If you've paid attention at all over the past few decades, it is pretty evident that America is facing a pandemic of financial illiteracy. We'll discuss in further detail the unfortunate reality that most Americans face regarding their financial future and what led us to this point. In part 2 of our conversation, we will discuss possible solutions to remedy this situation. The goal of this post, and the second post that will be published on Tuesday, August 14, is to raise attention to this matter and start a thorough discussion in the community what needs to be done to address this matter. After all, we can't fix a problem that 1) we aren't fully aware of and 2) that we don't fully understand the severity of.
In looking at the above quiz that I took here, let's just analyze this a bit. I got 6 out of 6 correct as anyone in this community would. What I find unsettling is that the average American only answered 3 of 6 correctly. Next, let's go over some of the grim statistics concerning the grave financial situation of many Americans because of the financial illiteracy.
Forbes does an excellent job of outlining statistics that describe the financial plight many of our fellow Americans face if you would like more commentary. The basic points that they cover are as follows:
1) 44% of Americans can't cover a $400 emergency without having to resort to debt.
2) 43% of student loan borrowers aren't making payments
3) 38% of households have credit card debt
4) 33% of Americans have $0 saved for retirement, absolutely nothing
Obviously, it doesn't take a personal finance expert to know that these are absolutely frightening statistics, and speak to the financial illiteracy that is ubiquitous in America. One could argue that these stats only apply to those that make below average salaries, but that simply isn't the case. What makes this issue a true pandemic is that it affects every demographic. Financial illiteracy doesn't care about your race, gender, sexual orientation, or income level. Without adequate financial knowledge, ANYONE is more prone to making silly decisions.
What got us here?
The easiest explanation of what got us here is likely the transition that America is undergoing from employers funding their retirement to employees bearing the burden to ensure a prosperous retirement. According to this article by Motley Fool, roughly 38% of Americans in the private sector had a pension plan in 1980; whereas that number has been more than halved at 18% as recently as 2017. Without going into much detail, this is also a contributing factor in the high turnover rate of the American workforce with 40% turnover per year. Perhaps part of the reason that Americans aren't financially literate is because they haven't really had to be up until the past couple decades because simply contributing to one's pension plan for 40+ years was about all they needed to do to retire with Social Security Retirement benefits kicking in around the time they retired. As the numbers show, this simply isn't the case. We need to emphasize to others that times have changed and the burden has shifted from the employer to the employee to fund an employee's retirement. You are in charge of your financial future from this point forward, not your employer.
Having brought these issues to light, were you surprised by any of the data above? Are there any other causes to the retirement crisis facing Americans besides the shift of responsibility from the employer to the employee, and a lack of financial education? Lastly, what solutions do you offer to remedy this situation as part 2 of our 2 part guide?