What is Financial Literacy?
Financial literacy is neglected in the United States, across education systems and financial institutions. The U.S. Financial Literacy and Education Commission defines financial literacy to be “the skills, knowledge and tools that equip people to make individual financial decisions and actions to attain their goals.” It defines financial education to be “the process by which people gain information, skills, confidence and motivation to act, through various means, including classroom education, one-on-one counseling and coaching, technology-based interventions, and self–study.” However, without clear, easy access to financial education, literacy is unlikely. Although financial literacy is important, the lack of education around it is the root problem — one that Tutor Zone is attempting to address through its programs.
Why is it Important?
Financial education is vital. People are uninformed on important financial matters, such as credit scores, debt, and retirement accounts. This results in feelings of stress or anxiety surrounding finances, which would directly affect daily life and financial security. The average American isn’t equipped with the necessary literacy to navigate the complex banking and credit services the financial industry purposefully obfuscates. (Investopedia)
A case study of millennials confirms that Americans are lacking essential financial skills. According to the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund found that although millennials are highly educated, they are economically challenged: “millennials tend to rely heavily on debt, engage frequently in expensive short- and long-term money management, and display shockingly low levels of financial literacy.” This reveals a flaw in America’s education system — financial literacy is not prioritized for most, and is not included in the curriculum.
United States vs. International
Compared to other countries, the US lacks the infrastructure that would automatically educate its citizens. Financial education is sparse in the United States as opposed to other countries. Annamaria Lusardi, academic director at Global Financial Literacy Excellence Center, credits stronger education systems in Nordic countries for their higher financial literacy rates (Money). Even American companies attempt to spoon feed their employees to prevent involvement in their own finances. In the US, less than half of the states require financial education in the classroom. Most American companies automatically register employees to 401-k funds, which reduces the necessity for personal involvement in long-term financial planning and decisions. (Money)
Financial inequality can also be accredited to racial disparities in the United States: “…Black, Hispanic, and Native American populations tending to have lower rates of financial literacy and White and Asian populations tending to have higher rates.” (Investopedia) Growing, unaddressed financial illiteracy only perpetuates the economic disparities and disadvantages it creates: “Financial literacy is bound up with the structural factors that drive the racial wealth gap in the United States.” (Investopedia)
To Address the Problem
Tutor Zone has combated this issue, and the lack of accessible financial education by offering a financial literacy class to communities nationwide making it extremely affordable so that all can participate. The program was run through distance learning, as it began during the COVID-19 pandemic.
Tutor Zone also recognizes that education should be holistic and include topics relevant to real life. In this class, our students learn about good vs bad debt, the concept of supply and demand, and the stock market. Students learn how to apply different financial skills effectively, including personal financial management, budgeting, and saving. In past sessions, students were educated on the topics of investing and company forecasts. They were taught vital financial knowledge that one should not put all of their funds in one industry, diversification, for all of that money will be lost if the industry were to crash. A few past students also have explained their new abilities to make forecasts about shares at different companies and anticipate how well they will perform in certain fields in the future. The goal of this class is to make sure every student leaves knowing how to achieve financial stability in their future. Personal finance education should be taught throughout a student’s academic career. Yet, in America, even college students, who manage their personal financial aid and scholarships, do not learn these skills unless they are Finance majors. Enroll your student at Tutor Zone today to support their future and to circulate financial literacy through our classes.
Research
- Importance of Financial Literacy
- Why Financial Literacy Is So Important
- https://www.tiaainstitute.org/sites/default/files/presentations/2020-08/TIAA%20Institute_Millennials%20and%20Money_RD167_Lusardi_August2020.pdf
- US vs. international financial literacy rates/programs
- US National Strategy for Financial Literacy 2020
- https://money.com/united-states-financial-literacy/
- Financial literacy disparity in the US