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A Journey to Financial Literacy and Education

, by Tom Quinn

Do you consider yourself to be financially literate?  What about your family members, such as children or siblings?  Do you think most American's are financially literate?

These are interesting questions to ponder as we enter National Financial Literacy Month in April.  Granted, financial literacy is a broad term encompassing multi-faceted concepts such as budgeting, saving, investing and borrowing so it may be challenging to make a general assessment among such different criteria.

Americans, in general, don't rank very high according to a 2015 global study completed by Standard & Poor's Ratings Group and others, as referenced in a recent Wall Street Journal article.  In that study, the U.S. ranked 14th among 20 countries with a financial literacy rate of 57%.

Why is a financial literacy not more clearly understood by a larger percentage of our population?

  • Some experts point out that there is a lack of interaction on this topic at the family level, where exposure to "pragmatic" learning often takes place. This may happen either out of fear, lack of subject knowledge, embarrassment or because it's lower in priority given the many competing topics that surface day to day. For most families, topics related to financial literacy don't surface frequently.

I can remember my own experience of sitting at the kitchen table with my parents, filling out student loan applications as my parents tried to figure out how I was going to pay that year's tuition. The focus was on getting approved. There were no thoughts or questions that surfaced about what my monthly loan payment would be and how long it would take to pay it off.

That reality came later when I graduated and my deferred status went away. While the monthly payment was high (given the starting salary of my first job), it was nowhere near the levels of student debt many younger people are experiencing today. I was lucky because the loan helped me establish credit and - coupled with parents who stressed saving and a philosophy of only buying what you can afford - laid a solid foundation for my financial literacy.

  • Other industry players see a lack of structured or required financial literacy programs or classes at the high school and/or college level as drivers of lower financial literacy. Getting younger people exposed to components of sound financial planning and management early on could have substantial long-term benefits.

I can remember (long ago!) my freshman year at college when credit card companies aggressively promoted credit cards at events such as football games and through constant direct mail offers. Many of my friends took advantage of these offers without fully understanding how quickly balances compounded when the monthly bill was not paid in full.

While not part of my public education, my parents' bank did promote establishing saving accounts for children, and I remember seeing the balance grow as my account earned interest (at that time saving account interest rates were above 10%!).  So, even if not offered as a required course in school, we should get young people exposed to the basics through bank, credit union, community or church sponsored programs. Another alternative is engaging in any of a smorgasbord of diverse and fun online financial learning programs that can stir interest and lay a foundation for lifelong financial literacy.

  • The subject matter can be difficult to understand. Compounding, diversification and inflation are financial terms commonly "bandied" about, but not easily understood by many Americans. Instead of seeking to better understand the topic, many people end up tuning out.

Well, I concede not all aspects of financial literacy can be classified as "fun".  Start off by focusing on an aspect that has relevance for you and is easier to understand and then transition to other areas or topics that are more challenging.  I still learn new aspects of financial literacy all the time in my own personal journey.

It's never too late to become empowered to take control of your financial health, but sometimes taking the initial steps can be the hardest part.  Determine what interests you and jump in - either on your own or with help from others.

Follow along with our financial literacy blog series this month to learn more about this topic.

Tom Quinn

Tom Quinn is the Vice President of Business Development for myFICO and has over 25 years of experience working with consumers, regulators, and lenders regarding credit related questions and initiatives.