Picture this: It’s a bright, sunshiny winter day. You’re driving to run an errand or perhaps go to lunch with a friend. Suddenly, you brake, and your tires slip on black ice, sending you careening into the guardrail. You’re without injury, thankfully, but the total cost to repair your car and the guardrail (yes, you will get billed for that) totals to roughly $5,000. But because you’re young, your insurance deductible is high—about $2,000. How confident are you that you’d be able to scrape together that kind of cash in a month?
Not so much? You’re not alone. The 2021 Personal Finance Index by the Teachers Insurance and Annuity Association (TIAA Institute), in partnership with Global Financial Literacy Excellence Center (GFLEC), found that about a quarter of Americans probably couldn’t put together $2,000 in the case of an emergency. That’s a pretty solid chunk of the population one fateful accident away from wiping out their meager savings, or going (farther) into debt. That’s just one ugly statistic among many that describe the financial situations of most American adults.
Financial literacy is the knowledge and understanding of how money works that allows for informed decision making and effective management of personal finances. Over the past five years, American adults have consistently answered only 50 percent of the TIAA Institute-GFLEC P-Fin Index questions correctly. That means 50 percent of Americans don’t understand how their money works, and it shows.
The age-old saying “Money isn’t everything” isn’t true. Money is the reason you’re reading these words on a screen right now. It’s the reason you’re wearing clothes (presumably, but if not, no judgment). The exchange and management of some form of currency is an integral part of our everyday lives. If it’s so important, why do so many people know so little about it?
Dr. Gladys Colón, head of the Office of Financial Literacy at Central Connecticut State University, says that most college students simply aren’t interested. “They don’t get that financial literacy is as simple as ‘Do I Uber today or take the bus? Do I order takeout or eat the food I have at home that I already paid for?’ But they don’t see it that way. They think it’s something their parents should be worried about.”
Ironically, college is one of the most expensive decisions they will make in their lives. But when the time comes to sign on the dotted line, most students don’t fully understand what they’re agreeing to.
Student loan debt in the United States totals $1.75 trillion and grows six times faster than the nation’s economy. That’s basically saying for every $10 you make, you borrow $60 from your mom that you have to pay back with interest that accrues daily. The average public university student borrows over $30,000 to get a bachelor’s degree, and twenty years after entering school, half of student borrowers still owe at least $20,000. That means if you and your friend both get degrees in four years, you could flip a coin sixteen years later to see which one of you hasn’t even paid back half of your loans yet.
At the tender age of seventeen, I had no idea how interest rates worked. I certainly didn’t give a single thought to what my life would look like once the time came for repayment. Just for fun, I used an online repayment calculator to see what my monthly payments would be if I started paying my loans back right at this very moment. My federal loans could be anywhere from $79 to $208. My private loans are about $623, with variable interest rates that are steadily climbing. Altogether, that’s between $702 and $831. That’s dangerously close to a rent payment, and I don’t even have a bachelor’s degree yet. However, as Dr. Colón says, “Student loans are not the enemy. Ignorance is. Being a smart borrower is the way to borrow loans.”
With more than half of Americans viewing their personal finances as a source of anxiety, who could blame the younger generations for not wanting to shoulder that burden any sooner than they have to? There are five indicators universally understood to be markers of adulthood: finishing school, leaving home, finding work, getting married, and having children. 53 percent of millennials can’t buy a home because student loan debt either disqualifies them or makes it impossible to afford a mortgage. This suggests that getting a degree comes at the expense of leaving home, getting married, and having children. The hands of the social clock are frozen.
Financial literacy tends to be significantly lower among Black and Hispanic Americans compared to whites. Poor money management skills contribute to issues like exorbitant overdraft fees, low credit scores, bankruptcy, and debt constraints that prevent many from paying their bills on time and saving for emergencies—like paying the state back for that busted guardrail.
There is a common belief that more money will alleviate financial burdens, but this isn’t true. Higher income often correlates with higher spending. If spending habits don’t change, financial situations don’t change either—the numbers just get bigger. The rich aren’t rich because they have a lot of money. They are rich because they understand how to keep their money.
Money management is a learned skill. For many young people, their first lessons about money come from their parents. After years of careless spending and regarding her bank account as if it had teeth, Ashley Domack, a recent CCSU graduate now middle school art teacher, has only recently begun to face her finances head-on. She says the money messages she received as a child were less than encouraging. “I would be willing to say 100 percent of the time there was a stressful connotation that went along with money. I have vivid memories of seeing my parents, sitting at the desk, so stressed out trying to figure out how to pay the bills.”
Children are like sponges. If we always saw our parents stressed out about money, we probably inherited the belief that money is something we should be stressed about. With no real educational support system to combat those early messages, many of us entered adulthood knowing only that we should “save our money… or else.” Sure it’s solid advice, but it lacks substance. Why should we save our money? How much should we save? What are we saving for? What’s the best way to save? When is it okay to spend from our savings?
Without clear direction, we flounder. And pray to whoever’s listening that one day it’ll all work out.
The reality is that most financial education happens outside of the classroom. Personal finance classes are not federally mandated to be part of the required curriculum for high school students in all fifty states. Fortunately, there are steps being taken on the state level to change that. According to CNBC, twenty-five states have introduced personal finance education legislation in 2021 in response to the COVID-19 pandemic. It became clear that the younger generations need to understand their finances if they are to have a fighting chance in another inevitable recession.
Jeremy Lapointe and Kelly Rondeau, personal finance teachers at E. O. Smith High School in Storrs, Connecticut, recall an interactive educational field trip they used to do in the days before COVID-19.
“The kids were given their dream job with a starting salary, a random credit score, and rent to pay,” Lapointe says. “There would be booths set up and the kids had to go around and try to do things like buying a car and furnishing an apartment. It was a great experience that we are trying to recreate in the classroom.”
Rondeau also explains something she calls, “The Bean Game,” where she gives the students kidney beans to represent currency, and they have to use the beans to pay rent or buy things like furniture and cars.
Outside of the classroom, there are those who have taken it upon themselves to fill the education gap. Robert Kiyosaki is the founder of the Rich Dad Company, a financial education company that seeks to provide personal finance and business education through books, videos, and even games. In his book, Rich Dad Poor Dad, he writes, “Games reflect behavior. They are instant feedback systems. Instead of the teacher lecturing you, the game is giving you a personalized lecture, one that is custom-made just for you.” One game he invented as a teaching tool is called CASHFLOW, and you can play it here.
Next Gen Personal Finance (NGPF) is a free online resource for personal finance teachers, to help them create curriculum for their students. Yanely Espinal, also known as MissBeHelpful, has over 55,500 subscribers on her Youtube channel where she shares information to help people make informed money choices. As an NGPF partner, she has a mission to bring this information where it’s needed most: inner city classrooms.
With the rise of mental health awareness, more information is circulating about the power of shifting your mindset, different healing modalities like EFT (Emotional Freedom Technique, colloquially known as tapping), NLP (Neurolinguistic Programming) hypnosis, affirmations, and meditations. Not surprisingly, many have applied these techniques to help manage stress where finances are involved.
Ashley shares with me a few ways she has used some of these techniques to help cope with financial anxiety. “Something that really made a difference was when I stopped complaining about having to pay for things. Like, I know that I have to pay my student loans. I had an education and I really loved going to school. It is what it is. Instead of being so mad every month that I have to make those payments, I remind myself that I’m grateful for what it bought me.”
The language we use to describe situations has a powerful effect on how we physiologically respond to and remember them. Shifting the focus away from scarcity and fear, and instead focusing on gratitude for what the money bought, is one simple yet potent self-soothing tool for any modern bill-paying adult to have in their arsenal. At the end of the day, you have to pay your bills regardless of how you feel about them. Why not try to make it a little less scary?
“When I pay my bills, I make it into a ritual,” Ashley says. “I’ll put on music, light a candle and say things to myself like, ‘This is fun. I like to pay my bills.’ It helps the process feel less like, ‘F⸺k, I’m spending all my money on bills,’ and more like, ‘I’m paying for the life that I want.’”
Overall, U.S. financial literacy rates have plateaued. With the economic effects of the COVID-19 pandemic still unfolding, it’s unclear how they will play out. Supply chain issues and inflation are currently wreaking havoc on the economy. People are just now starting to return to the workforce. Ongoing financial assistance from the government has bulked up savings accounts like never before, and Americans are beginning to realize the ways in which the working class has been exploited. The pandemic was an opportunity for us to truly see and understand the systems upon which our nation is built, and many are unhappy. Change is coming, but things are probably going to get worse before they get better. I can’t give you financial advice, but what I can tell you is that your bank account does not have teeth. Even if it did, it’s better you train it to bite someone else, than to let it keep biting you.
Header Photo Credit: JP Valery via Unsplash
Jordyn McClary is a Staff Writer for the Blue Muse Magazine