Americans are clueless when it comes to personal finance. This is especially true of the millennials, which make up most of the workforce. A recent study discovered that only 24% of millennials can demonstrate basic financial literacy. Those are scary numbers and show that the next generation isn’t prepared for personal finance.
Here are some of the main reasons why Americans are so clueless when it comes to personal finance.
There’s No Budget
A household budget is the cornerstone of financial management. Yet in the 2015 Financial Literacy Survey 60% of Americans admitted to not having a budget.
How can anyone manage their finances if they don’t even know what’s coming in and what’s going out every month? It’s the most basic failing and it makes it impossible to grasp what you can do to get things in check.
Creating a budget is simple. It doesn’t have to be difficult. A basic Excel spreadsheet is all it takes to provide you with an accurate snapshot your incomings and outgoings every month.
You’ll then have a firm view of your financial situation.
No Emphasis on Saving
The scariest fact of all is that nearly half of all Americans admitted they had no money saved for their retirement. It gives us an insight into how there’s zero emphasis on saving.
Without any priority placed on saving money for the future, many American families find themselves on difficult ground. They’re losing out on compounding and they’re sending the wrong message to the next generation and the people around them.
If everyone else is blowing their money at the bar or at the mall, why wouldn’t you?
No Education When It Comes to Finance
Campaigners have long called for financial education to be made a compulsory part of the national curriculum. Even basic financial terms and tools, like check by phone software, are poorly understood. Teenagers are so used to receiving money from their parents that when they’re old enough to get credit cards and take out other forms of loan they jump at the opportunity.
The problem is without that financial education they have little idea of what they’re getting into. Throw in the mix interest free years and many wrongly believe that it’s like getting free money.
And that’s where so many problems start.
Confusing Terms and Conditions
A lack of saving is only part of the problem. The other part of the issue is debt. There’s a complete failure to understand how debt works and how it’s generated. Creditors have done little to help people with their various special offers and confusing terms and conditions.
Many offers seem like a good deal but are terrible. One person may see a year of interest free borrowing on their credit card and jump at the deal. What they did not see were the huge interest rates that kick in after that year is over.
Creditors also must shoulder some of the blame.
Experiences Over Ownership
Another reason why Americans struggle when it comes to finance is the emphasis on experiences over ownership. 78% of millennials said that they would rather spend money on experiences over owning something physical.
Similar increases have been spotted when it comes to live entertainment. It is a strong indicator that the desires of the population are changing.
What does this mean for personal finance?
It means that with fewer millennials planning for the future it is becoming harder to ensure the next generation is going to have the skills needed to ensure a comfortable retirement.
More worryingly is the fact that this generation is not going to be able to pass on important lessons in personal finance. It further increases the need for formal financial education, as we discussed previously.
Last Word – What’s the Solution?
It is all about financial education. With all the free resources available today there is no excuse to not know how to build a budget, how to save, and how to deconstruct confusing loan offers.
Start learning about personal finance today and you will already be ahead of most of your peers. Do you think there’s a big problem with financial education in this country?