The Need for Financial Education
Despite a booming economy, record corporate profits, a healthy stock market, 50-year low levels of unemployment and improving wages, most people are struggling financially. They are one missed paycheck away from financial oblivion. The Center for Financial Services Innovation says just that in a recently released report that was quoted in USA Today. The report concludes that only 28% of Americans can be considered financially healthy. It struck home to me as it summarizes what I have seen in my recent travels, reading, and experience in the financial services industry.
The organization surveyed more than 5,000 Americans. Here are some of their findings:
Nearly half said that their spending had equaled or exceeded their income in the last 12 months.
44% of those surveyed relied on credit cards to make ends meet.
Only 45% have enough to cover three months of living expenses.
42% have no retirement savings.30% have more debt than is manageable.
The report aims to give a fuller picture of financial health than typical studies. “We tested dozens and dozens of indicators,” Jennifer Tescher, CEO of the Center for Financial Services Innovation was quoted as saying. Looking at something like annual income, for example, doesn’t necessarily indicate whether someone can cover his or her expenses. “If you’re not really understanding how people are managing their money in a day-to-day kind of way, you’re missing the whole picture,” she said.
I have seen the same financial reality that most Americans experience. My reading and research tells me the following about today’s average American family’s financial situation:
About 80% of families live paycheck to paycheck.
Over 60% of families would be in a financial panic if they needed to come up with $400 to cover an unexpected household bill such as a medical cost, a major car repair, a house repair, or the unexpected costs of an accident.
Consumer debt of all types is at historically high levels, with student loan debt increasing the fastest.
The average family has less than $100,000 saved for their retirement that will likely be 20 to 30 years in length.
The average family has less than one month of their annual cash expenses in savings.
A record number of individuals over age 65 are filing for bankruptcy protection.
Why are families struggling so much in favorable times? I believe the root cause is that we have not educated people about what to expect in their life’s financial journey and what financial decisions they will be called on to make. They simply do not know what to do or where to go to get the help they need.
Given today’s economic environment, the pace of technological change, and projections of what our economy will look like over the next few decades, we are rapidly moving to a point where more and more families are approaching the financial abyss. It will not take much of a push to put them over the edge.
I strongly believe that we have not properly prepared people of all ages about how money is earned, spent, saved, and invested. I am not talking about the realities of the frequently mentioned 1% or how to become a millionaire overnight. I am talking about attaining basic financial security for the majority of Americans regardless of which identity group, race, religion or demographic cohort they identify with or belong. The case for better education is abundantly clear from the financial distress most people are facing today. I know as my life progressed, I went from living in the Without World to the reality of financial security and comfort that I longed for. It’s time we got back to common sense basics because we have become detached from financial reality everywhere we look.
So stay tuned for each weekly post. I will try to give you actionable items that will make your financial life more stress-free.