Financial Literacy: A Bipartisan Low-Hanging Fruit

Grand Ole Evan
Jun 27, 2021
3 min read

Many of the nation's most salient problems could be addressed by empowering people to empower themselves.

Consumer spending comprises 70% of the United States’ annual gross domestic product (GDP) - that is, the total value of all goods and services produced within the country each year. [1] And 100% of GDP involves a person at some point in the value chain.

So why aren’t we educating our people about how money works? Wouldn’t it make sense that one of the most effective tools to improve the economy would be to improve the financial literacy of the people who drive that economy?

Why did I and so many other American students spend so much time learning the organelles of a cell, and not a single minute learning how loan interest accrues?

Increasing financial education in public education (and beyond) probably represents the lowest hanging fruit in terms of opportunities to improve the financial security of Americans.

2/3 of American families don’t even have six weeks’ worth of savings - a far cry from the usual 3-6 months of savings most financial gurus recommend building as an “emergency fund.” [2]
A 2017 survey by CareerBuilder found that 78% of Americans are living paycheck to paycheck. [3]
As of 2020, the average U.S. balances for different types of consumer debt were as follows: $5,315 in credit card debt, $16,458 in personal loans, $19,703 in auto loans, and $38,792 in student loans. [4]
Americans, on average, carried $92,727 of personal debt - this includes all of the above types of debt, as well as HELOCs and mortgage loans. [4]
Despite having so much personal debt, only around 1/3 of Americans understand the concept of compounding interest. [5] That is to say, 2/3 of Americans do not understand how their debt accumulates over time.
Americans in their 60s only had median retirement savings of $172,000. [6] While that may sound like a lot, it would only allow you to withdraw around $6,800 annually from your retirement savings according to the traditional 4% rule of thumb. To have a retirement income of $30,000 per year, you would need $750,000 in savings.

Even in light of these circumstances, as of early 2020, only 6 states required students to take a semester-long, stand-alone personal finance course. [7]

Why do we spend so much time in public school learning so much information that we will most likely forget? Of course, a well-rounded education is important - but priorities are important, too. And endowing students with the knowledge to understand the implications of the tens of thousands of dollars of student loans they are about to take out should be a foremost priority.

Many of the most salient political issues are driven by the financial instability and anxiety of the nation’s voters. It’s arguable that the 2008 financial crisis could have been prevented if Americans had not relied on the government to keep them from signing up for mortgages they could not afford. Student loan forgiveness might not be such a pressing voter issue if young people had been more knowledgable about the loans they signed up for to get a degree. Stimulus payments may not have been as necessary if more Americans had the recommended emergency savings of 3-6 months of pay. Social security could be entirely obsoleted if Americans saved more responsibly for retirement - increasing all of our take-home pay substantially by getting rid of the social security tax.

The cost of curing a disease - as a rule - is practically always far more expensive than preventing the disease in the first place. And poor financial habits constitute one of the most pressing diseases in need of a widespread prevention program. We are constantly passing outrageously expensive legislation to clean up the financial mistakes of millions of Americans, rather than passing legislation to financially educate Americans to prevent those mistakes in the first place.

The greatest way to empower people is to teach them how to empower themselves - and financial literacy is one of the most effective tools to do so in a developed economy. We all remember that the mitochondria is the powerhouse of the cell, but how many of us learned how to become a powerhouse ourselves?