Almost one quarter of Americans have no savings and nearly half — 40% — don’t keep a budget. One driving factor: a lack of financial literacy in the U.S., according to a new survey by The Penny Hoarder released this month.
The problem, say experts from government organizations, advocacy groups and academia, comes from a lack of education on personal finance topics, beginning at home and continuing in school.
“Parents will sooner talk about sex, drugs and alcohol than they would about money,” said Rob Sansome, director of strategic initiatives at the Florida Prosperity Partnership, which partners with local organizations and agencies to promote economic stability.
The survey also found that one-third of Americans while growing up did not discuss basic personal finance topics, such as credit scores, debt, being a smart shopper or opening a basic savings account. Less than 15% of those surveyed talked about their own family’s financial situation.
It’s like teaching a kid how to ride a bicycle. We didn’t get them a book on balance and motion, we put their butts on a bicycle and let them scrape their knees a little bit.
The survey of more than 1,500 adults underlines just how much early financial education impacts financial health in adulthood:
- 17% of those who discussed finances growing up have no savings at all. That figure balloons to 40% among those who had no early financial literacy.
- 18% of those who talked about money management at home report household income of less than $50,000. But for those who didn’t talk about money, almost a third — 31% — earn less than $50,000.
Here are some other survey highlights:
- Less than 15% of those surveyed talked about their family’s finances while growing up.
- Only 20% of Americans learned about the importance of credit scores.
- 40% of Americans do not maintain a budget.
- 23% of Americans have no savings; 40% of Americans have less than $1,000 in savings.
So how did we get here?
Financial Literacy Gap Widens Across Generations
Teaching basic financial concepts to children leads to better money outcomes when they grow up. It’s a point experts can’t emphasize enough, but it’s easier said than done.
Embarrassment. That’s one of the main reasons parents struggle instilling financial literacy in their children. They might be embarrassed about their own finances and even bringing up the topic brings on pangs of regret.
“I can’t tell my child not to go into debt without cursing myself because I’m in debt,” Sansome said. “It all comes together in this quiet, creeping lack of knowledge.”
Another factor driving financial illiteracy, Sansome said, is our culture’s obsession with tackling debt versus saving in the first place. For example, if you turn on the TV you’re far more likely to be hit with a barrage of advertisements for loan refinancing services rather than budgeting apps.
“I call it the Smokey Bear concept,” said Bill Mills, president and CEO of the Florida Prosperity Partnership. “We need to have a national campaign on the good of saving, and not have it be perceived as spending’s stinky brother.”
Further compounding the problem with saving, those who didn’t discuss personal finance topics while growing up are more likely to fall within a low-income stratum, according to The Penny Hoarder survey and an analysis of data from the Consumer Financial Protection Bureau. Our survey found that nearly one-third of Americans who didn’t talk money management as children report household income of less than $50,000.
That and other factors can lead some parents to question their own financial knowhow and whether they’re qualified to be passing on information to their kids, said DeAndrew Geels, a junior who works as a financial adviser at Texas Tech’s Red to Black financial literacy program.
“Money is such a taboo topic,” he said. “It’s something you don’t really like to talk about, and that can be pretty harmful for everyone.”
For one, it’s a factor driving the rise in student loan debt, which has soared past $1.5 trillion this year. Many parents and students don’t take the time to understand the Free Application for Federal Student Aid, or FAFSA. The form determines whether a prospective student is eligible for financial aid.
Students or parents may who miss FAFSA or other deadlines for financial aid awards leave free money on the table — and end up taking on debt to fill the void, said Erin Dunn, associate director of financial aid at the University of South Florida St. Petersburg.
“Students were coming in the door without ever being exposed to financial concepts, and it was a much bigger conversation than financial aid,” she said.
The repercussions stretch into the retirement years.
In 2000, 12% of Americans over the age of 64 — about 4.1 million workers — were in the labor force, according to data from the U.S. Bureau of Labor Statistics. That number has increased to 20%, or roughly 10.6 million people, this year.
“People are very concerned about not having enough money for retirement and many people don’t,” said Helen Colby, assistant professor of marketing at Indiana University, who studies consumer financial decision making.
Financial Literacy Programs Can Help Break the Cycle
There are hundreds of financial literacy programs run by nonprofit and educational groups throughout the country that are based on the FDIC’s MoneySmart program. The federal agency offers a guided online course that ends with a nifty certification.
In the 15 board game-style modules, the FDIC covers everything from making sure you get the best deal on a credit card to identity theft. And you can even order a physical copy for free.
For those who aren’t into playing games, the Consumer Financial Protection Bureau broadcasts free monthly webinars on personal finance topics. The agency also has a database of answers to questions its experts have been asked over the year, and you can ask your own if you don’t find what you’re looking for.
When crafting a monthly budget, be as specific as possible. You’ll be surprised at how much more you spend than you think. Every cup of coffee counts.
College students who want to get out ahead of looming debt have some options right on campus.
Dunn, from USF St. Pete’s financial aid office, recently launched AFLOAT, a campus financial advising program that has attracted freshmen interested in budgeting, juniors and seniors interested in learning about student loan payment options and post-graduates hoping to catch up on personal finance topics.
Dozens of colleges have programs like USF’s AFLOAT and Texas Tech’s Red to Black available free to students. For many students, college is the first time they’re dealing with money on their own, so this is an ideal time to take advantage of financial literacy programs.
Teaching Your Kids About Financial Literacy
Travis Sickle, a Tampa, Florida-based financial adviser, vividly recalls watching middling interest accumulate in his bank account when he was around 5. His dad, a banker, would bring home a ledger to show him the three cents he made for doing nothing but saving.
“I would sit there and think, ‘three cents, this is awesome. In a hundred years I’ll have a dollar.’ And to me, that was everything,” he said.
For kids, the FDIC game is a great start, but Sansome emphasized that real-world experience is key in understanding financial topics.
“It’s like teaching a kid how to ride a bicycle,” he said. “We didn’t get them a book on balance and motion, we put their butts on a bicycle and let them scrape their knees a little bit.”
A savings account and allowance is a good start to get kids thinking about basic personal finance. Colby, the IU professor, said research shows kids who grow up with an allowance have a better understanding of prices of toys and candy.
Scary as it may seem, parents should let kids actually spend some of their allowance. They may make mistakes, but this is a chance to teach the idea of wants vs. needs.
The Penny Hoarder has an expansive guide to talking to your kids about money before you’re ready to fork over that allowance.
Even going about your daily to-do list offers opportunities to bring up financial literacy. When you stop for gas, explain to your kids why it’s important to budget for recurring expenses, or when you find yourself with a flat tire, explain the importance of emergency funds.
Sickle’s 4-year-old twins have a special chant when they leave the bank with their father.
He asks, “What are we going to do with our money?”
And they answer: “Save and invest! Save and invest!”
Alex Mahadevan is a data journalist at The Penny Hoarder.