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4 Ways to Improve America’s Financial Literacy

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I remember two things from the “Personal Finance” class taught at my high school:

  • It was taught by the shop teacher.
  • It was a complete joke.

I’m not alone in finding primary education severely lacking in teaching smart financial skills.

With Americans now saving a paltry $354 a year, we need a radical change in spending, saving and investing habits. “Good times” don’t last, and my generation (in high school during the dot-com boom) is experiencing its first financial shock.

So, how do we deal with it? Also, how do we prepare future generations to avoid the mistakes that we’ve made? If we’re going to reduce our dependence on debt, improve our financial literacy, shun materialism and give our children a better future, we have to get creative. We have to get radical:

1. Mandatory Classes Before Your First Credit Card

Before a personal bankruptcy is discharged, you are required to a take a personal finance course. The course can be taken on line, and the curriculum isn’t complete fluff. I should know. I had to take the class last year. While my personal finance transformation was already in progress, the class was useful.

So if the government makes debtors take a class once they’ve hit rock bottom (and file for bankruptcy) why not require people to take a finance class before they can get their first credit card?

Is it really so absurd? Teenagers must pass both a written and driving test before getting their learners permit, yet they can get a credit card without having any clue as to what they are getting themselves into. Why not have credit card companies require first-time credit card holders to pass a credit literacy test?

2. Subsidize Personal Emergency Fund Accounts

Many employers, including the federal government, have great 401K and other plans to entice employees to save for retirement. Many will match employee contributions by 100% or more. Regardless, many financial disasters occur well before people hit 65 years of age.

Why not have employers or government matching emergency fund accounts? We should be encouraging all Americans to have a fund set up for the unexpected. For every dollar saved up to a set limit (say $1000) it would be matched.

Why is an emergency fund so important? It can mean the difference between staying afloat and entering a deadly financial crisis. Half of all bankruptcies are due to medical bills, mostly from average Americans with health insurance. If you have a fund to cover a huge bank overdraft or unexpectedly large medical bills, you’ve just avoided a potentially huge setback.

3. Require New Hires to Complete a Budget

When a worker starts a new job, they should be required to complete a basic personal finance course before they receive their first paycheck. It could be done completely online. Don’t finish the course = Don’t get paid. It’s simple.

The course could easily be tailored to with the new employee’s salary or pay information. At the end of the course the new employee would have a basic budget set up, including their new salary.

4. Stop Watching Commercials

I don’t care if you have to pay a little extra on your cable bill. Get a DVR or Tivo so you can skip commercials. Weather you realize it or not, the constant bombardment of advertisements on TV affects your behavior. If you can’t skip commercials, take a lesson from my super financially savvy grandparents: Hit the Mute button.

What radical ideas do you have for how to cure our low financial literacy?

Leave your best and most radical ideas in a comment below.

Photo by apesara.

Thursday, July 24th, 2008 at 12:55 pm

Comments (2)

  1. I agree that the school system doesn’t teach financial education at
    all. I received formal training for it in school. However, I have
    to say that the 401k and 403b and all those were created to replace
    pensions, allowing companies to not be responsible to take care of
    their employees past retirement. While some companies offer a
    matching percentage, it still is not helpful to the average worker
    because of the first point of your article- people have not been
    taught financial education, therefore they do not know how to
    invest or manage their money. Those plans are great for people who
    know what they are doing. To everyone else, it is a guessing game
    and too many lose at it. Great article!

    July 24th, 2008 at 7:20 pm

  2. Tayielle:

    I did. I don’t remember a thing from it though.

    July 25th, 2008 at 2:42 am

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