By Daniel Kupper
According to The Federal Reserve, nearly 40% of Americans do not have the cash available to cover a hypothetical $400 additional expense in their monthly budget. Of that 40% nearly half would have to use a credit card or risky pay-day loan, and 12% flat out could not pay it off.
These statistics should be sounding an alarm to everyone that we are a nation of people living off of credit, paycheck to paycheck, unable to cope with even the slightest financial bump in the road.
Unfortunately, the problem is rooted in something deeper than simply being made aware of the statistics. The absence of preparedness and stability is due to lack of financial literacy in our education system.
Schools in the United States do very little in the ways of teaching young people the basic necessities of financial literacy.
Students in high school will have at best one semester of economics, mostly focusing on the laws of supply and demand and little-to-nothing about balancing a checkbook or making the most rudimentary investment.
At the collegiate level, only those entering a business or economics major will be privy to the knowledge required to become a savvy consumer or investor. Where does that leave everyone else?
The problem of financially living with the proverbial piano dangled over one’s head is not only for the middle and working classes. According to a recent Nielsen study, one in four families earning $150,000 a year or more are living paycheck to paycheck.
Regardless of wages, people are putting themselves in harm’s way by making poor financial decisions and ignoring the basics of building wealth.
Jim Merrill, the President and CEO of Encinitas Charities Consulting Group, is an expert in the field and strongly believes there is a lack of financial awareness for so many individuals because of an absence of courses and/or training in our educational institutions.
“The importance of financial planning is everything,” Merrill Said. “When someone goes to college, they study to become a doctor, a biologist, engineer, etc. But regardless of what field they choose, every single person is going to have to deal with financial planning and management. Unless you take classes in it, it’s over most people’s heads and they tend to just shut down and not pay attention to it because they don’t understand it.”
Merrill’s father was raised during the Great Depression with little to no money. He instilled in his son from an early age the value of being financially prepared for the hardest of situations. These lessons are universal and are as relevant today as they were during the 1930s.
According to Merrill, living a monetarily stable life can be boiled down to four key steps: hard work, living below your means, saving, and investing in quality companies over a long period of time. These are not the only tools in financial literacy but are the overarching building blocks to a safer and higher quality financial existence.
Knowing how to save and invest money for the future is not strictly for the rich or Wall Street elite. Nearly every individual will earn a sizable sum of money through various careers and jobs in their lifetime. The ability to not squander this money and in return make it work for you is what creates security, even during periods of economic downturn.
Academic institutions must begin including personal finance in their curriculums. Courses should start as early as middle school or high school so that young people can grasp the importance of having financial acumen.
No matter what they choose to do for a living, students will be prepared to manage their wages and savings to build a stable life. Too often the only knowledge a person has regarding spending and financial habits is learned from a parent or close relative, who in turn may not have the training or know-how to teach them anything but bad habits.
People like Merrill were fortunate to have a parent teach them how to budget wisely and build wealth. For others, the world of financial planning is an ocean, and they do not even know how to swim.
With proper educational tools available in schools from an early age, students will have the opportunity to gain invaluable skills that will not only benefit them as an individual but will also help our economy grow stronger with intelligent and wealthier consumers.