We must act today to address the hidden cost of financial illiteracy
With bipartisanship in short supply, Congress must search for areas in which cooperation is both possible and beneficial for the health of our nation—and financial literacy would be a wise place to start. The lack of financial literacy is blind to politics. It affects young and old, rural and urban, and every ethnicity, gender and creed. The passage of the bipartisan criminal justice reform bill late last year and recent bills addressing retirement are evidence areas do in fact exist on which both parties can come together for our nation’s greater good. I believe financial literacy is among these pressing issues of mutual concern and bipartisanship.
Despite its status as the world’s largest economy, the U.S. ranks just 14th in Standard & Poor’s Global Financial Literacy Survey with an adult literacy rate of 57 percent. For context, that percentage is significantly behind similarly developed peers like Canada and Germany. Perhaps because we lack financial literacy, more than half of Americans have no emergency savings (FINRA), and 72 percent of Americans say they are stressed about money (APA).
The ramifications of financial illiteracy are numerous, as it impacts not only an individual’s personal standard of living but also our nation’s ability to compete on a global scale. We know, for instance, that financial illiteracy limits workforce participation and impacts employee productivity, the latter of which cuts across all walks of life, irrespective of socioeconomic status, race or gender. It also strains our social services when individuals are unable to secure their own financial future and must rely heavily on financial safety nets like Social Security.
As an issue of national impact, it is ripe for Congressional action.
This action should take two forms. First, financial literacy should be required as part of the public-school curriculum. Although a variety of states teach financial literacy in schools already, these efforts are fragmented and underfunded. Since 2016, not a single state has added financial literacy to their curriculum, and fewer than 16 percent of U.S. students are required to take a personal finance course to graduate high school.
Second, Congress should encourage private enterprises to include financial literacy in their workforce development programs. When I served on President Obama’s Advisory Council on Financial Capability and advised a similar council under President George W. Bush, we called this concept a “just-in-time” opportunity because it provides a last chance course in financial education just as young people enter the workforce and receive a consistent salary for what is likely the first time. That’s sorely needed, and fortunately, a recent precedent exists within Congress for the deployment of tax incentives to encourage workforce training.
That legislation, the “Investing in Tomorrow’s Workforce Act of 2019,” was introduced in January by Rep. Anthony Brown (D-Md.) and provides a business-related tax credit for employers who increase spending on certain forms of worker training. Its goal is to stimulate the economy by both upskilling existing employees and educating potential employees to fill the growing skills gap within the U.S. Whether you agree with this legislation is beside the point; what is important is that lawmakers trying to improve workforce training are missing a key component when they ignore financial literacy and its impact on workforce participation and productivity.
The consequences to this knowledge gap are potentially devastating on both a societal and individual scale. Nearly 50 percent of employers, for example, check the credit history of potential employees, viewing it as a risk factor for theft or bad judgment. But in reality, poor credit history is often caused by a lack of knowledge and nothing else. That means companies are turning away qualified applicants for reasons that have little to do with ability. In a tight labor market and given the need for more workers, we can’t afford that type of inefficiency—especially when we have solutions available.
Even if someone does secure a job, a lack of financial literacy can impact productivity levels and advancement opportunities. People with high financial stress are twice as likely to report poor overall health and three times as likely to experience mental health issues (which in turn costs businesses $53 billion annually). In addition, 78 percent of employers believe their employees are less productive at work when worried about personal financial issues.
These individual impacts, serious as they are, most likely fail to measure the full price associated with financial illiteracy. A lack of retirement savings, for example, is already stressing federal and state safety nets—and will only become more severe as the population ages.
Financial illiteracy is among a host of issues invisible to the naked eye and thus easy to ignore. But its cascading effects on our health, our economy and our happiness are potentially devastating to an equitable and prospering society. Literacy as traditionally defined has for centuries been a fundamental part of such a thriving society; now is the time to extend that definition to include financial literacy as well.
I urge Congress to act together today to help the millions of Americans, their families and their children who depend on smart public policy for a brighter future.
Carrie Schwab-Pomerantz, CFP®, is a leading advocate for financial literacy. As board chair and president of the Charles Schwab Foundation, Schwab-Pomerantz oversees Schwab’s corporate philanthropy and employee volunteer programs. She has also served two White House administrations, advising on financial capability policy.
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