April is Financial Literacy Month. You might suspect there is a problem with financial literacy in America, if an entire month is dedicated to it! And you would be right.
The S&P Global Financial Literacy Survey released last fall showed that only 57 percent of adult Americans know basic financial literacy concepts such as interest compounding, inflation, and risk diversification. And high school students do no better: the Programme for International Student Assessment (PISA) reported that 18 percent of US students do not reach the baseline level of proficiency in financial literacy. Moreover, Millennials don’t learn much about financial literacy after they leave high school, according to the National Financial Capability Study.
For this reason, April is an opportune time to look at three efforts that may have a chance to combat financial illiteracy. These are chosen because of their scalability and capacity to make a real difference for financial literacy in America.
Financial literacy in school: According to the Council for Economic Education, only 19 states require schools to offer a personal finance course. This does not bode well, considering that the student loan market has now surpassed $1 trillion, and student loans are a deep worry for many young adults.
Teaching kids about financial matters in school can help. For instance, students exposed to a rigorous financial literacy program are much less likely to get into trouble with debt after they graduate, according to recent research. We don’t need a federal or state mandate to add financial literacy in schools: parents can simply ask their school districts for such courses. After all, nations around the world have now agreed: financial literacy is essential to participate in society in the 21st century.
Financial literacy in the workplace: Many companies today offer defined contribution pensions, which put workers in charge of deciding both how much to save and how to invest their pension assets. And health plans also require participants to be more financially savvy, to manage high deductibles, copays, and Health Saving Accounts, and to compare prices for medical care.
For this reason, workplace financial education programs are often provided to educate employees on how to manage these decisions. Yet employers can benefit as well, since the stress generated by money problems can translate into lower worker productivity, higher absenteeism, and more turnover. In our tightening labor market, an employer who offers help with money management or debt can readily attract and retain workers. Some firms have even stepped up to help relieve employees of student loan obligations, which can improve worker loyalty.
Financial literacy in the community. One particularly noteworthy program, both for its potential impact and scalability, comes from the American Library Association. Every community, big or small, has a library—a place where anyone, young or old, can go to learn, including via easy access to the Internet. As hubs for knowledge and information, libraries are ideal venues in which to provide financial education. Through the Association, programs that prove especially effective in one place can be extended nationwide. Libraries can also complement school or workplace financial literacy programs.
Financial literacy won’t change overnight, nor in a month or even a year. Yet initiatives taken in schools, workplaces, and in communities add up. My hope is that someday, in the future, the month of April can be re-dedicated to another topic!