We have a big financial crisis in America.
It’s not the weak housing market, rising unemployment, inflation, the collapse of Bear Stearns or Lehman Brothers, fallout from the subprime mortgage fiasco, declining home prices, stock market volatility or geopolitical unrest in the Middle East. Sure they have made front page news; however they’re not the real issue. They are symptoms of the “spending crisis” in America. They are symptoms of the real issue - that we are a country of financially illiterate people.
In the June 2008 issue of the Journal of Financial Planning, Elisabeth Donati, founder of Creative Wealth Internationalsaid, “The statistics on financial well-being and young people are alarming. There’s a rise in college suicides because of credit card and student loan debt, young adults under 25 are now the fastest-growing age group filing bankruptcies, and more kids now see their parents file for bankruptcy than file for divorce. Less than 10 percent of our high school graduates take any courses on money management or wealth creation. Most of our country’s social problems stem from financial problems.”
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The issues are easy to identify: the government and millions of consumers alike spend more money than they bring in or make. When the government needs more money it raises taxes or goes further into debt. When Americans need more money, they charge it or take out more of their home equity.
The solution is also easy to identify: financial literacy. Unless and until basic financial literacy education becomes mainstream and required in our schools and businesses, Americans will continue to rack up lots of debt, fall behind on their bills, lose their homes and have to work themselves to death to try to keep afloat.
Setting money aside from each paycheck, which American’s are finally waking up to, is basic and necessary. It is the medicine that will treat our symptoms, yet it is fundamentally ignored by millions of Americans who are either living paycheck to paycheck, delaying retirement, or spending out of control to garner immediate gratification. Something’s got to give.
How uncomplicated would it make our lives if we (individuals, businesses, and the government) just spent less than we made and saved/invested the difference for our future? How great would it be if every American knew, understood, and was able to articulate the difference between positive and negative cash flow? (I recently conducted a brief survey with 10 people at random and asked them to explain how their net worth is calculated. Only one person out of the 10 could answer the question with any authority.) How much brighter would our future look if we saved even a little more money today?
So, what do you get when you combine a weak housing market, rising unemployment, inflation, the collapse of Bear Stearns and Lehman Brothers, fallout from the subprime mortgage fiasco, declining home prices, stock market volatility and geopolitical unrest in the Middle East? The opportunity of a lifetime to promote financial literacy and potentially save a life. Maybe, just maybe, financial literacy could be the solution to many of our country’s social problems.
Bill Losey, CFP®, CSA, America's Retirement Strategist®, is the resident retirement planning expert for On the Money. He has been named one of America’s Top Financial Planners and is the author of Retire in a Weekend!. The Baby Boomer’s Guide to Making Work Optional. He also publishes Retirement Intelligence, a free weekly award-winning newsletter. Bill can be reached online at MyRetirementSuccess.com.