Orginally published by - Forbes on February 3rd, 2022
In 2008, the federal government spent $700 billion to bail out the banks and insurers that took the global economy to the brink of disaster. And today in 2022, we find ourselves in the midst of another financial crisis that could cost the country about $700 billion every two years. It doesn’t attract as much attention as the budget deficit or national debt, but it’s every bit as painful and far more personal for families across the country.
This particular crisis is the lack of basic financial literacy among many Americans – and data extrapolated from recent polls puts the price tag for this deficiency at a staggering $352 billion in 2021 alone. Collectively, we are losing hundreds of billions of dollars every year because we don’t know how to manage our personal finances – and these are dollars we simply cannot afford to do without.
Fifty-six percent of Americans do not have enough savings to cover a $1,000 emergency expense. Thirty-two percent of American workers run out of money before payday (a figure that includes those earning $100,000 or even $200,000 a year), according to a recent survey of 2,700 U.S. adults working at companies with over 500 employees. Household debt continues to rise, growing by $3.5 billion dollars in just the third quarter of 2021. Considering all of this, it’s no surprise that just four in seven Americans can be categorized as ‘financially literate,’ and only 24 percent of millennials understand basic financial concepts.
So how did one of the world’s most affluent nations get here? Tanya Van Court, the founder and CEO of the goal-based savings app Goalsetter, recently told me that, for most of us, the problem starts at an early age and continues through adulthood. “Parents can’t teach what they were never taught,” she says. “That means we have generation after generation just trying to get by. Children who are financially uneducated become adults who are financially uneducated, and on and on we go.”
Nearly eight in ten American teenagers don’t maintain a savings account. Eighty-seven percent say they don't really understand their personal finances. And only 27 percent know what inflation is and can do a simple interest rate calculation. According to Van Court, this is not just an issue for the working poor or underprivileged. “This is as much a problem for Morgan Stanley families as it is for McDonald’s families,” she says. “Even 90 percent of wealthy families are projected to lose that wealth by the 3rd generation.”
Some believe all of this leaves us with one choice. To paraphrase entrepreneur and financial literacy advocate John Hope Bryant, we can start offering people a hand up, or we can continue to offer them handouts – in the form of a massive social safety net that, itself, totals in the hundreds of billions of dollars each year. The smart choice, Bryant says, would be to opt for the former – and, already, there are approaches underway that, if scaled, could make a significant positive impact.
Get em’ while they’re young
Studies show that children with savings accounts are six times more likely to go to college and four times more likely to own stocks as young adults. As such, we are seeing more and more school districts institute programs through which kids as young as kindergartners are provided with their own savings accounts. At the same time, organizations such as Jumpstart are formalizing a curriculum in financial education that is already being taught in 15 states and Washington, D.C. Overall, 20 states had begun requiring some form of personal finance education by October 2021 – and those programs are already starting to show some moderate results.
Of course, that leaves 30 states that have still yet to formally require financial literacy in the curriculum. If we want to stop the generational cycle of financial mismanagement Van Court warns us about, it’s time for these States to get on board.
Don’t forget the grown-ups
So, what do we do about those who are long past their teenage years, but could still benefit from some form of personal finance education? Van Court sees a big opportunity for employers to fill the gap – especially at a time when they are competing for workers like never before.
“We are partnering with more and more employers who want to offer Goalsetter as an employee benefit,” she says. “And that’s a trend we expect to see continue.”
Indeed, there has been significant growth in employer-based financial literacy programs since the start of the pandemic. According to Bank of America’s Workplace Benefits Report, 40 percent of companies offered these kinds of programs in 2020. In 2021, that figure rose to 46 percent. Moving forward, we need to find ways to incentivize more employers to do the same or we risk leaving an entire generation of American workers behind.
Solving for everyone, equitably
While financial illiteracy is an issue that crosses racial and socioeconomic lines, it is a problem that is felt more acutely in communities of color. As such, we must identify ways to infuse smart financial decision making programs into these communities – and Bryant recently told me about one such effort that is moving in the right direction. Operation HOPE, which he founded, has started offering a smarter alternative to the same-day check cashing establishments that so many people in underserved communities use as their only financial service.
“We have opened 183 Hope Inside banking locations – and they are all rooted in a simple philosophy,” he says. “People go to Starbucks not just for the coffee, but because they see it every day. It’s familiar. It’s trusted. You know what you’re going to get. The working poor need that same level of trust and familiarity in a financial service provider. So, we are aiming to be the Starbucks of financial inclusion – a known, trusted entity that can help people make smarter financial decisions.”
It takes a village – and a sense of urgency
It’s clear that parents, schools, employers, and financial services providers all have a role to play in helping Americans make smarter choices with their money. All we need now is that same sense of urgency that has accompanied the other financial crises we’ve faced in recent years.
Just like the families that are struggling to make ends meet, the longer we wait to get serious about financial literacy, the deeper we dig the hole from which we will eventually have to climb out. Let’s invest in ourselves now – and start putting those billions of dollars lost each and every year to better use.