It is a sad fact today that most people starting with students are financially illiterate.
Here are some sobering facts:
- The average score on a freshman “financial literacy exam” was 59%, according to the JumpStart Coalition.
- The average student has roughly $23,000 in student loans, $4,000 in credit card debt and four credit cards.
- An average of 7% percent of graduates default on their student loans within the first few years.
Here’s what students are begging to understand:
- 84% say they need more education on financial management, according to Sallie Mae.
- 62% say their knowledge of credit reports is either fair or poor, according to the Consumer Federation of America.
- 60% have only a vague understanding of their debt, according to TheFreeLibrary.com.
So what can we – as parents, activists and educators do?
Dedicate a portion of your time with your children and financially illiterate friends to money. Encourage them to share their struggles and successes. They like hearing from one another. They trust each other. Because people generally aren’t as comfortable talking about money as we are other topics, it’s important to foster these important discussions. Pushing people to get outside of their comfort zone will make the experience more memorable and more effective in their drive toward financial independence.
Bring problem-solving to the discussion
Feeding young and even older minds financial facts does little to increase financial intelligence. The trick is engagement. Researchers from the JumpStart Coalition found that financial literacy is really a measure of problem-solving ability rather than a mere awareness of financial facts.
Establish and nurture identity
It is a fact that when you lose your identity, you stall growth. You face closing doors. You lose freedom. The same is true for financial identity. Most people don’t know how to effectively budget, manage their debt loads, or save. If they’re lucky enough to find jobs, they face starting salaries that have remained stagnant for more than a decade. Yet, if they can learn the basics of money management and problem-solve their way out of sticky financial situations, to be their own financial advocates, and learn where to get help they’ll be more likely to find success.
Most of us are not doctors but know what to do to take care of our health. We get this knowledge from our parents, peers, our regular reading, TV etc…. We try as far as possible to follow the advice on balanced diet, Exercise, rest, and minimize/ eliminate bad habits like smoking and drinking. I would like to think of “financial education” in the same way. We all need money to ensure a good life and we need to take care of it. You don’t have to be a mathematics or financial genius to understand this. Here are my basics:
- Live within your means. Ensure you can pay for what you buy.
- If you borrow money ensure you can pay the EMI. Check to see if you can still pay for it if interest rates were to rise/ you were to lose your job.
- Protect what you have. Insure your life, Health and assets. You wouldn’t leave your house unprotected, don’t do it with your life or health.
- Plan your future expenses like child education, buying a home, Retirement etc….. See how much you need and save accordingly. There are plenty to tools that will give a good estimate of what you need.
- Inflation would eat into your savings, so invest in something that will give a long term return higher than inflation.
- Last but most important. Stay away from get rich quick schemes. Getting a good physique is a long term & constant effort, so is accumulating wealth. Get rich quick schemes are like steroids they will do more harm than good.
Most people can understand and follow these rules. Of course you may need advice from professionals from time to time, but subject the professional advice to test of reason ability. If the advice is too good to be true, it probably is.
Share your thoughts…