Financial Literacy: It’s All About the Basics

Over the years, I have built relationships with a wide variety of individuals within the financial world. Some were existing childhood friendships who became Accountants, others are financial bloggers, educators and a few are published authors.  While the focus of their expertise differs, there is a commonality of disconnect that I have observed through conversations that I find peculiar.

As we accumulate knowledge, we often take for granted that others do not possess the same know-how as we do.  Even those involved in an educational capacity can find themselves drawing an assumption as to our audience’s comprehension level.  However, we must remind ourselves that to do so does a disservice to those we look to help.  The point I am working toward is that many I have spoken with assume that people already have a firm grasp of financial basics. A logic exists, in some sectors of the financial community, that everyone has established a budget and knows exactly how the world of credit affects their lives.  While this knowledge is much more accessible than any period in our history, it does not mean people possess it.  In affect, you can lead a horse to water but you cannot make them drink.

Most of the public we help here at Cambridge know the importance of making financial decisions; however, they do not know exactly how to go about such decisions.  This is, in my humble option, through no fault of their own.  We, as a country, have done very little to empower citizens with the knowledge needed to construct a sound financial life.  We teach reading, writing and arithmetic (all important subjects); however, we fail to educate regarding that little thing that makes the world go round – money.

According to the most recent Survey of the States by the Council on Economic Education, not much has changed in educating out youth about personal finance.  In the latest release, the Council indicated that only seven states require students to take a Personal Finance course as a high school graduation requirement (up from six in 2004 and one in 1998), and only nine states require the testing of student knowledge in Personal Finance (up from eight states in 2004 and one in 1998). In an era when foreclosures are on the rise and massive credit card reforms have been enacted, it is somewhat disconcerting that we have not done more to prepare people to deal with financial concerns.

As it true in most scenarios, the best defense is a good offence.  Due to the lack of effort to educate the public, most people do not have the capacity to structure a well developed financial plan. Throughout my career I have conducted hundreds, if not thousands, of personal finance seminars and my findings are similar when I gauge my audience’s understanding of financial concepts.  Less than 5% of participants have a workable budget, 20% know the interest rates they are being charged on their credit cards, and almost no one understands the 5 aspects that make up one’s FICO score. These audiences have included students, incarcerated individuals, blue collar workers, veterans and everyday folks. Each group maintains intrinsic financial needs; however, the foundation to build upon rarely exists because financial literacy initiatives are all but nonexistent.

If I had the opportunity to offer any of my colleagues one piece of advice it would simply be this – help your audience build a financial foundation.  While we ourselves may know the precepts of building a sound financial plan like the back of our hands, many are still in the training wheel stages.

For more information, or to speak with a certified credit counselor please contact Cambridge Credit Counseling at 800-897-2200 or www.cambridgecredit.org.

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