When one is asked what is financial literacy most don’t know what that means (et.ad Mandell, Klein). It is sort of self-explanatory. Finances consist of our money, but not just dollar money but saving accounts, loans, debt, inflation etc. Literacy consists of the lack of knowing or actually having knowledge about a subject. A definition given by Bryce Jorgensen about financial literacy is the ability to read, Analyze, manage, and communicate about the personal financial conditions that affect material well-being. Finical literacy includes the ability to discern financial choices, discuss money and financial issues without discomfort, plan for the future, and respond to life events that affect every day financial decisions (Jorgensen 467). Some might argue that financial literacy isn’t that important. The rebuttal to the argument is that everyone has to deal with their finances everyday of their life, unless one is like Bill Gates which doesn’t have to worry about money then. Therefore we might as well be educated and educate people when it comes to their finances. Now the question becomes what can we do to educate people about the finances? What procedures can be implemented to control this? This essay argues that the parents influence a child’s financial literacy, what should be done in high school and college about this issue, how it differs with genders, and the problem that come upon elders about financial literacy (et al Jorgensen, Hite, Cude, Mandell, Garrison, Lusardi).
Financial Socialization: Parents
Financial education starts at young ages when children examine how their parents spend their money. If the parents are careless with their then there’s a good chance that the children with grow up to do the same. On the other hand, if the parents are responsible with their money than theirs a good chance that the children will be the same way. In a study done by M. D Clarke, it concluded that parents were perceived to influence young adults’ financial attitudes influence construct that consisted of two main thoughts: the amount of financial learning that took place, and the frequency of financial learning (Jorgensen 474). This evidence backs of the viewpoint that parents effect what children know and do not know about finances.
Children and teenagers look up to all that their parents do so it is important that the parents are cautious of their spending. This is called parental influence using financial socialization (Jorgensen). Socialization is the process through which people learn how to act and interact within their society, so financial socialization is the process of acquiring the developing values, norms, and knowledge that goes along with financial viability and well-being of a person (Jorgensen 467). For instance, someone who is racist may be because their parents were that way and the children saw how their parents acted towards opposite races. The child wasn’t born a racist but instead saw how their parents operated. Some argue that parents don’t have anything to do with their child’s decision making when it comes to the money and finances. A study done by M. E. Pritchard and B. K. Myers found that the financial values of teens and their parents have correlation with each other. In another study, organized by M.W Allen et al, they found that young adults saw money as a problem when coming from a home where the parents argued a lot about money and finances (Jorgensen 468). Parents have an enormous effect on their child’s financial issues. It can be a positive effect and unfortunately can have a negative effect as well.
Financial Illiteracy: High School
High schools are not really doing much to help students that are financial illiterate (Hite). In 2007, only seven states required high school students to take a finance course before graduation. Later in 2009 it increased to 13 states, but why not all 50 (Hite et al. 253)? School administration should look at the stats and see that just as little as 10 hours of financial instruction makes a significant difference in one’s spending habits (Hite et al. 254). Once someone has been taught some ideas and topics about their finances it can only benefit them down the road in life. Parents can teach their children the concepts that they learned because the good ideas about finances is that the way to handle them has never changed. It will help them when they start thinking about retirement. With being taught how to manage finances, students will be more apt to set aside money for the future, and try to repay debts sooner. After going through the course the students will fell that they know more about the cost of buying things. People who argue that an economics course or a finances class will not benefit the students in the future need to ask themselves a few questions (L. Vitt). A few students will find it pointless and not want anything to do with it, but what about the students that are heading to college and have no idea how to manage student loans? Sooner or later they will be in debt and won’t have the money to pay them off. The students won’t be experts, but at least they will have an idea. To argue that it doesn’t matter if the students have that course or not doesn’t really make much sense (Hite et al). In a study done in 2009, research shows that high school courses in economics and business reduced the probability an adult was unbanked and also so that the curriculum increased financial knowledge (Cude 273).
What is a way to answer some of the rebuttals that experts like Vitt and Mark Lomanno will come back with that disagree with this idea? The argument that results have shown a positive correlation between students’ financial literacy scores and their index scores indicating that financial knowledge is related to self-benefitual financial practices (Hite et al. 255). A student will have a hard time learning about financial issues if they aren’t taught to them. One can learn from going through it, but those going through it may take years upon years to figure out. Just like math and English class are required to graduate high school, so should a finances class. Luckily more states are making this a requirement, and the more states that do so the more knowledge high school students will have about finances once the go into the “real world” (Hite et al. 256).
Financial Illiteracy: College
Once these high school graduate students enter into college they are hit by loans and grants for college and to help them get through college. They will get credit cards and just spend and spend and spend and think that everything is going to be okay when inopportunely they are just drowning themselves in to debt. Over half of all freshmen borrow to pay for their education and this decision will affect them in ways that at the time they will not be able to understand (Goetz et al. 27). In a report done by Nellie May, in 2005, 56% of undergraduate college students have four or more credit cards in their final year and that these students have an average balance of close to $3,000. The worst part of that is only 21% of them pay their balances in full each month (Mandell, Klein 17). This goes back to the argument about high school students not knowing what to do when it comes to financial decisions. The students get away from home and are making their own decisions. It’s a part of growing up and it’s a big step in life, but it can also be an eye opening time as well. If the college student is a spender then it will show in the bills that he or she will have and can affect them more than just financially.
Financial related stress, which sadly has become more common among college students, can lead to poor academic performance and can even lead to the student dropping out of college. It’s sad that something like this would force a student to drop about because it is something that could be prevented if one is educated about their finances (Goetz et al. 27). Why not make an economics class a requirement in college as well? Researches have concluded that for low financial literacy among college students is to require a course or incorporate personal finance topics into courses that the student must take, like a general education course (Goetz et al. 30). Just like the math’s and the English’s, one should have to make a certain grade high enough that shows that they have a grasp of the economic and financial concept. Whether that is an A, B, or a C, something should be done for the course. To argue that this should be done the first semester for freshman is intelligent.
Now back to the research question of what can we do to educate people about financial literacy and in this case we are talking about college students? Research has shown that college students would prefer to receive financial information in person by a person with financial professional background (Goetz et al. 30). Anything to help the students learn how to spend their money and how to manage it ,and luckily there are even more options other than just face to face teaching for example campus workshop or by Internet.
Financial Illiteracy: Gender Differences
Some would argue that there isn’t a difference between genders when it comes to finances and financial literacy (Vitt). The argument that can rebut that is that women tend to take less financial risks than men when it comes to investing (Garrison et al.). If one thinks about it makes sense. Women tend to live longer than men do thus they need to save more because they are more than likely going to spend some of their life as a widow. Women are more apt to save their money than men are, and women tend to have more money than men even though women make less money than men doing the same job (Garrison et al. 60). Men think in this manner most of the time, higher risk higher reward when women tend to think the opposite. There is a chance of having a higher reward when one gives a lot, but there is a better chance of them losing what they have given up instead of receiving a bigger reward. A hypothesis that has been made is male college students will have greater willingness to take financial risks than female college students (Garrison et al. 63). This means that something has to be done for the young men to assist them in their finances.
What can we do to assist young men in college when it comes to financial risk? The argument can go back to the point about the parents influence in the man’s life (Jorgensen). If the son’s father was a big gambler or if he always saw his father buying lottery tickets can have an effect on the son on taking risks. The “go big or go home” effect could kick in and they won’t stop until they win it all. Also in a study discussing the topic of whether female college students were given more financial education by their parents then male colleges students shows that female students have had a good deal of more conversations with their parents about saving and investing (Garrison et al. 70). Again, the parents influence is very important for the child because it will only benefit them if they are taught properly. But it is not all on the parents in this case. Young men need to ask their parents more questions about financial topics. Most guys thing that they don’t need help with anything and that they can make their own decisions the right way. The more questions presented the more a young man can learn and will benefit him later in life.
Financial Illiteracy: Elders
Financial illiteracy isn’t just an issue in young adults but also with elders as well. In a study done in 2007, it shows that early baby boomers who display high levels of financial illiteracy were more likely to plan for their retirement which would lead to them being more wealth than baby boomers that have lower levels of financial illiteracy (Lusardi 28). One would think that young adults would have the most problems with credit cards and debt, but surprisingly that’s not the case. The problem is that these elders have fees and interest charges that have been building up higher and higher to where they can pay them or they have to borrow the money. For example, in a study over the ages of elders 65-plus shows that credit card fees are the most cited reasons for bankruptcy filings with two-thirds of elderly debtors giving these reason (Lusardi 30).
The argument that can be brought up with these findings is why elders are given the opportunities to receive more and more credit cards (Lusardi 29). Of course these people are not that educated in the topic of financial literacy and one just can’t teach at 60 years old about their finances like a high school student or a college student. There should be a limit on how many credit cards and person over the age of 55 should have. The government is just taking money from older people who are retired or just can’t work anymore. One could argue that an elder just needs one credit card and should be examined carefully on how they spend it. The rebuttal someone could have for this is that the banks and government would have control over elders and how they spend their money which is an appropriate argument. The rebuttal to that argument is that the debts of some elders is just too much that one needs to regulate how they spend their money for their own good. For example, in 2007, between the ages of 65-74 years, 47 percent had mortgage debts on their house, 37 percent ha d credit card debt, and 26 percent had installment loans; which all added up to 65.5 percent of 65-74 years had some form of debts (Lusardi 29). Something has to be done about that.
So what has to be done to help the elderly with their financial literacy? Some would say that these elders are to older to teach them anything new because of their age. A study done in 2007 found that retirement seminars had a positive wealth effect and this effect helped the elders with little to no education of finances (Mandell, and Klein 17). If not seminars then limit things such as credit card amounts. There is no reason that an elder should have three or four credit cards because that just leads to more debt and more problems for them.
Financial illiteracy is not just an issue with young people but also elderly people as well. To argue that enough is already being done for financial illiteracy is somewhat bizarre. There is not enough education that can be given to people about their finances. There is no doubt that it will affect everyone, but there is a big chance that it will be a benefit to a great deal of people. The argument that schools need to do more to equip their high school graduates with knowledge about finances is appropriate. The argument that universities and colleges need to not only provide a chance to receive a degree but also train the students how to manage their finances is also valid. The elderly are not passing the age of being taught how to handle their money also. They need just as much if not more help learning about their finances so that they are not retired and having to still pay debts. Financial literacy is a big deal no matter what ones age is. People with the knowledge of this subject should be doing anything and everything to help people who lack financial education. Granted, no one has the answers to everything when it comes to finances, but helping with just the easier and smaller issues will make a difference when it comes to the bigger and more difficult issues. The government and society should pay more attention to this on-going problem of financial illiteracy and figure out some ways to help prevent it before it spirals out of control.