Why Americans Are Failing the Grade at Financial Literacy

Summary

The video from Two Cents addresses the alarming state of financial literacy in the U.S., highlighting statistics on household budgets, emergency funds, and student debt. It points out the lack of formal financial education in schools and the predatory practices of the financial industry targeting the uninformed. The video suggests learning from Scandinavian models, advocating for financial education starting from an early age, and encourages viewers to take charge of their financial education through various free resources, emphasizing the collective responsibility in improving financial literacy.

Takeaways

• 🌟 The United States has a high ranking in the global economy and worker salaries, yet financial literacy is alarmingly low.
• 📉 The S&P Global Financial Literacy Survey ranked the U.S. 14th, reflecting widespread financial illiteracy among Americans.
• 💔 A significant portion of U.S. households do not budget, struggle with emergency funds, and have debt issues.
• 🎓 The average college student is burdened with substantial student loans and credit card debt.
• 👵 The median retirement savings for Americans aged 55-64 is insufficient for a comfortable retirement.
• 📚 Millennials, despite high self-assessment of financial knowledge, demonstrate a lack of basic financial literacy.
• 🏫 The lack of formal financial education in schools is a major contributor to financial illiteracy.
• 💳 Credit card companies target financially inexperienced individuals with high-interest offers.
• 💼 Financial institutions spend significantly more on marketing than on consumer financial education.
• 🇸🇪 Scandinavian countries excel in financial literacy due to cultural traditions, stable financial markets, and comprehensive education.
• 📈 Kids in Sweden learn about personal finance from the first grade, contributing to their high financial literacy.
• 🗳️ Advocating for quality financial education in schools and engaging with state representatives can help improve financial literacy.
• 👨‍👩‍👧 Parents can significantly influence children's financial education without being experts, such as by opening bank accounts for them.
• 📚 Free or low-cost resources, such as blogs, podcasts, and courses, are available for adults to improve their financial literacy.
• 🤝 The Two Cents channel is launching a Patreon to support their mission of financial education, offering exclusive content and community engagement.

Q & A

What is the main issue discussed in the video?

The main issue discussed in the video is the crisis levels of financial literacy in the United States and the need for improved financial education.

What was the outcome of the 2015 S&P Global Financial Literacy Survey regarding the U.S.?

The 2015 S&P Global Financial Literacy Survey ranked the U.S. 14th in financial know-how among the participating countries.

What percentage of U.S. households do not keep a budget?

Nearly 60% of U.S. households do not keep a budget.

How much money would two thirds of Americans be unable to come up with for an emergency?

Two thirds of Americans would be unable to come up with $1,000 for an emergency.

What is the average student loan debt carried by college students in the U.S.?

The average college student in the U.S. carries $30,000 in student loans.

What is the median retirement savings for Americans aged 55-64?

The median retirement savings for Americans aged 55-64 is around $100,000.

What is the primary reason for the lack of financial education in schools according to the video?

The primary reason for the lack of financial education in schools is that it is not mandated in most states, with only a third offering it and only five states requiring a semester-long course focused on personal finance.

How does the video suggest that financial institutions target young people after high school graduation?

The video suggests that financial institutions target young people by luring them into high-interest credit cards with offers of small incentives, despite most students having little to no income and no real-world financial experience.

What is the ratio of money spent by the financial industry on consumer education versus marketing their products, according to the 2013 Consumer Financial Protection Bureau report mentioned in the video?

According to the 2013 Consumer Financial Protection Bureau report, the financial industry spent $670 million on consumer education compared to $17 billion on marketing their products, resulting in a ratio of 25 to 1.

What are some of the reasons for the high financial literacy scores in Scandinavian countries as mentioned in the video?

The high financial literacy scores in Scandinavian countries like Denmark, Norway, and Sweden are attributed to a long cultural tradition of saving, the presence of strong government agencies to regulate the financial services industry, and the integration of personal finance education starting from the first grade through high school.

How does the video suggest parents can teach their children about money without being experts?

The video suggests that parents can teach their children about money by getting them their own bank account, which has been shown to improve financial literacy, and by involving them in everyday financial tasks such as paying bills online.

What is the purpose of starting a Patreon as mentioned in the video?

The purpose of starting a Patreon is to provide supporters with an intimate look behind the scenes, a community space for discussion, and digital hangouts with the creators, while also funding the production of high-quality, professional financial education content free from 'for-profit' agendas.

Outlines

00:00

💰 Financial Literacy Crisis in the U.S.

This paragraph highlights the stark contrast between the U.S.'s economic standing and the financial literacy of its citizens. Despite having one of the world's largest economies and high salaries, many Americans struggle with budgeting, emergency funds, and debt. The average college student is burdened with significant student loans and credit card debt, while the median retirement savings for older Americans is insufficient. The video points out the lack of formal financial education in schools and the predatory practices of the financial industry targeting the financially unsophisticated. It emphasizes the importance of financial literacy and the need for change, citing the example of Scandinavian countries that prioritize financial education from a young age.

05:02

📚 Promoting Financial Education and Awareness

The second paragraph focuses on the importance of financial education and the steps individuals can take to improve their financial literacy. It suggests that parents and guardians can play a crucial role in teaching children about money management by involving them in everyday financial tasks. The paragraph also discusses the availability of various free or low-cost resources for adults looking to educate themselves on financial matters. It encourages viewers to share their knowledge and to advocate for better financial education in schools. The video script ends with an announcement about the creation of a Patreon to support the channel's mission to educate people about finance, offering exclusive content and community engagement to patrons.

Keywords

💡Financial Literacy

Financial literacy refers to the knowledge and understanding of financial concepts and their practical applications. In the video, it is identified as a critical issue in the United States, with the country ranking 14th in a global survey. The lack of financial literacy is linked to various financial struggles faced by Americans, such as not keeping a budget, inability to save for emergencies, and high levels of debt.

💡Debt

Debt is an amount of money borrowed by one party from another, with an obligation to repay it. The script highlights the prevalence of debt among Americans, with 35% having debt in collections and the average college student carrying significant student loan and credit card debt. Debt is a central concern in the video's discussion of financial struggles.

💡Budget

A budget is a financial plan that outlines expected income and expenses. The script notes that nearly 60% of U.S. households do not keep a budget, which is a key indicator of poor financial management and a contributing factor to financial instability.

💡Emergency Fund

An emergency fund is money set aside to cover unexpected expenses or financial hardships. The video points out that two-thirds of Americans would be unable to come up with $1,000 for an emergency, indicating a lack of financial preparedness.

💡Student Loans

Student loans are a type of debt incurred by students to finance their education. The script mentions that the average college student carries $30,000 in student loans, emphasizing the burden of educational debt on the younger generation.

💡Credit Card Balance

A credit card balance is the total amount of money owed on a credit card account. The video states that the average credit card balance for college students is around $8,000, illustrating the challenge of managing credit and debt.

💡Retirement Savings

Retirement savings are funds accumulated over time to provide for an individual's living expenses during retirement. The script reveals that the median retirement savings for Americans aged 55-64 is around $100,000, which translates to a modest monthly income in retirement, underscoring the importance of financial planning for the future.

💡Financial Education

Financial education involves teaching individuals about personal finance management. The video discusses the lack of formal financial education in schools and its consequences, such as compulsive buying and poor saving habits. It also contrasts this with the more comprehensive financial education systems in Scandinavian countries.

💡Financial Advisors

Financial advisors are professionals who provide guidance on financial planning and investment. However, the script criticizes current rules that allow brokers, under the guise of financial advisors, to prioritize their own interests over consumers when selling financial products.

💡Marketing vs. Education

The script contrasts the amount of money spent by the financial industry on consumer education with the amount spent on marketing their products. It points out that $17 billion was spent on marketing compared to $670 million on education, indicating a significant imbalance that may influence consumer financial decisions.

💡Patreon

Patreon is a platform that allows creators to receive financial support from their audience through monthly subscriptions. The video announces the launch of a Patreon for the channel, offering perks such as behind-the-scenes access and community interaction, as a way to support the production of financial education content.

Highlights

The United States has the world’s largest economy but financial literacy is at crisis levels.

In 2015, the S&P Global Financial Literacy Survey ranked the U.S. 14th in financial know-how.

Nearly 60% of U.S. households don’t keep a budget.

Two thirds of Americans would be unable to come up with $1,000 for an emergency.

35% of Americans have a debt currently in collections.

The average college student carries $30,000 in student loans and an $8,000 credit card balance.

The median retirement savings for Americans age 55-64 is around $100,000.

Only 24% of millennials demonstrate basic financial literacy despite high self-assessment.

Lack of formal financial lessons in schools is a significant factor in financial illiteracy.

Only a third of states offer financial education, often incorporated within other subjects.

High-interest credit cards are aggressively marketed to financially inexperienced students.

Financial institutions spent $17 billion on marketing versus $670 million on consumer education.

Scandinavian countries like Denmark, Norway, and Sweden score high on financial literacy surveys.

Sweden teaches personal finance from first grade to high school.

Financial education is often seen as a parental responsibility, yet many parents don't discuss money with their children.

Getting children their own bank account can significantly improve financial literacy.

There is a wealth of free or low-cost resources available for financial education.

Two Cents is starting a Patreon to support the creation of financial education content.

The show aims to change the world's relationship with money through education.

Transcripts

Hey, you Two Cents viewers!

Here with a special announcement: Make sure you make it to the end of the video where

we get to share some exciting news!

You're pregnant again?

Ha ha ha ha...

The United States has the world’s largest economy and our workers have some of the highest

salaries in the world.

But if you think that most Americans have piles of money, great credit, and low amounts

of debt, you’d be wrong!

Since you’re following our channel, it’s probably obvious to you that our financial

literacy is at crisis levels, but have you ever stopped to wonder what led us to this point?

And more importantly…what can be done to change it?

In 2015, the S&P Global Financial Literacy Survey asked 4 simple financial questions

to respondents all over the world, and the results landed the U.S. in 14th place for

financial know-how.

And it shows.

Americans are failing the grade by nearly every metric.

Nearly 60% of U.S. households don’t keep a budget.

Two thirds would be unable to scrounge up $1,000 for an emergency and 35% have a debt

currently in collections.

The average college student carries $30,000 in student loans, and floats a credit card

balance of around $8,000.

The median retirement savings for Americans age 55-64 is around $100,000 - an amount that

would translate to just $310/mo of income in retirement.

And it’s especially scary for our generation — even though 69% of millennials rate their

own financial knowledge highly, only 24% are able to demonstrate “basic financial literacy”.

One of the biggest factors is the lack of any formal financial lessons in schools.

Even though the Council for Economic Education found that kids who receive financial education

are more likely to save, more likely to pay off their credit cards each month, and less

likely to become compulsive buyers, only a third of states currently offer it!

And of those that do, most of them incorporate the subject inside of another course of study,

like economics, math, or social studies.

Only five states require a semester-long course focused on personal finance.

But the problems don’t stop there.

The minute high-schoolers graduate, they’ve got a target on their backs and the financial

industry is lying in wait.

Credit card companies are notorious for luring kids into high-interest credit cards with

offers of T-shirts or a free pizza - despite the fact that most students have little to

no income and hardly any real-world financial experience.

Unfortunately, that trend of financial institutions targeting the non-savvy doesn’t let up as

you get older.

Current rules in the US allow brokers (under the guise of “financial advisors”) to

put their own financial interests ahead of consumers when selling a financial product.

For real!

To be fair, the financial industry does engage in some education.

But consider this…In 2013, the Consumer Financial Protection Bureau reported that

while $670 million dollars was spent by the industry on consumer education, $17 billion

dollars was spent on marketing their products.

That’s a ratio of 25 to 1.

Chump change.

Make no mistake, the cumulative results of people not saving enough or getting into financial

trouble doesn’t just fall on them and their families, but on society as a whole!

So what can we do to help promote change?

Consistently scoring at the top of such surveys are the Scandinavian countries like Denmark,

Norway and Sweden.

There are a lot of reasons for this.

In Sweden’s case, for instance, there is a long cultural tradition of saving.

No major disasters in the financial markets to undermine trust in the system.

And the presence of the Financial Supervisory Authority, a strong government agency designed

to regulate the entire financial services industry.

But probably most important is that kids are taught about the basics of personal finances

starting in the first grade and continuing all the way up to high school.

Changes have to be made to education here in America if we’re to stand a chance of

improving things.

And you don’t have to be a parent to advocate for a child’s right to quality financial education.

You can look at this map to see what standards for financial literacy your state currently

mandates.

You can also reach out to your state representative to let them know what you’d like to see

offered to future generations.

Unfortunately, the primary reason cited for not including this kind of education in schools

is that it’s the parents job.

But we all know that’s not really happening.

Nearly half of Americans don’t talk with their children about money at all.

And it’s not because they don’t think they should!

It’s because most simply don’t know what to say.

If you’re a parent, or hope to be one someday, you do not have to be an expert to teach kids

about money.

Simply getting them their own bank account seems to have positive results with 15-year-olds

scoring 40 points higher in financial literacy than those without one.

Kids also learn best by doing, so next time you sit down to pay your bills online, call

your kid over and coach them through how to do it themselves!

For bonus points, check out our previous video about how to talk to kids about money!

This is so important because if finances aren’t talked about much growing up, we tend to continue

that approach of avoidance even when we leave home.

We just stumble along assuming everyone knows more than we do, afraid to call attention

to our ignorance.

And it’s that unspoken taboo around the topic of money that allows this negative feedback

loop to continue.

Thankfully, it’s never been easier to take your financial education into your own hands!

The last decade has seen a tsunami of blogs, podcasts, programs, books and courses aimed

at filling in the adult education gap when it comes to finance.

And there are tons of amazing FREE or low-cost resources out there.

Hundreds of libraries all over the country host “Money Smart Week's where they cover

topics like retirement, budgeting, and credit — without any incentive to make you a paying

customer!

There’s also the National Endowment of Financial Education’s website smartaboutmoney.org

with lots of free courses.

You can even ask your employer to bring in a financial educator!

After all, a better educated workforce is in everyone’s interests.

As a dedicated watcher of two cents, we hope you continue to broaden your own financial

education.

And don’t keep the lessons you’re learning all to yourself!

We expect you to share your newly earned money smarts with those you care about.

Changing the face of financial literacy here in the states and around the world is not

just our job, it’s yours too!

And that’s our two cents!

The vast majority of financial education out there is funded by big corporations.

We, and our co-creators, chose to partner with PBS specifically because we believe financial

education should be free from "for-profit" hidden agendas.

And over the last year it's been made abundantly clear you guys want that too!

We've gained hundreds of thousands of subscribers, scooped up a bunch of awards and are blessed

with a community of enthusiastic people willing to share their stories and experiences.

But did you know that each episode takes between 40 and 50 hours of work to make?

Yea, these amazing visuals and carefully written scripts are being made by a team of full-time professionals

so I think you can tell where we're going here....

We're starting a Patreon!

Now, before you groan we of all people know how important your hard earned dollars are

and we have given our perks a lot of thought to make it worth your while.

That's right! We're going to be inviting you backstage for an intimate look behind the scenes,

a new space to chat together as a community and even the chance to digitally hang out with us

on a monthly basis.

Also as a special limited time offer, we'll be providing everyone who contributes, in the next two weeks,

a special budget template; personally designed by us to help you create your ideal budget from top to bottom.

We hope that this show has provided you value and you'll consider joining us in our mission to change

the world's relationship to their money through education.

It's a big vision and we can't do it without you.

Where did you learn about money?

From your school?

Your parents?

YouTube?

Let us know in the comments!