareness of this issue.
To me, financial literacy is what separates the rich from the poor. Those who have financial literacy know how to use their money as a tool while those that don’t only see money as something that you spend.
I’ve been passionate about the world of business and finance for as long as I can remember. I’ve been trying to learn as much as I can from books, videos, and wealthy individuals since I was little.
I started my first business when I was 9.
I invested for the first time when I was 12.
I got my first job when I was 14.
I paid for my first car in cash when I was 16.
I’ve been writing about financial topics on this blog for almost 2 years.
I’m not like most others that are my age. I have been extremely lucky. I’m grateful for every learning opportunity that I have had over my lifetime. As an 18-year-old, I feel like I am financially literate and know more about money than a lot of adults.
I’ve always known that financial illiteracy is a problem. That’s why I started this blog. But recently, I’ve had several encounters with people that showed me that this issue is bigger than anyone can imagine.
My Experience with Financial Literacy in High School
I was one of the lucky ones who got to take a personal finance class in high school called, “Life Skills”. In this class, we learned the basic skills of budgeting, managing credit, avoiding debt, etc.
While I learned several new things in the class, I was very familiar with topics beforehand. As I mentioned, I had been learning about finance and writing this blog for quite some time already.
However, this was not the case for my peers. I watched as they struggled to understand credit, reconcile a bank statement, and prepare a tax return. It was truly an eye-opening experience.
This is when I started to realize that financial illiteracy is a problem.
Teaching My Teacher
The story that prompted me to write this post happened to me just last week.
I was in my school’s computer lab working on tax returns (I’ll explain this more later). In the room with me was my accounting teacher, a substitute teacher, and my friend.
My accounting teacher and I talk a lot about stocks and investing in general. We were having one of our regular conversations when suddenly the substitute teacher started asking some questions.
She asked what we were talking about and we explained the basics of stocks.
She asked where she could do this and we explained the different brokerage account options.
Finally, she was asking about what a Roth IRA was, so we explained the different retirement accounts.
This experience was so bizarre to me. Here I was with my 30 year old accounting teacher explaining investing to a 40 or 50 year old woman.
Granted, I’m sure this substitute teacher’s husband was taking care of their finances. However, it was interesting to me to see how little she knew about everything.
I’m not trying to brag or bash that substitute teacher. I’m simply trying to drive home the point that not everyone has financial literacy.
Financial Literacy in my Community
The next example I use in this post revolves around my community.
This year, I am taking a class called “Tax Help”. It’s a college level class where we help the community prepare their taxes for free.
For the first semester, we learned a ton about how to prepare tax returns and actually got IRS certified.
This semester, we are actually preparing tax returns for individuals for free. So far, I’ve done 80+ tax returns and we’re only half way through tax season.
Through every tax return, I get a glimpse into people’s finances. I get to see how much they make, save, and invest.
The first thing that I have noticed is that only a fraction of people are saving for retirement. I would say that less than 25% of people are contributing toward some form of retirement account.
The next thing that I have noticed is that people don’t really understand how the tax system works. I guess I’ll cut people some slack here because the U.S. tax system is extremely complicated.
Finally, the most sad part is that when people owe money to the government, they almost always say they don’t have the money to pay it even if it’s only for a few hundred bucks. This just shows how much people are living paycheck to paycheck and not saving their money.
Asking Random People About Financial Literacy
Our fellow blogger and team member, Terry, has been working on a project for a few months where he interviewed a few people about money. I thought the results were interesting and related well to this post.
The first person that Terry interviewed was a 20 year old guy who went to college with Terry. A few key takeaways I had were:
- His parents were frugal with their money, but didn’t make much of an effort trying to teach him about it
- His relationship with money is “ok” and he really doesn’t think much about money
- His biggest concern with money was that his wages were low
The next person that Terry interviewed was actually his math professor:
- Her parents spent a lot of time teaching them about money
- As a result, she now has a good relationship with money
- She had a financial advisor help her set up investment/retirement accounts which she has used a lot
Terry then interviewed three girls and noted that:
- Their parents didn’t teach them much about money
- They took courses in high school about money but didn’t really remember much
- They viewed finances as stressful and overwhelming
The final interview that Terry did had the following takeaways:
- His dad was big into finance and taught him about it quite a bit
- His relationship with money is quite positive and he has good money habits
- He find money concepts interesting and tries to learn more about them
I hope you can see here that there is a common theme. If someone’s parents taught them a lot about finance, they had a good relationship with money. Vice versa, if someone’s parents neglected the topic, the person would find money stressful and overwhelming.
This just shows how important it is to learn about finance at an early age. Those that start applying the knowledge, content, and practices when they are young almost always end up doing better with money when they are older.
Why Financial Literacy is Important
I wrote the following as a part of an essay on financial literacy, I believe it captures the idea of why financial literacy is imporant:
In 2014, Corporation for Enterprise Development said that nearly half of Americans were living paycheck to paycheck (Matthews). Financial Planning published their Financial Wellness Report which suggested that, if a person is illiterate in personal finance, they are more likely to live paycheck to paycheck (Joyce).
Now, just because someone does not take a personal finance class in high school, does not mean that they can not be successful. It is relatively easy to search the internet or browse the library to learn these skills. But, only those who are willing to put in the effort to become proficient will be successful.
My new skills have given me many advantages over those who are not as literate in finance as I am. I now have a reliable income, I am spending my money wisely, and I am saving for college and unexpected expenses. This has already put me in a position of power over others as I do not have to stress about my finances and instead can focus on other important issues.
Although I was taught these lessons on the internet or in school, I did not fully learn them until I experienced them. There was something about working hard and making smart decisions with my own money that was incredibly powerful. It has been my experiences becoming financially literate that has set me up in a good financial situation. But, I am not done yet. I still want to continue to work hard and improve my financial literacy to work toward my future goals.
As a society, there seems to be a push towards financial literacy especially among the younger generations. After watching the fallout following the stock market crash of 2008, many people have looked to further secure their financial situation. The focus has shifted to saving and investing, which has changed the way our society views finances. It used to be popular to buy the newest and most expensive gadgets out there, but now it is more trendy to make smart choices with money. Those who have decided to become financially literate have seen greater success than those who still decide to live broke.
Check out this post to read more about financial literacy for teens!
How I Plan To Make a Difference
Here is a section of a scholarship essay that I wrote that I believe captures the idea of what I am trying to do:
Which leads me to one of my goals at the collegiate level. I want to investigate, research, and respond to this problem of inadequate financial literacy among teens. I see the sky as the limit when it comes to what is possible at college. I’m confident that I will be immersed in a world full of resources and opportunities to explore this issue. I want to research what exactly is causing this problem and some potential solutions to it.
Then, I want to propose change on the local, state, and perhaps even federal levels. I believe a personal finance class should be a requirement in high school. I hope to help develop the curriculum, lessons, and resources that could be used in these classes. Finally, I want to pitch the necessary individuals my proposal with the goal of seeing true change. There’s no telling what this could do to the state of our country in the future. As of right now, the average American has $90,460 in consumer debt. Surely a better education would help Americans live more financially free. As Dave Ramsey says, “You must gain control over your money or the lack of it will forever control you.”
I hope you can see here that financial illiteracy is more common than you think. If you haven’t been taught the basics of money before, you might need to take it upon yourself to learn about the topic. If you are one of the lucky few who are financially literate, you should be grateful and do your best to help share with others.
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