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Five Facts Illustrating Our Dismal Financial Education

by Chris Poindexter

For the most part, Americans are in poor financial shape. Even when people have money, many don’t know how to track or invest it. That makes them easy pickings for financial advisors who are really fronting for high priced securities and services. New laws recently added will curtail the bulk of those abuses but the problem of financial ignorance remains. There’s a perception that people are poor because of bad breaks but that’s not true.

The reason for widespread financial ignorance is that we don’t make financial education a priority. Few high schools require classes in budgeting and financial management in order to graduate, few even offer the courses. Whatever we’re doing nationally to promote financial independence, it’s not working. Here are five data points that prove it.

Few Have An Emergency Fund

Bad things happen and nearly half the country would have to borrow the money if they ran into an unexpected expense of $400 or more. These days that amount of money won’t buy you out of much of an emergency. Even if you have medical insurance, that would likely not even cover the copays and doctor bills leftover from even a routine ER visit.

A Third Have No Retirement Savings

That means nearly one out of every three working age Americans has no retirement savings. A third of the nation will be living in retirement, dependent on Social Security and Medicare, neither of which go very far. Aside from the specter of starving old people, this is going to be a drag on our economy. When a third of consumers stop spending, we have a huge problem.

Most Don’t Budget

Only about one in three Americans has a detailed budget or financial plan. That means two-thirds of people are tooling along in their financial lives with no clue where they’re headed or where their money is going. I’m going to guess this group makes up a large portion of the half not having $400 to cover an emergency.

Underestimating Costs

If you go to college, particularly in an engineering field, you will get some training in estimating project costs. It’s shocking that you have to go so far in education to get even a basic understanding of cost accounting. The items people tend to underestimate are big ones. When buying a house, too many people look at the monthly payments and forget about maintenance, homeowner association dues and a myriad of expenses that go along with owning a house.

Investing Too Conservatively

When you’re young it’s okay to be heavily invested in the stock market as long as you have an emergency fund. You have ten or twenty years to ride out a loss when you’re in your twenties. Younger investors should not fear risk, they should embrace it. Keep a higher percentage of your investments in stock and liquid hard assets, like high quality gold and silver bullion. Bonds, dividend and defensive stock sectors can remain a smaller percentage of your investments until you’re in your late thirties and early forties.

We our failing the American public when it comes to personal finance and the numbers prove it. Taking a more aggressive approach nationally in teaching budgeting, finance and money management at lower grades would be an investment that pays off in later years.

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