A financially literate person has the ability to use credit responsibly, the confidence to manage their money and financial risks, understand the long term benefits of savings and has a positive attitude towards financial planning. These are just basic but essential characteristics that are required by all individual and consumers in America. The ability to function in a literate society in general also extends to financial competence in particular for the enhancement of basic money management and individual prosperity.
For years, experts in Finance and Money Management (fiscal and monetary policies) have highlighted the need for individuals to acquire the financial knowledge necessary to effectively manage their own finances. Inappropriate financial decisions can have long-term negative effects. Why? Because of the researched done and the negatives effects discovered from lack of financial literacy. For example, national consequences will result from a continued lack of financial literacy. Distribution of information is vital. Being financially literate is a lifelong process. Reaching youth is critical. Educational materials should be presented at a “teachable moment.” Establishing goals is the first step toward a solid financial future. A joint effort is necessary to achieve national financial literacy – no single organization or sector can achieve the goal of providing financial literacy for all. Hence, working together is the only viable solution (Financial Literacy in America: Individual Choices, National Consequences). These are critical and essential characteristics.
We are advised that, just as online or internet distance education is important in today’s college teaching methods, so consumers can use software to create customized budgets to develop long-term savings strategies for retirement or for their children’s college education. Therefore, technological advances represent the opportunity for achieving efficiencies and exercising preference for pertinent information to capitalize on. Additionally, Education and financial education in particular, is especially critical for populations that have traditionally been under-served by America’s financial system. This means vulnerable consumers can receive help to prevent the entanglement in financially devastating credit arrangements that may be burdensome. Hence, improving basic education at the elementary and secondary school levels with emphasis on understanding and manipulating numerical data, the functional use of qualitative information and daily basic financial decision-making with emphasis on prudence, are needed (Remarks by Chairman Alan Greenspan, The Role of Financial Education April 3, 2003).
The need to teach children about financial literacy and the benefits can never be overlooked. We are admonished to teach our children about the importance of saving. Savings should be visible and very real. Some financial institutions have kids club, so parents and guardians are encouraged to help kids open their own bank savings account and make regular deposits, while avoiding unnecessary withdrawals and spending. Importantly, family talk and discussion about the need for budgeting and spending very responsibly are also required. Practical experience from family money management meetings, planning for trips and special purchases, will give children the active mental and physical knowledge about the buying and saving process. The need to show children how Automatic Teller Machines (ATMs) work is also encouraged. This process should be done in the form of helping kids know that they need to deposit money in a financial institution before they can take it out. Positive feedback from parents, older siblings, family members and neighbors are also essential. For example, as “allowances” increases, giving them responsibility for how they spend and save this money is good for their financial literacy development (Tennessee Teach Children to Save, Financial Fitness can be fun!)
Basically, the experts advise us that, unlike children, Entrepreneurs should pursue their goals of financial literacy by reading, taking continuing education courses, seeking out helpful mentors like accountants, attorneys, financial consultants and other experienced professionals. Entrepreneurs should take advantage of their community resources to further sharpen their financial skills (Financial Literacy, Financial Literacy for the Entrepreneur).
Other evidence that Financial Education will have an Impact on individuals lives do exist.
Financial education with counseling will have a positive effect and produce improvements in consumers’ credit management. Researched showed that that credit counseling had a positive effect on creditworthiness, especially for individuals with the lowest credit scores. In addition, preliminary studies found that after receiving on-line instructions in credit management new or recently delinquent credit cardholders were more likely to pay on time and to have lower revolving balances. However, providing effective education has its challenges.
Efforts to increase financial literacy can be resource and time-intensive on those who have limited capacity to help. Trained instructors, constraints by gap in math and reading literacy can impede comprehension of fundamental financial concepts (Testimony of Chairman Ben S. Bernanke, Financial Literacy, Before the Committee on Banking, Housing, and Urban Affairs of the United States Senate, May 23, 2006). Hence, the essential fact that a collective effort from the homes, schools, academics, city governments, state officials and the federal government is a must for financial literacy to improve and be sustainable in America, and globally.
Therefore, the challenge for private interests, policymakers and community organizers is to press on even in the face of seeming difficulties and complacency (What Others are Saying, Financial Literacy Research). I am of the opinion that much can still be done (and indeed is being done) to increase financial literacy in America. The education system, internet and the community involvement can only enhance efforts. The critical need for policymakers to continue to give this issue great interest will be the long-term facilitating factor for success.