The Importance of Financial Literacy and How We're Falling Short
February 8, 2024
Do you have a clear understanding of the basics of personal finance? According to a recent survey led by Stanford University economist Annamaria Lusardi, most Americans lack basic financial literacy skills. In fact, just 29% of survey participants answered all three questions on financial literacy correctly. These low rates of financial literacy are not just limited to the United States; it is a global problem.
Why does financial literacy matter? For starters, basic financial literacy skills can lead to better money management. People who understand basic financial concepts are more likely to save for retirement, make smarter investment decisions, and manage their debts more effectively. It also helps people prepare for economic shocks like a pandemic, as financially literate people are more likely to have money saved up in case of emergencies.
Unfortunately, financial illiteracy is pervasive around the world. Workers now shoulder more of their retirement planning; consumers quickly and easily move money using their mobile phones; and investors make increasingly complex decisions. Lusardi suggests that global economic uncertainty and growing wealth inequality only increase the importance of financial literacy.
So, what can we do about it? Lusardi suggests that the answer lies in providing people with a basic education on the ABCs of personal finance. She notes that developing personal finance skills is as important as learning how to read and write. Personal finance education is already seeing improvements, such as more than half of U.S. states adding personal finance instruction as a high school graduation requirement. Universities like Stanford are now offering personal finance courses, and employers are sponsoring personal finance lessons in the workplace.
As individuals, we can also take steps to improve our own financial literacy. This can include taking online courses or attending financial literacy workshops. Additionally, it's important to stay informed on financial news and to consult with financial professionals when making important financial decisions.
At the end of the day, personal finance education is vital to our collective financial wellbeing. Let's work together to increase financial literacy rates and make informed financial decisions for a better financial future.
Source: https://www.gsb.stanford.edu/insights/mission-teach-world-basics-personal-finance
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