Having a conversation with a friend of mine, we somehow got to talking about personal finances, and they told me that they had to file for bankruptcy. A few years back they wanted a car, so they took out a loan, not fully understanding the situation they were getting themselves into. They overextended themselves financially and found themselves sinking further and further into debt. Now they are wiser and taking better control of their personal finances, but the damage is done, they had to learn the hard way by taking a serious hit to their credit rating.
This person was my age, so it really got me thinking about their situation, how it must differ from mine, and how had I been lucky enough to not get myself into that same problem. Somehow, through my years of being young and naive, I was taught some of the basics of financial literacy that kept me out of harms way.
Financial literacy is the set of skills and knowledge that allows an individual to make informed and effective decisions with all of their financial resources. Sound financial knowledge includes things like understanding the concept of compound interest, choosing and managing a credit card, saving for retirement, choosing the right investments, etc.
Having compared my financial situation to some of my peers, having conversations with advisors at financial institutions, and researching on the internet, etc. I consider my financial knowledge to be pretty good. Where did I get my financial education? Not from school, although that would be a good idea. I would say from my father. Through hard work and discipline, having to earn whatever I had, he instilled a sense of respect for money in me. It seems that this was effective because it started early, prior to me moving out on my own. But what about my friend who didn't have this same opportunity?
My friend isn't alone when it comes to not being financially responsible. The 2012 Financial Literacy Survey by The National Foundation for Credit Counseling discovered that 56 percent of adults said they did not have a budget for managing their money. Forty percent admitted they have no idea what they’re doing and gave themselves a C, D, or F on personal finance.
Integrating a personal finance curriculum into our public school systems could ensure more people get the opportunity to develop these skills. But who is qualified to teach these courses? Many teachers don't understand how to manage their own finances let alone teach others how to manage theirs.
I think financial responsibility can and should be taught in schools but it seems the problem lies in finding the right mentors. How can we evaluate someones ability to be a financial mentor? The concept of financial literacy itself seems largely subjective; people have different views and opinions on how it should be done, so who should we listen to?
Maybe the first step is collectively identifying the accepted fundamentals of financial literacy. Once that is in place, we can consider how to impart that knowledge to younger people.