In today’s world, the ability to manage money has never been more critical. All the while, financial knowledge among the general public has not kept pace with the need for financial capability. In a 2017 study, only 48 percent of all Americans were able to answer at least half of a set of financial literacy questions correctly. The young adult demographic performed even worse, with less than a quarter of millennials, in another study, able to answer basic financial wellness questions.
A lack of financial knowledge in adults can also lead to communication problems with younger generations. Although most parents do talk to their children about money, less than half feel that they are “well prepared” to do so. And while many teens report discussing their personal financial decisions with their parents, intra-family talks are more likely to address attitudes toward money than specific aspects of personal finance such as achieving healthy credit scores, building emergency funds, and growing wealth.
The gap in financial knowledge is further compounded by the millions who are not reached by financial services at all. According to a 2017 study by the Federal Deposit Insurance Corporation (FDIC), 6.5 percent of American households – or some 8.4 million – are unbanked altogether, and almost 3 times as many are underbanked, meaning that although they may have a checking or savings account, they also rely on expensive, high-risk, and frequently unregulated services such as payday loans and check-cashing services to make ends meet.
For Americans to live satisfying and successful lives, a strong foundation of financial capability is a necessity. But leading indicators point to a knowledge gap that is leaving more and more people behind: insufficient levels of financial knowledge among the general public, limits on what is taught at home, and a large number of un- or underbanked households. Bottom line? People need access to more resources – and at the FCCU Foundation we are committed to supporting that need.
Financial Education: Empowering Consumers to Make Sound Choices
At its most fundamental level, financial education is about empowering people to make sound financial choices that allow them to live more confident and fulfilled lives. This includes providing for basic needs in the present but also looking ahead to goals such as acquiring a home, starting a business, having a family, caring for aging parents, and preparing for retirement.
A financially capable individual can put their money to work for them, choosing between many different accounts, funds, loans, and other financial instruments to identify the right solution to fit their goals, aspirations, and circumstances. The ability to navigate this landscape has become increasingly important in today’s complex and digital financial ecosystem where consumers are required to be active participants, making decisions that, in the past, may have been left to a banker, broker, or pension manager. Additionally, today’s consumers are inundated with a plethora of digital tools and apps from emerging financial services companies that require a basic competency in financial matters in order to take advantage of.
In the most practical sense, the ability to create and follow a budget can help one avoid living paycheck to paycheck, in perpetual worry about the next overdraft or bounced check. But there are other costs to financial vulnerability. In fact, money-managing difficulties can lead to extra fees that people with a higher degree of financial competency are often able to sidestep. These fees may include higher interest rates, and charges for services such as ATM use, cashing checks, or dropping below the minimum balance of an account. These hidden costs can contribute to a vicious cycle where it becomes harder and harder to establish healthy financial habits, despite one’s best intentions to do so.
Empowering the Community with Financial Education
Financial education programs can teach the basics of individual budgeting, planning, and literacy skills, creating an even more powerful impact at the community level.
As the surveys cited in the introduction demonstrate, too many students are graduating without the basic financial knowledge they need in their adult lives. This is where financial education programs – like the FCCU Foundation’s Smart Money Workshops – can have a real impact, especially as they are provided at no cost to schools. As the mandate to include financial education in school curriculums continues to increase, the demand for such programs will continue to grow, providing financial institutions with an opportunity to further invest in the futures of the communities they serve.
Financial education is powerful in the business community, as well. For companies, offering a financial education program for clients and employees is a powerful value-add, fostering lasting relationships while simultaneously empowering individuals to make smarter decisions. Offering financial education to early-stage businesses can help entrepreneurs decide how best to put their ideas and financial resources to work; for established businesses, it can strengthen relationships with customers while helping employees bolster their own financial wellness: a win-win for company and community alike.
Conclusion
Financial education is about building a more confident future: for ourselves, our communities, and the most vulnerable. Sound financial decisions nurture families, unleash entrepreneurship, unite communities, and, in the most idealistic sense, enable us to pursue our dreams. By harnessing power of the internet, we can make education more convenient, interactive, and available to populations who might not otherwise have had access to it.
At the FCCU Foundation we are committed to providing financial education that changes lives. To find out more about which of our programs might be right for you, visit our website at www.fccufoundation.org, contact Kathleen Trusz (ktrusz@firstcommercecu.org) or Andre Harris (aharris@firstcommercecu.org), or visit your local First Commerce Credit Union financial center to speak to a representative.