Growing up, who taught you about money? Did you ever receive formal instruction on the subject when you were in school? How quickly were you able to get out of student debt?
For many young Americans coming of age in today’s world, the answers are, respectively: parents, no, and never.
On an individual level, those who struggle with money need to strive for greater financial literacy. But it’s not just a solution to our personal woes.
We owe it to society to master this skill and ensure that future generations are better-trained in it than our own and those who came before.
Your first experience with money probably came in the form of cash. Maybe you learned how much candy you could buy with a few cents or how many of those coins could fill up a piggy bank in exchange for a dollar.
But cash isn’t very convenient. And there are many things people don’t pay for with cash. Houses, for instance, are too expensive, so you take out a mortgage and pay over time.
Thus, children in the modern world are quickly exposed to a world of credit cards and online transactions. As they enter adolescence, they are primed to make use of that ease and convenience of spending.
This becomes a problem without the corresponding knowledge of how to wield that financial power responsibly.
Statistics over the past decade or so have revealed an alarming lack of financial literacy among our youth. Nearly a fifth of 15-year-olds don’t know how to construct a budget, read an invoice, or compare the best offers when shopping. Barely a fourth of our youth understand inflation, and the mean score of high school seniors on financial literacy exams is 48% correct.
Parents, teachers, or other influential figures in childhood can impart that literacy. In the absence of such skill transfer, young people are prone to struggle with burgeoning student debt. They may easily fall prey to scammers, loan sharks, or get-rich-quick schemes.
The misuse of our ability to spend can easily land anyone in trouble. We owe it to ourselves to correct that, settle debt faster than interest rates, multiply it, and save money for emergencies and retirement.
Yet our responsibility to become financially literate is also a collective one.
It’s no secret that a burst in the housing bubble triggered the Great Recession of 2008. And it harmed the fortunes of many millennials.
Twelve years later, America fell into a recession again. This time, it was triggered by the unexpectedly disastrous impact of the Covid-19 pandemic. We don’t know how bad it will affect generations to come or for how long.
But the weakness of our financial system remains the same, and it’s only been obscured by the coronavirus. Big banks are far too willing to trade in collateralized loan obligations, leveraging loans to companies that have maxed out their borrowing ability.
People who don’t know how to manage their spending in relation to their income will fall ever deeper into debt. What we don’t realize is that many companies have the same problem, only they are given greater leeway to borrow money they might never pay back.
As John Maynard Keynes once said, owe the bank a million pounds, and the bank is at your mercy.
This potential disaster would be less likely to happen if more of us knew better and put that into practice in our personal affairs.
The system may yet survive the pandemic crisis. Maybe the Federal Reserve will bail out banks again, if necessary. But that doesn’t change the fact that we’ve allowed it to remain fragile because too few people have the necessary literacy to understand what the banks are really doing.
It’s easy to bemoan the fact that the rich seem to always get richer. Wall Street and the 1% are a convenient target for the wrath of the have-nots.
But actually making progress against economic inequality requires both vigilance and understanding. Those two ingredients enable us to come up with solutions as well as keep abuses in check.
That change begins on a personal level. It starts with your efforts to improve your financial acumen, implement and stick to a budget, know the difference between good and bad debt, and protect your savings.
From there, you can help mentor the young people in your life. They might be children receiving their first money lessons or students struggling to control the impulse to spend. They could be co-workers who can’t keep track of where their paychecks are going.
Mastering the know-how of personal finance is laden with self-interest. But it’s also about becoming part of a society that’s more responsible with its money.
Meta title: Everyone Needs to Become Financially Literate and Teach Others
meta desc: Many people today are struggling with money, and learning financial literacy is a way out for each of us. But it’s also vital to establish a financially stable society.