Americans are excellent readers. Well, pretty good readers anyway. Approximately 14% of U.S. adults still can’t read, but for the most part we seem to be a functioning, literate society. Unfortunately, it seems our financial literacy isn’t doing as well.
Financial Literacy: What It Is and Where We Stand
First, what exactly is financial literacy? In simple terms, financial literacy is the ability to understand how money works in the world; how someone manages to earn or make it, how that person manages it, and how that person invests it. It measures how well someone understands the fundamentals of those three categories.
A benchmark study for our financial literacy has been the Jump$tart Coalition for Personal Financial Literacy, which started giving tests to 12th graders in 1997. The test is designed to determine “the ability of our young people to survive in today’s complex economy.”
Built on questions ranging from credit cards to home ownership, our results have been nothing short of abysmal.
Average scores on the exam have been F’s, with some years showing results of “fewer than 5 out of every 100 test takers earning a C or better.” Yikes.
Our Schools’ Teaching Problem
The problem is widespread. It seems to stem from a lack of proper financial education while we’re students. Only 16 states require standardized testing of economic concepts, which is actually down from 28 in 1998.
The issue does seem to vary from state to state, with some taking the issue far more seriously than others.
For instance, Idaho, Georgia, and Texas all have financial education mandates considered rigorous by the Council for Economic Education. However, on the whole, our schools aren’t teaching the younger generation how to manage their finances.
How We Improve Our Financial Literacy: Banking and Technology
What can be done to fix the problem? Schools certainly have a role to play in educating the youth about how to manage their money.
The most influential force on a child’s financial mindset, however, comes from their parents and the household they grow up in. This side of the problem is complex and not easy to solve.
Later on in life, though, as college graduates enter the workforce, studies show that they are looking for financial recommendations and personal advice for how to manage their money properly.
One productive solution?
Banks can play a role by providing tailored, personalized financial advice through technology. An enormous market space has emerged in fintech with startups working to address this need.
The ability to access answers to financial questions through technology seems to be the most powerful technique in improving our financial literacy.
Learning about your finances can be tricky. Tech solutions can help remove the friction involved in the process.
By providing insightful suggestions and spending advice features tailored to the individual, technology has a major role to play in addressing the financial literacy problem.
A Brighter Financial Future
Financial literacy affects the quality of our lives dramatically. It’s an important issue that deserves discussion and creative solutions.
The cost of financial ignorance is high, and the do-it-yourself approach that seems to have taken hold doesn’t seem to be working effectively.
We look forward to our technology playing a helpful role in dramatically improving the financial lives of our customers moving forward.
We hope more solutions will be developed to help solve this systemic problem.