Almost a quarter of Americans have no savings and even more – 40% – have no budget. One driving factor: According to a survey by The Penny Hoarder, there is a lack of financial literacy in the US.
The problem, say experts from government organizations, interest groups and universities, stems from a lack of education on personal finance topics, from home to school.
“Parents are more likely to talk about sex, drugs and alcohol than money,” said Rob Sansome, former director of strategic initiatives at the Florida Prosperity Partnershipthat works with local organizations and agencies to promote economic stability.
The survey also found that a third of adult Americans didn’t discuss basic personal finance topics like credit scores, debt, smart shoppers, or opening a simple savings account. Only 13% of respondents said that they talked about the financial situation of their own family at home.
The April 2019 survey of more than 1,500 adults shows how early financial literacy affects financial health in adulthood:
- Almost a third of those who haven’t talked about money management at home make less than $ 50,000. But for those who talked about money, only 18% make less than $ 50,000 a year.
- 40% of people who haven’t talked about finance currently have no savings at all. That number falls by more than half that of those who received early financial education at home.
Here are some other survey highlights:
- Only 20% of Americans learned about the importance of credit scores.
- 40% of Americans have no budget.
- 23% of Americans have no savings; 40% of Americans have less than $ 1,000 in savings.
How did we get here?
The gap in financial literacy increases over generations
Teaching basic finance concepts to children will lead to better money outcomes as they grow up. It’s a point that experts cannot stress enough, but it’s easier said than done.
Embarrassment is one of the main reasons parents struggle with providing financial literacy to their children. They may be embarrassed about their own finances, and even if they bring up the subject they will feel sorry for them.
“I can’t tell my child not to go into debt without curse myself for being in debt,” said Sansome. “In this quiet, creeping lack of knowledge everything comes together.”
Another factor driving illiteracy, according to Sansome, is our culture’s obsession with fighting debt and saving in the first place. For example, if you turn on the TV, you’re far more likely to be hit by a flurry of advertisements for credit refinancing services than budgeting for apps.
“I call it the Smokey Bear Concept,” said Bill Mills, president and CEO of the Florida Prosperity Partnership. “We need a national campaign for the benefit of saving and must not perceive it as the stinking brother of spending.”
According to Penny Hoarder’s survey and analysis of the Consumer Financial Protection Bureau’s data, those who haven’t spoken about personal finance issues in adulthood are more likely to fall into the low-income class. Our survey found that nearly a third of Americans who didn’t talk about money management as children reported a household income of less than $ 50,000.
Parents are more likely to talk about sex, drugs, and alcohol than money.
These and other factors can cause some parents to question their own financial know-how and whether they are qualified to pass information on to their children, said DeAndre Geels, former financial coach at Texas Tech is red to black Financial Education Program.
“Money is such a taboo subject,” he said. “It’s something you don’t really like to talk about, and that can be pretty damaging for everyone.”
For one, it’s a factor behind the surge in student loan debt, which has surged over $ 1.5 trillion nationally. Many parents and students do not take the time to understand this Free Application for Federal Student Aidor FAFSA. The form determines whether a prospective student is eligible for financial assistance.
Students or parents who miss FAFSA or other grant award deadlines leave free cash on the table – and end up taking on debt to fill the void, said Erin Dunn, director of grants and scholarships at the University of South Florida at St Petersburg.
“The students came in without ever being exposed to any financial concepts, and it was a much bigger conversation than financial aid,” she said.
The effects extend into the retirement years.
“People are very concerned about not having enough money to retire, and many people don’t,” said Helen Colby, assistant professor of marketing at Indiana University who studies financial decisions for consumers.
Financial literacy programs can help break the cycle
There are hundreds of financial literacy programs run by nonprofit and educational groups across the country and based on the The FDIC’s MoneySmart program. The federal agency offers a guided online course that ends with a nifty certification.
The 15 board game-style modules cover topics such as making sure you get the best deal on a credit card and identity theft. You can even order a physical copy for free.
For those who don’t want to play games, this is the Consumer Financial Protection Office sends free monthly webinars on personal finance topics. The agency also has a database of answers Questions have been asked by the experts over the years, and you can ask your own questions if you can’t find what you’re looking for.
Be as specific as possible when creating a monthly budget. You’ll be amazed at how much more you’re spending than you think. Every cup of coffee counts.
College students looking to get out of debt before looming debt have options right on campus.
Dunn of the USF St. Pete Financial Aid Office was formed AFLOAT, an on campus financial advisory program that has attracted freshmen interested in budgeting, juniors and seniors interested in student loan payment options, and postgraduates interested in personal finance topics.
Dozens of colleges offer programs like AFLOAT from USF and Red to Black from Texas Tech for free. For many students, college is their first time looking into money on their own. So this is an ideal time to take advantage of financial literacy programs.
Teach your children about financial literacy
Travis Sickle, a Tampa, Florida-based financial advisor, vividly remembers how meager interest accumulated in his bank account by the age of 5. His father, a banker, brought home a ledger to show him the three cents he had earned for doing nothing but saving.
“I would sit there and think, ‘Three cents, that’s great. In a hundred years I’ll have a dollar. “And for me that was all,” he said.
For kids, the FDIC game is a good place to start, but Sansome emphasized that real-world experiences are key to understanding financial topics.
“It’s like teaching a child to ride a bike,” he said. “We didn’t get them a book on balance and movement, we put their bum on a bike and let them scratch their knees a little.”
A savings account and allowance are a good way to start getting kids thinking about basic personal finances. Colby, the IU professor, said research shows that children growing up on an allowance have a better understanding of toy and candy prices.
Parents should allow children to actually spend part of their allowance. You may make mistakes, but this is a chance to teach the idea of wants and needs.
Even going through your daily to-do list is an opportunity to improve your financial literacy. If you stop for gasoline, explain to your children why budgeting for recurring expenses is important, or if you have a flat tire, explain the importance of emergency funds.
Sickle’s 4-year-old twins have special singing when they leave the bank with their father.
He asks: “What do we do with our money?”
And they answer: “Save and invest! Save and invest! “
Alex Mahadevan is a former data journalist at The Penny Hoarder.
This article originally appeared on www.thepennyhoarder.com