Compound Interest. Inflation. Risk Diversification.
Sound familiar? While these terms may seem well-known, 57% of Americans won’t be able to define them, according to a study by Standard & Poor's. Further, Forbes reveals that 38% of Americans are struggling with debt-related problems, 44% of Americans can’t cover an emergency that costs them over $400, and two-thirds of Americans can’t pass a basic financial literacy test, all due to their lack of financial knowledge.
For many Americans, the biggest villain is credit cards. Unlike cash, cards seem to make money “magically appear,” pushing many down the slippery spending slope. Without keeping track of their spending, too many Americans end up spending more than they can afford. In fact, a recent Bankrate.com report reveals that more than a third of Americans owe more to credit card companies than they have saved, with interest rates only climbing. Once in debt, getting out becomes incredibly difficult and most people find themselves in a perpetual cycle of debt that keeps piling up until it becomes unescapable.
Despite being abundant in resources, America ranks 14th in the world for financial literacy. And the reason for this is apparent: schools don’t teach personal finance. Learning finances, from investing in stocks to filing taxes, is largely the responsibility of individuals. However, if the government were to enforce basic finance classes in high school and college, financial literacy would increase and debt would plummet. Take Norway for example, it has the highest financial literacy rate in the world (71%) because its students receive financial education by the national bank’s youth finance programs.
To increase financial education rates, I started Money Moves, a non-profit organization that conducts free basic personal finance classes for middle and high school students. I initially conducted classes in my local school and after-school centers. Now, six years later, I am running the classes with an international team. I hope to inspire others along the way to join me in the movement to increase financial literacy.
However, the biggest impact can be made by parents. No matter how old your child is, it’s never too late to give them a couple lessons on personal finance, or maybe even take a class yourself! I believe that exposing children to finance at a young age sparks an interest and makes them more likely to explore the subject when they grow older.
In honor of National Financial Literacy Month, make sure to spread the importance of financial education and maybe even teach your friends a few things.