Best Web Design Services : If you're looking for affordable web design services, GetAFreelancer.com is the answer! We have thousands of professional web designers ready to design a custom website that meets your requirements. You can post your project with us for free and get bids from quality providers within minutes!As a middle school teacher in Washington, D.C., Tarik Cranston, 29, was able to sock away only $20 to $30 each month after paying for rent, food, and other expenses. Buying a home—his dream—seemed impossible.
But after hearing about free financial education classes offered by DC Saves, part of the national America Saves campaign, he signed up. There, Cranston learned how to make a budget, set goals, and put money into an interest-bearing savings account. When he started tracking where his money was going, he realized that little expenses, like his cigarette habit, added up quickly. Now, he cooks at home more, brings his lunch to work, drives less, and no longer smokes—and he saves $300 a month.
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Financial educators say experiences like Cranston's demonstrate the importance of financial literacy, the lack of which has been blamed in part for this country's recent mortgage crisis. "There are probably millions...of households who have gotten themselves into mortgage products they never should have gotten themselves into. Most of them didn't understand what they were agreeing to do," says Alan Blinder, economics professor at Princeton University.
The current credit crunch, along with consumers' burgeoning debt loads, has led to a flurry of programs and initiatives aimed at promoting financial education, including the first President's Advisory Council on Financial Literacy, launched by the White House in January.
"We don't know any less than our grandparents—we just need to know a lot more now," says Dan Iannicola, deputy assistant secretary at the Treasury Department and federal coordinator for the president's council. Self-directed retirement accounts, easy access to credit, and complicated mortgage options all make the financial world difficult to navigate without some kind of education, experts say.
Research suggests that most Americans have extremely low levels of financial literacy. The Jump$tart Coalition for Financial Literacy tests 12th graders every two years by asking them practical money questions and consistently records an average score of 50 to 55 percent. Other research shows that about 3 in 4 workers don't know how much money they need to save for a comfortable retirement, and only about half of respondents in one study were able to correctly answer two simple questions about interest rates and inflation.
"The persistent finding is how pervasive financial illiteracy is," says Annamaria Lusardi, a professor of economics at Dartmouth College. She adds that the problem is widespread across all demographics, although it is especially acute among women, African-Americans, Hispanics, and those with low education levels.
It matters, says Lusardi, because research also shows that people who understand basic financial principles are better at retirement planning, accumulating wealth, and avoiding debt. In fact, she found that people who develop financial plans accumulate from 10 to 15 percent more wealth than those who don't, even after taking into consideration income and education levels.
To encourage savings and planning, dozens of private and public-sector initiatives target kids as well as adults. The National Endowment for Financial Education, for example, distributes a curriculum for high school students that covers budgeting, debt, insurance, career choices, and other financial decisions, reaching more than 800,000 kids a year. "It's important to give them a base understanding," says Ted Beck, chief executive of NEFE and member of the President's Advisory Council.
While the financial industry often points to financial education as the solution to consumers' debt problems, others are more skeptical, and for good reason—research suggests many of the lessons are not having their intended effect. "The very disappointing result...is that people exposed to financial education don't do any better," Lusardi says. One study followed up with graduates five years after they took a respected personal finance course; it found it had an insignificant impact on their behavior. There are a few exceptions: The lessons from an interactive stock market game appear to stay with students, Lusardi says.
One key, says Elizabeth Coit, executive director of the Networks Financial Institute at Indiana State University, is teaching the basic ideas of goal-setting and delaying gratification at a young age, and then constantly reinforcing those messages. Forty states now include some amount of personal finance education in their education standards, and seven states require high school students to take a personal finance course, according to the National Council on Economic Education.
Some experts suggest it is the financial industry itself that needs to change. Disclosures, for example, should be written in plain English so people can understand them, Blinder says. He also offers two other ideas: First, the mortgage industry could be penalized for selling products to people that don't make sense for them, just as stockbrokers are now under suitability standards. Second, banks could be required to keep a certain percentage of the mortgages they originate on their own books instead of selling them to third parties so they have an incentive to screen borrowers more carefully.
As it stands now, says Terry Connolly, dean of Golden Gate University's business school, "you really have a very severe differential between the extraordinarily sophisticated and highly leveraged instruments that are fine when traded between knowledgeable institutions. But when you apply them to everyday people...you have enormous trouble."
