“Suppose you need to borrow $100. Which is the lower amount to pay back: $105 or $100 plus three percent?”
Half of the adults surveyed in a huge Gallup poll got the answer wrong (the correct answer, in case you were wondering, was $100 plus three percent: $103 < $105).
In a humorous article on CNN, Heather Long contrasts the increase in mandatory sex ed in the United States with the widespread financial illiteracy all-to-present in our country. When people don’t learn about basic skills, whether that’s practicing safe sex or keeping a budget, they risk making suboptimal choices relative to if they had access to that information. Perhaps this is why a new report from the Federal Reserve Board shows that 40% of Americans wouldn’t be able to cover an unexpected $400 expense, while the rate.
At Stanford, I’ve noticed that many of my peers lack financial skills, and/or possess bad financial habits already. Very few maintain a basic budget, or keep track of their expenses. In a survey I conducted a couple years ago, half of students prefer to pay for stuff using a debit card over any other payment method, with another 25% of students preferring to use a credit card. I find this small statistic particularly troubling because debit cards effectively function the same as cash (immediate withdrawal from your bank account), but with greater risks; if your debit card data is stolen in a cyberattack, and the money is withdrawn, there’s little recourse.
On college campuses across the United States, including Stanford, it feels like efforts to increase financial literacy are still put on the backburner. Contrasting sex ed and financial ed at the college level, Stanford is extremely proactive on topics of consent and sexual health, giving freshmen online courses on these subjects before they arrive on campus, and continuing efforts all the way to when they graduate. While I’ve seen more efforts to expand financial literacy on campus over the past year, including several Mind Over Money seminars for soon-to-be college graduates, I’ve also noticed nothing being done to help students when they first come to Stanford. Although we had at least half a dozen dorm-sponsored activities centered around various sex ed topics, I can’t recall a single event about managing finances. At best, students can now seek out a few online resources Stanford now provides, or learn about better financial habits from the peers they interact with.
Even less seems to be done across the K-12 system in the United States. According to the 2018 report by the Council for Economic Education, only 17 states require high school students to take a course in personal finance, and only 5 states actually have standardized tests for personal finance knowledge (Georgia, Mississippi, Missouri, Texas, and Utah).
Given the increasingly complicated income streams people now face with the decimation of pensions and the rise of the gig economy, it seems that helping students demystify at least basic personal finance concepts earlier on is a simple solution to start tackling the financial illiteracy crisis in the United States. With reinforcement of these concepts over time, we can start to nurture more financially responsible generations of Americans, giving them more equitable tools to venture forth with and succeed.