Editor's note: Christine Loredo is the president and chief operating officer of TifiPay. The article reflects the author's opinions and not necessarily the views of CGTN.
The COVID-19 pandemic has shone a light on the financial preparedness of individuals and families, revealing that the average American's financial situation is in a precarious state. Forty percent of Americans have less than $300 in savings, according to a 2021 GOBankingRates survey. Against the backdrop of record inflation and skyrocketing living costs, this figure does not paint a rosy picture of the average American's financial health.
The education system empowers students to leave school with knowledge of metaphors, algebra and the dates of historic battles – all very important life lessons. Yet far fewer graduates know how to save money, invest in the stock market, balance their budget, protect their money against inflation, save for retirement, or file a tax return. If anything comes out of COVID-19, it is that we need to start to teach financial literacy in schools so that we can prepare the next generation for financial uncertainty.
I'm of the generation where parents encouraged their children to study hard, get good grades, obtain a college degree and secure a well-paying job. The reasoning was that by getting a good job at a great company, people can cover a mortgage, living expenses, a car, retirement contributions, and healthcare needs. Then after years of hard work, you can retire to a destination of your choice.
There are three problems with this line of thinking. First, it assumes that the economy will remain stable. We've all seen the news that inflation in the U.S is at a 40 year high, which is putting a significant squeeze on the cost of living. Many people rely on credit cards to pay for essentials and emergencies. According to the Federal Reserve Bank of New York, American credit card debt rose to $856 billion in the fourth quarter of 2021, a $52 billion increase from the third quarter of 2021. Credit cards can offer great value when leveraged correctly by delivering rewards like air miles, upgrades, and free gifts. But we don't always use or manage credit cards effectively, and many Americans overspend and cannot pay their monthly bills, exposing themselves to crippling credit card debt.
Second, it assumes job security. Unemployment is nearing the 1950s level. While the "remote working revolution" is an opportunity for those savvy and privileged enough to navigate this new world, it is also a threat in that the competition for jobs is now global. Companies no longer have to move their entire operations to India, China, or Vietnam: Asia can now come to them.
Third, it assumes the employment model will not change. People are no longer working at one job until they die. Today's young people will switch jobs numerous times, and new working models like the gig economy have had an impact on businesses and individuals. It has altered the way people view their jobs, and this new way of work has impacted the steady flow of income for many people.
Educating young people about money is more than teaching them how to budget and manage their cash. It also means diving into how money works, the role of credit, how to use debt effectively, how to invest and what it takes to save for retirement. The "classic" advice that Americans just need to focus on small expenses, such as canceling their Netflix subscription or stop buying a daily latte from their local coffee house, is short-sighted and incorrect. The focus needs to be on how to make money work for you and seeing the opportunities in today's economy. One lesson is to understand the value of having a diverse portfolio consisting of diverse investments and various income streams, which is the reality of being financially stable today.
A student graduating from a high school or college today will have several careers open to them that were inconceivable 20 years ago. At the same time, a downside of many attractive and flexible jobs is that they don't offer a lot of financial stability and require ultra-savvy money skills to navigate.
Again, financial literacy education is lacking in the U.S. According to CNBC, only six states require high school students to complete a semester-long personal finance course. As financial inequality and student debt creep into the minds of young students, it's clear that the time has come to implement compulsory financial literacy in our schools.
Indeed, the importance of financial education has finally begun to receive the recognition it deserves. The non-profit Next Gen Personal finance has compiled a list of bills submitted for consideration in 25 states. This is a step in the right direction, illustrating the unprecedented interest in the push for financial literacy. Momentum is building, and it's up to the technology industry, school administrations, parents, community members, and our politicians to ensure that these bills cross the finish line.
We finally have all of the components necessary to effectively bring the power of financial literacy to our youth. We have the technology, the know-how and the support of our communities. If we want to increase financial wellness in our future generations, we must pressure the government at both the state and federal levels to pass these crucial bills and drive home the point that financial literacy is not a luxury but a necessity.
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