With April being National Financial Literacy Month and less than half of adults setting a budget the new report on 2022’s Most & Least Financially Literate States analyzes financial-education programs and consumer habits in each of the 50 states and the District of Columbia.
The study uses a data set of 17 key metrics, including the results of WalletHub’s WalletLiteracy Survey, which ranges from high-school financial literacy grades to the share of adults with a rainy-day fund, according to a news release.
What should policymakers do to improve financial literacy?
“If policymakers are serious to prevent another financial crisis, they should take initiatives to make financial education compulsory in schools and colleges. This action requires funds to be devoted to the school and organizing a campaign about the importance of financial literacy. Financial literacy classes should focus on teaching students the basics of money management: budgeting, saving, debt, investing, charity contribution, and more. That knowledge lays a foundation for students to build strong money habits early on and avoid many of the mistakes that lead to lifelong money struggles,” said Tahereh Alavi Hojjat, Ph.D., chair and professor of Economics, DeSales University.
“Continue to make financial literacy a funding priority at every level of government – from national to local. Continue to support the creation of cross-agency initiatives and collaborations – ex. Financial Literacy and Education Commission (FLEC) – to break down silos and expand the conversation and ideation between policymakers, researchers, educators, and practitioners,” said
Paul F Goebel, CPFM, director, Student Money Management Center, University of North Texas.
How can parents equip their kids with financial know-how?
“Parents are role models for their children, their behavior could influence the children, economizing and not wasting any economic resources. One of the most important lessons you can instill in kids is that money is a finite resource and they must work for their money by doing chores. Perhaps the most important thing you can do to boost your child’s financial literacy is to be open and honest about your family’s finances. Parents must show their children the importance of saving and less consumption in general. Studies support that many of our financial habits are set by age 7. If good habits are not formed early, it becomes harder and harder to point your offspring in the right direction. That means parents must get an early start teaching them concepts like thriftiness and delayed gratification,” Hojjat added.
“Parents can – and do – play an important role in educating their children to think in positive ways about money and financial decision-making. For example, parents can encourage their young children to think about how they can spend or save the money left by the tooth fairy; they can provide them with a piggy bank when they are very young and with a bank account as they get older; and they can support their children’s entrepreneurial interests in setting up a lemonade stand, selling Girl Scout cookies, or performing paid chores for neighbors such as babysitting or lawn work. Most importantly, by having open, age-appropriate discussions about money as they grow, parents can build their children’s interest, knowledge, and confidence in making their own financial decisions,” said Margaret Brooks, Ph.D., interim chair, Department of Economics, professor; director, Office of Financial Literacy Initiatives; director, Center for Economic Education, Bridgewater State University.
What is the right balance between expecting consumers to educate themselves versus regulating financial service providers?
“I think regulations that make information easily readable and clear are welcome. I think customers should not be allowed to access products that they do not understand; we cannot keep people from being irrational (some of them might even enjoy it), but people should know when they are behaving irrationally with their finances,” said Cristian Tiu, chair and associate professor, Finance Department, University at Buffalo.
“Any opportunity for consumers to strengthen and broaden their financial knowledge is good – whether the opportunity is self-education or provided by a regulated financial service provider. As I have previously mentioned, there is no one perfect way to educate such a broad audience as the American public. Policymakers, researchers, politicians, educators, practitioners, and parents need to work together to continue to identify and create relevant personal financial resources for all consumers to easily access and apply to their financial lives and situations,” Goebel noted.
For the full report, please visit here.