Helping the Middle Class? Time for a crash-course in personal finance.
“What is the single most important initiative that the next administration should undertake to improve the economic health of the U.S. middle class?”
That’s the question that I’m tackling today, along with eight other personal finance bloggers in a synchronized blogging project (a “synchroblog”) that was organized by Mr. ToughMoneyLove. You’ll find my response below, and I then encourage you to check out the responses that each of the other eight bloggers posted on their own respective blogs (links below!). This is all timed, of course, to coincide with the second American presidential debate this evening — hopefully it will give you something to think about.
To Start: Personal Finance 101
There are certainly a lot of initiatives that the next President of the United States can (and, in my opinion, should) take to relieve the crushing burdens on the middle class, including addressing health care, college tuition, retirement plans, job transitions, and more. All of these are definitely important, and I am always interested in discussing these details, but I would like to suggest a much simpler undertaking for the next President of the United States: send all three hundred and five million of us back to “class” for a day for a crash-course in personal finance and financial responsibility.
It is no secret, really, that financial literacy in the United States is, to put it mildly, quite poor. Most of these report cards on financial literacy focus on the important technical aspects of our financial system — banking basics, how credit works, introduction to income taxes, retirement account plans, etc. The technical details are certainly important — there are countless stories of people who simply didn’t understand how credit cards function only to quickly find themselves deep in credit card debt. Many who have been hurt in the subprime mortgage crisis might have been able to choose a safer path with a stronger financial background (not to blame the victim — predatory lending practices deserve a bulk of the blame). More importantly, a solid understanding of the technical details of personal finance is key to making the most of limited economic resources.
However, when I refer to a crash-course in financial responsibility, I am referring to more than just the nitty-gritty of interest rates — rather, big picture concepts like spending within one’s means, coming up with a budget to work within, planning for the future — planning not only for the best case future, but also for the worst case future — and more. Personal finance can be intimidating for people, but I think there are certain key concepts that can be accessible to everyone. Yet for some reason, not enough people seem to heed these ideas.
This issue — which I think has always been important — has only taken on increasing importance in the last three weeks, as the world faces a financial crisis the likes of which we haven’t seen in quite some time. We may be entering a tough recessionary period, which makes it all the more important that Americans be prepared to cut back, live within their means, and conserve resources. Being prepared to take such steps will make it easy to minimize as much as possible any impact on everyday lives.
As a current student, I have a somewhat unique viewpoint, and I am worried about many of my peers who are heading into the “real world” in the next couple of months. My own anecdotal experiences reinforces the common perception that many have a dangerous relationship with credit cards (one recent study put the average credit card debt for college students at $2700), and I question whether many of will be able to manage their finances responsibly as they face such a negative market. It’s a recipe for disaster.
All of this gets back to my original suggestion — the next President of the United States should take everyone aside for a day and give them some basic tips to handle their finances effectively. Responsible spending, living frugally, maximizing savings, an encyclopedia of technical concepts are all worthy subjects. The idea is to get Americans more informed.
A little far fetched? Perhaps. But the point remains — its time for Americans to step up, and education is the best weapon.
Why is this the *most* important initiative the next administration can undertake?
Simple:
- It is fundamental to understanding the current economic crisis. Without financial literacy, Americans are at a distinct disadvantage when it comes to participating in the political process that is trying to fix it. Our politicians shouldn’t have a blank check to do what they wish simply because the American public doesn’t understand the situation.
- Many, many economic problems faced by Americans today can be traced to a lack of financial literacy.
- Providing advice on living financially responsibly and frugally is probably one of the best ways that the federal government can help prepare Americans for economically tough times.
And Now For Some Other Perspectives
Now that you have heard what I think, I encourage you to check out the responses of the other participants in this synchroblog project. Definitely some great responses; I’m very honored to be included in such a great group.
- Blunt Money: Long-term thinking
- Cash Money Life: Pork-barrel spending
- Clever Dude: Accountability
- Finance Your Life: Energy crisis
- Fiscal Zen: Confidence in banking/lending
- My Dollar Plan: Education
- My Journey to Millions: Less government intervention
- Student Scrooge: Education
- Tough Money Love: Education
What Do You Think?
After checking out the other synchroblog entries, I’d love to hear your opinions — what do you think is the single most important initiative that the next administration should undertake to improve the economic health of the United States middle class?
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Great strategy to just merely teach the basics to the US population. If they polled every citizen in America I am sure that there would be a deficiency when it came to simple finance principles.
This was a great project and we need to do it again!