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In an economy driven by financial services such as consumer credit, investment opportunities and real estate, it is critical to ensure that Americans are prepared to manage money, credit, debt, and property in a responsible manner. Personal financial education provides the tools individuals need to become responsible workers, heads of households, investors, entrepreneurs, business leaders and citizens.
Congress recently recognized the important of financial education by approving H. Res. 148, which supports the goals and ideals of Financial Literacy Month (April 2005). Financial Literacy Month is designed to educate the public about the need for increased financial literacy for youth and adults in the United States.
The need for personal financial education is astounding. Several national financial literacy organizations have conducted surveys which indicate a decrease in the number of young adults who have an understanding of the principles of basic personal finance. Personal financial management skills and lifelong habits develop during childhood, and young adults increasingly are using financial services without a complete understanding of their ramification. In fact, studies show that approximately 92 percent of students acquire at least one credit card by their second year in college. Yet only 26 percent of people between the ages of 13 and 21 reported that their parents actively taught the how to manage money.
The relative lack of financial literacy extends to adults as well. Although more than 42 million people in the United States participate in 401(k) or other deferred compensation plans, a Retirement Confidence Survey conducted in 2004 found that only 42 percent of workers surveyed have calculated how much money they will need to save for retirements. More alarming, the study showed that 4 of every 10 workers are not currently saving for retirement.
Even use of common financial services such as simple banking has decreased. Studies show that as many as 10 million households in the United States are “unbanked” or are without access to mainstream bank products and services, including simple savings accounts. In fact, personal savings as a percentage of personal income decreased from 7.5 percent in the early 1980s to 1.1 percent in 2004. Americans are using credit more, saving less, and failing to budget and adequately plan for retirement.
There are several resources, many free, available to help individuals plan for their financial present and future, and they can be accessed through your local library (books, Internet, etc.), your financial institution (banks, credit unions), or professional financial planners. The Department of Labor also maintains a website which provides tips for saving, setting future financial goals, and protecting pensions. Please visit the website for additional information at www.dol.gov/ebsa/savingmatters.html.
I encourage all Americans, educators, and the financial services industry to work together to improve financial literacy in the United States. Providing individuals with the tools necessary to spend, invest, and save wisely is critical to maintaining a healthy economy.
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