Six years ago this summer, the financial crisis began when the first warning tremors were felt in our credit markets, and U.S. citizens began to hear new terms like mortgage-backed securities, subprime loans and credit default swaps. The financial crisis and recession also exposed behaviors that indicate low levels of financial literacy across the nation. Many people purchased homes they could not afford using unsound financial products they did not understand. As a result, mortgage defaults, foreclosure rates, personal credit defaults and bankruptcy rates reached near record highs.
According to the 2013 Consumer Financial Literacy Survey, 43 percent of adults worry that they do not have enough rainy day savings for an emergency, 31 percent have not saved anything for retirement, 31 percent have no savings, and 26 percent do not pay their bills on time. The behaviors underlying this data suggest a severe lack of personal finance knowledge and skill.
Such negative financial outcomes and low levels of consumer knowledge and confidence have made it crystal clear that financial literacy in America should be a national priority. Moreover, studies have shown that financial literacy is linked to positive outcomes like wealth accumulation, stock market participation, retirement planning, and avoiding high-cost alternative financial services like payday lending and auto title loans.
To avoid another financial crisis in the future and to improve personal finance outcomes for American citizens, our nation must be educated in personal finance. A great place to start is with our K-12 students. In too many of our states, our youth receive little if any personal finance training in middle school, high school and college.