The State of Financial Education
Updated on 5/15/2023
America’s financial environment is challenging…
5% inflation
Inflation is the rate of which prices increase. Higher inflation means it’s harder to afford the same products and services. For reference, the US’ target inflation rate is 2%
5.25% interest rates
Interest rates tell us the cost of borrowing money. The higher interest rates are, the more expensive it is to borrow money. Interest rates. In the last decade, interest rates have averaged 1%
-0.6% real wage growth
Real wage growth tells us how much more people are earning from year to year after accounting for inflation. 0% growth means people are roughly able to afford the same amount of things as before
…and Americans have room to improve their finances
$70K median household income
Household income is a measure of wealth across the nation. Keeping in mind this number is before tax and the income for all members of a household, there is not a lot of money left to spend after paying bills
$8K revolving credit card debt per houshold
Revolving credit card debt is the amount of money left unpaid on a credit card. Considering credit cards typically have extremely high interest rates (sometimes higher than 20%), reducing revolving credit card debt should be a top priority for those who have it
$96K median household retirement savings
Retirement savings are a major indicator of accumulated wealth. Larger retirement savings allow people to retire early, travel the world, and experience things. Sadly, median household retirement savings is only ~1.4 years of annual income, meaning Americans are retiring late, if at all
Yet, Americans may not have the financial skills needed to boost their wealth
Only 4 in 7 Americans are “financially literate”
Financial literacy is the first step to building wealth, and only slightly more than half of Americans are financially literate.
Only 24% of millennials understand basic finances
Understanding basic finances is key, and the fact that only 24% of millennials understand them is a testament to how America’s education system is not emphasizing personal finance
87% of Americans report not understand their finances
Personal finances are difficult, and everyone’s financial situation is unique given their income streams, required expenses, and personal values. If there isn’t a strong fundamental understanding of personal finance, how can people know what’s best for themselves?
However, new financial education efforts may provide substantial help
States are adding financial education requirements
~24 states require high schools to offer a personal finance course, and only 19 states have made personal finance a graduation requirement
Employers are asking their role in financial education
Some employers are offering financial education benefits and others are “nudging” the right behavior by determining the default settings on enrollments into financial benefits
New evolutions of financial education are sprouting
The internet has enabled the creation of new ways for people to obtain a financial education, from Investopedia to finance creators