Research majority of all the financial literacy statistics point

states that many Americans have not quite grasped the concept of saving. This is
mostly due to a lack of education in finance and economy. Economists even go so
far as to say that, if things don’t change, there could be chances of another
recession. America’s financial illiteracy is an issue that many have taken to
studying and many economists are saying is a major problem.

            In an article by the Financial
Educators Council, the author says that “the vast majority of all the financial
literacy statistics point to the lack of a financial education as the primary
cause of many of the problems,” (Mitchell, Evaluating Literacy Statistics). This
is something that many would think to fix quickly, but it doesn’t seem to be as
easy as it sounds. Perhaps a course on economy would help, in high school, for
the teenagers of the country to be prepared for “real life”. But a lot of
people think that it isn’t necessary. The Financial Educators Council
definitely disagrees. And they are not the only ones who take issue with that.

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            Mitchell also wrote about the impact
of finance education. “The National Financial Educators Council asked 1,101
young adults aged 18-24 ‘What high school-level course would benefit your life
the most?'” According to the article, the majority, which was 51.4%, responded
“money management” as the high school-level course they thought would be most
beneficial to their personal lives. A financial education mandate was
implemented in the states of Georgia, Texas and Idaho, and after three years,
the states were able to find that there were increased credit scores and lower
delinquency rates on credit accounts, (Mitchell, Evaluating Literacy Statistics).  Furthermore, Mitchell pointed out that financial
decision-making can be impacted positively by “providing high-quality, not
difficult information; providing incentives for good decisions; and
facilitating the best use of available information in real-life situations.”   

            In January 2010, Forbes published an
article titled America’s Financial
Illiteracy. Here, the author, Thomas F. Cooley, points out a study done by
two economists on financial literacy and “the effectiveness of efforts to
promote it for many years.” They took to people of over the age of fifty with
three questions in a survey. Questions pertaining interest rates, savings
accounts, inflation, and buying company stocks. This was done with the purpose
to evaluate just much America was illiterate in the subject of finance. The
most worrying thing was that, “Only 50% of respondents were able to answer the
first two questions correctly and less than a third was able to answer all
three,” Cooley said.

            Unfortunately, efforts to end financial
illiteracy have not been very effective. It would be a smart idea for people to
start educating themselves before trying to retire. According to another website
article, Big Think, the number one reason why Americans are financially
illiterate is credit card debt. Their solution: something called the Financial
Literacy Quiz. A tool created by Financial Industry Regulatory Authority
(FINRA) in the years 2006 as part of its National Financial Capability Study
that is six questions long. (Admittedly, this is the same quiz Forbes took
their data from.) This data has been used to study American’s capacity in
financials and more than 60% of the people who have taken the survey have
answered the questions incorrectly.

            A question that stood out to them was
the one of credit card debt, the last question, which was added into the quiz
in 2015. The question: “Suppose you owe $1,000 on a loan and the interest rate
you are charged is 20% per year compounded annually. If you didn’t pay anything
off, at this interest rate, how many years would it take for the amount you owe
to double?” According to Vazquez, only 33% of the respondents answered
correctly, “2 to 4 years”, while 29% of the respondents answered incorrectly,
saying “5 to 9 years”. This means that there is still trouble here in the
United States and it is definitely a problem. “Given the close percentile
ranking of those two answers, the study suggests that most Americans don’t
understand the difference. If almost as many Americans think it takes over four
times as long for interest rates to double than they actually do, it means
they’re allowing vast amounts of debt to sneak up on them,” (Vazquez, #1 Reason).

            Oddly enough, another point they
made was the fact that most Americans are answering this question wrong isn’t
exactly a lack of knowledge, by itself, but also over-confidence. “Americans
tend to have positively biased self-perceptions of their financial knowledge,”
(Vazquez, #1 Reason). This isn’t exactly a good thing, and it is probably worse
than a lack of education on financials, if people believe they are smarter than
they actually are. If the people do not have a basic understanding, things
could get ugly.

            Vazquez also goes on to say that it
may actually be a completely different thing, “…according to psychology
professor John D. Mayer: we think our future selves are completely separate
people from our current selves.” Or, as The New York Times said, we think our “future
selves are ‘this annoying other person who wants to prevent you from having fun
in the present.'” But, instead of focusing on the now, people must realize that
thinking ahead is always best. That way, they may actually have a chance at
retiring comfortably, or retiring at all.

            In a different article, titled
“Nearly Two-Thirds of Americans Can’t Pass a Basic Test of Financial Literacy”,
written by Madeline Farber from Fortune, the researchers estimated that the
percentage of those who could pass the same test from the FINRA has fallen
steadily since the financial crisis to 37% in the year 2015, from 42% in 2009.
After a financial crisis, there should have been some lessons learned but,
apparently, that wasn’t the case. In 2015, the survey respondents had the most
problems with the bonds question. They said, “Just 28% knew what happens to
bond prices when interest rates fall. (They rise).”

            What seems to be very worrying is
that less than half of all Americans seem to be able to answer basic questions
about financial risk. However, according to Fortune, the study also showed that
“even eight years after the financial crisis, significant segments of the
population, including African-Americans, Hispanics, women, Millennials, and
people lacking a high school education—so a lot of people—are still worse off than
before the recession,” (Farber, Nearly Two-Thirds). This, coupled with the
horrible lack of education that is already present, is worrying because these
“significant segments of the population” are most people. And “most people”
don’t work in Wall Street, or earn millions as CEOs. What would help most would
be, just like in the states of Idaho, Georgia and Texas, for there to be
classes implemented, with real information and real ways of helping the people

            In conclusion, Farber points out the
fact that most women put off medical services, like going to see the doctor,
buying prescriptions and even undergoing a medical procedure because of the
cost. “This leaves more than one in five Americans, or 21%, with unpaid medical
debt, according to the study,” (Farber, Nearly Two-Thirds).  Richard Ketchum, Chairman of the FINRA Foundation,
said in a press release, “This research underscores the critical need for
innovative strategies to equip consumers with the tools and education required
to effectively manage their financial lives… My hope is that policymakers,
researchers, and advocates will use these findings to make more informed
decisions about how to best reach underserved populations.” Perhaps one day,
there will be something implemented and the country will excel in finance.