5 Ways Obama Can Improve Financial Literacy
How the next president should handle the growing financial literacy crisis
Posted January 20, 2009
The central concept behind new policy recommendations to boost Americans' financial literacy seems to be this: We're not stupid; we just haven't been taught properly.
With just days left in the Bush administration, the nonpartisan President's Advisory Council on Financial Literacy, chaired by Charles Schwab, has made its recommendations for boosting our financial IQ. President Bush created the council a year ago in response to the fact that many Americans struggle with such basic concepts as calculating interest rates and developing a budget. Because the council serves through 2010, members plan to work with the Obama administration to promote financial literacy.
Key Topics:
The Financial Literacy Crisis
How to Teach Your Kids About Money
Your Inauguration Day Survival Guide
The financial crisis has only escalated the enthusiasm for increased financial literacy, says Ted Beck, a member of the council and president of the National Endowment for Financial Education. "It's one of the greatest teachable moments that's ever happened," he says.
The recommendations are not without controversy: Some financial experts say that rather than emphasizing financial education in schools, the government should focus on simplifying the financial world so that it's not so difficult to navigate.
Here are five of the council's recommendations for improving financial literacy:
Schools should be required to teach financial education from kindergarten through 12th grade.
While research on the impact of financial education has been mixed, the council says schools should adopt money-related curricula. Research by the Charles Schwab brokerage firm has found that many parents don't talk to their kids about money, and only 1 in 3 had taught their teens how to balance a checkbook, for example. "Standards-based financial education in the classroom helps to level the playing field for students whose parents may have faced financial challenges themselves or who may be among the unbanked or under-banked populations," the council says. Currently, only a handful of states require students to take personal finance courses.
In middle school and high school, students should learn the basic concept behind a budget, developing a savings plan, and wants versus needs, says Beck. But he adds that personal finance classes need not replace other coursework. Instead, Beck says, money lessons can be built into existing classes, such as the social sciences and math.
College students should be required to take a course in financial literacy in order to receive federal student loans.
Because college students often build up credit-card debt and take out other types of loans, schools should use the opportunity to teach them about money, the council says. Beck says that students at this level should learn how to buy a home, develop a savings plan, and manage loans.
Employers should receive tax incentives to teach workers about money.
"Financial education is a continuous process," says Beck. "The playing field changes, so you need a continual flow of information that's relevant at that time." That's why workplace programs that can teach employees about saving for retirement, for example, can make a significant difference.
The council says that such programs could boost productivity by reducing stress. "When employees are worried about debt and other personal finance issues, they have more difficulty focusing on their jobs," says the council, adding that one group estimates that employee financial stress costs businesses about $300 billion a year.
The government should create a resource center on its financial literacy website, www.mymoney.gov, for human resources professionals and employers.
With all of the information circulating on the Internet and available in the personal finance sections of bookstores, one might think that people have more than enough resources at their fingertips. But the council says that the government is uniquely position to provide employers with a "one-stop" shop for financial education resources. Other websites can be so numerous that they're "intimidating," the council says, and some may be sponsored by fraudsters.
Financial institutions should be required to provide every adult American with access to a debit-card-accessible bank account.
The council wants the 28 million Americans without bank accounts to get one, largely to protect them from high-interest payday lenders and other risks. "Many people have a history where they're not sure they'd be welcomed by banks," says Beck, so this recommendation is about making sure all consumers have access to a regulated, insured bank account
Showing posts with label Finances. Show all posts
Showing posts with label Finances. Show all posts
Tuesday, January 20, 2009
Friday, May 2, 2008
Save in Small Bites
by Mary Dalrymple
The Motley Fool
It can be a little daunting to think about all your major savings goals at one time। There's the massive retirement fund that you want to build, which never seems to get big enough। There's the emergency account that should be filled with at least enough money to cover three to six months' worth of expenses। There might even be one or more college funds, assuming college doesn't cost an actual arm and a leg by the time the little tykes grow up. Add these all up, and we're talking about hundreds of thousands of dollars. Yikes!
Obviously, you can't save all that money tomorrow, so let's start small. Think in more humble terms, especially if you're not saving at all or you can't figure out why you're not saving more. Ask yourself how you could put aside just an extra $100 per month.
Saving an additional $100 a month means (obviously) you'll have saved an extra $1,200 in a year. If you had put an extra $1,200 in your kindergartner's college fund this year, it would be worth $2,263 by the time she heads to college. That assumes a pretty conservative 5% growth rate. Let's say you saved that money for retirement and invested your $1,200 in a fund that tracked the performance of the Standard & Poor's 500 Index, which represents about 70% of all U.S. publicly traded companies. Buying an index fund gets you shares of some of the biggest companies in the country.
The long-term average growth of the market has averaged about 10%. If the market kept up that performance, the $1,200 saved by a 35-year-old today would be grow to $20,939 by the time that person retired at age 65.
So, there's plenty of incentive to figure out how to save that extra $100 every month. To get you started, here's a list of savings ideas that don't require any major lifestyle changes. You may have to do a little research, but you won't have to sacrifice your morning jolt of caffeine. Combine a few and you might hit $100 in savings without doing much at all.
Contribute an extra 1% of your salary to your 401(k) or other workplace retirement plan. Because the money is withdrawn before taxes, you'll lose less than 1% from your take-home pay. You'll probably never even notice the money's gone, but your retirement fund will start to fatten up faster.
Review your telephone, mobile phone, Internet, and cable service. If your mailbox is anything like mine, it's full of special offers and bundled packages. See if you can get a better deal than the one you have now. If you see a better rate advertised, try calling your current providers and asking them whether they'll meet the competitor's rate. While you're reviewing all this, cancel any flashy services or premium channels that you don't use.
Call your credit card company and ask them to lower your interest rate. This could mean serious savings for anyone struggling to pay off a balance. (Your extra $100 should go straight to the credit card instead of going into savings, by the way.) If your credit company is hesitant to lower your rate, arm yourself with offers from competitors. You've probably gotten a bunch recently. If they won't budge, look for balance transfer options with lower rates. Before making any move, examine transfer fees and look at the interest rate that will be in place after any teaser rate expires.
Reexamine your car insurance. Your policy probably renews automatically. If you haven't looked at it since you first signed up, see if you still need all the coverage you have. Consider raising the deductible. You can take that extra money and stash it in an emergency fund so paying the deductible won't be a problem.
Stop heating the whole neighborhood. A little weather stripping and a programmable thermostat can go a long way to cutting the utility bills. They're cheap and easy to install, and they also save energy. Turn down the heat on your water heater if you have it set to "scald." Fix anything that's leaking. By the same token, shut down your computer at night and turn off the lights when you leave the room. (Yes, I know I sound like your nagging mother, but there's a reason she nagged you about this.)
Cancel any gym membership or subscription you aren't using.
Eat out of your pantry for a while. If you dig back there, you will find long-lost bags of pasta, cans of soup or beans, piles of rice. I, personally, have enough dry goods in my kitchen to feed the entire neighborhood for about a year. There's probably enough in your pantry to cut your grocery bill down significantly for a while. And, if you've been buying bottled water, consider switching to a filtered pitcher.
Hopefully, that will get you started thinking creatively about ways to fill your savings accounts without making radical changes. Then make sure to put that $100 in spare change toward your big savings goals.
The Motley Fool
It can be a little daunting to think about all your major savings goals at one time। There's the massive retirement fund that you want to build, which never seems to get big enough। There's the emergency account that should be filled with at least enough money to cover three to six months' worth of expenses। There might even be one or more college funds, assuming college doesn't cost an actual arm and a leg by the time the little tykes grow up. Add these all up, and we're talking about hundreds of thousands of dollars. Yikes!
Obviously, you can't save all that money tomorrow, so let's start small. Think in more humble terms, especially if you're not saving at all or you can't figure out why you're not saving more. Ask yourself how you could put aside just an extra $100 per month.
Saving an additional $100 a month means (obviously) you'll have saved an extra $1,200 in a year. If you had put an extra $1,200 in your kindergartner's college fund this year, it would be worth $2,263 by the time she heads to college. That assumes a pretty conservative 5% growth rate. Let's say you saved that money for retirement and invested your $1,200 in a fund that tracked the performance of the Standard & Poor's 500 Index, which represents about 70% of all U.S. publicly traded companies. Buying an index fund gets you shares of some of the biggest companies in the country.
The long-term average growth of the market has averaged about 10%. If the market kept up that performance, the $1,200 saved by a 35-year-old today would be grow to $20,939 by the time that person retired at age 65.
So, there's plenty of incentive to figure out how to save that extra $100 every month. To get you started, here's a list of savings ideas that don't require any major lifestyle changes. You may have to do a little research, but you won't have to sacrifice your morning jolt of caffeine. Combine a few and you might hit $100 in savings without doing much at all.
Contribute an extra 1% of your salary to your 401(k) or other workplace retirement plan. Because the money is withdrawn before taxes, you'll lose less than 1% from your take-home pay. You'll probably never even notice the money's gone, but your retirement fund will start to fatten up faster.
Review your telephone, mobile phone, Internet, and cable service. If your mailbox is anything like mine, it's full of special offers and bundled packages. See if you can get a better deal than the one you have now. If you see a better rate advertised, try calling your current providers and asking them whether they'll meet the competitor's rate. While you're reviewing all this, cancel any flashy services or premium channels that you don't use.
Call your credit card company and ask them to lower your interest rate. This could mean serious savings for anyone struggling to pay off a balance. (Your extra $100 should go straight to the credit card instead of going into savings, by the way.) If your credit company is hesitant to lower your rate, arm yourself with offers from competitors. You've probably gotten a bunch recently. If they won't budge, look for balance transfer options with lower rates. Before making any move, examine transfer fees and look at the interest rate that will be in place after any teaser rate expires.
Reexamine your car insurance. Your policy probably renews automatically. If you haven't looked at it since you first signed up, see if you still need all the coverage you have. Consider raising the deductible. You can take that extra money and stash it in an emergency fund so paying the deductible won't be a problem.
Stop heating the whole neighborhood. A little weather stripping and a programmable thermostat can go a long way to cutting the utility bills. They're cheap and easy to install, and they also save energy. Turn down the heat on your water heater if you have it set to "scald." Fix anything that's leaking. By the same token, shut down your computer at night and turn off the lights when you leave the room. (Yes, I know I sound like your nagging mother, but there's a reason she nagged you about this.)
Cancel any gym membership or subscription you aren't using.
Eat out of your pantry for a while. If you dig back there, you will find long-lost bags of pasta, cans of soup or beans, piles of rice. I, personally, have enough dry goods in my kitchen to feed the entire neighborhood for about a year. There's probably enough in your pantry to cut your grocery bill down significantly for a while. And, if you've been buying bottled water, consider switching to a filtered pitcher.
Hopefully, that will get you started thinking creatively about ways to fill your savings accounts without making radical changes. Then make sure to put that $100 in spare change toward your big savings goals.
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