Check out the video below!! A beautiful visual illustration of the precarious knife edge that this presents us with, in the context of the financial system we have painstakingly built one ‘domino’ at a time.
The USA is the largest economy in the world, it is home to a significant proportion of the world’s largest businesses and is arguably one of the most liquid capital markets. So you would be excused for thinking that Americans should therefore have one of the best levels of financial literacy in the world…MYTH.
While we wait for the OECD PISA Financial literacy results, which will be released in early 2017, we can take a more detailed look at the state of affairs in the USA in the Chaplain Colleges ‘National report card on Financial Literacy’.
This report is disturbing for a number of reasons, but we will summarise what we believe are the most glaring issues here and provide the link for further reading too.
Firstly, the Mid-west states came out on top across a number of measures, surprisingly ahead of the states home to Silicon Valley and New York’s financial capital, as clearly their residents take a more risk-averse stance on personal finance.
Secondly and somewhat more important is the fact that even the good states are basically the best of a bad bunch. On average in the USA, 60% of households spend more than they earn and 45% of households don’t have a budget.
This is particularly concerning, as this issue is predominantly driven by behaviour and accepted practice in society. Behaviour is much harder to change than knowledge, as it is not just about learning new concepts and techniques, but rather changing habits and routines, essentially, the way we live our lives.
Unfortunately this is not a sustainable situation, as in many cases households fund the shortfall through the use of credit cards or other forms of debt. Unless they are expecting a payrise in excess of inflation, many households start down the ‘debt spiral’, adding more debt each year because they are still spending more they earn, but also adding to the debt pile due to paying the interest on the balances they could not clear. Average credit card balances in the USA amount to 10% of income.
The financial affairs of many in the USA are therefore balanced on a knife edge and at risk of toppling the ‘domino run’ if we had another financial crisis. This in itself is a compelling case for financial education, which is clearly a burning issue that needs to be tackled.
Video: https://protect-eu.mimecast.com/s/ML5qBHQZZ4Fz
Read the full report here: http://www.champlain.edu/…/national-report-card-on-adult-fi…
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