Millions of Americans do not have the financial resources they need to access higher education, buy a home or retire comfortably. If we want to continue to compete globally, it is time for Congress, state governments, the private sector and communities to renew our effort to raise the level of financial literacy and security in our country.
Many Americans are in a perilous financial situation today, with nearly 75 percent reporting that they live paycheck to paycheck. Only 40 percent of US adults keep a budget and track their spending, while 27 percent of families have no savings at all. Alarmingly, only one-third of parents have a plan to pay for college expenses, even as student loan debt has skyrocketed 235 percent in the past decade. And only 26 percent of people are expected to be able to retire in a traditional way.
Like all state treasurers we are on the front line of these issues, overseeing financial tools such as 529 college savings plans and pensions, and we are deeply troubled by these statistics. This month – Financial Literacy Month – we will continue our efforts to raise awareness of the importance of financial literacy and work with the private sector and our government partners to do the same.
Understanding how to manage one’s financial wellbeing starts at an early age, so it is no surprise that we need to start with the youngest Americans to improve the financial education of our next generation. American teenagers trail their peers in other advanced countries on basic measures of financial literacy on the Organization for Economic Cooperation and Development’s Program for International Student Assessment (PISA) financial literacy exam. The assessment found that nearly one in five students do not have even a basic knowledge of financial concepts such as stocks and investments, and less than 10 percent were ranked as top performers.
The results were even worse for students from lower income families, who already face greater challenges when it comes to managing their finances. Just one in three, for example, reported that they have a bank account. If this trend continues, the U.S. will struggle to compete with countries like China, whose results on the PISA test far outpaced those of the United States. The ability to budget, save and invest improves personal productivity, and helps make nations more prosperous.
There is a lot that can be done to improve these skills. We can start by looking to behavioral finance principles to enhance our financial literacy programs. Behavioral finance uses behavioral and cognitive psychology and economic theory to understand why educated consumers to fall prey to bad financial decisions. Learning about finance must be more fun and interactive to truly make a difference.
Some states, for example, have launched a video game called Financial Football, run by Visa and the National Football League, which leans on familiar concepts to engage students. Programs like these can be more effective in the long run than rope memorization of financial principles.
We also need to build stronger public-private partnerships to support new financial literacy programs. In Rhode Island and Indiana, our offices are working with private partners to incorporate financial education into the school curriculum and train teachers and students in basic financial principles. Our fellow state treasurers in Tennessee, Massachusetts, Missouri and Mississippi are doing the same, with states such as Nebraska, Kansas, South Carolina and Vermont having focused on partnering with the private sector to produce web toolkits and modules to teach basic financial knowledge.
By continuing to involve the private sector – which has a vested interest in ensuring customers are financially savvy – we can provide the resources necessary to give more Americans the training they need.
We all have a role to play in preparing the next generation for the financial challenges they will face in their future. Given the current state of financial literacy in the U.S., it is time we renewed this effort for the sake of our individual financial wellbeing as well as the economic prosperity of our country.
Rhode Island State Treasurer Seth Magaziner and Indiana State Treasurer Kelly Mitchell are Chair and Vice Chair of the National Association of State Treasurers’ Financial Education and Empowerment Committee.