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Abstract: Just as individuals must have bane reading and math literacy to navigate todays world, they also need basic money-management skills-i.e., financial literacy. Yet, financial illiteracy is rampant, leading experts to warn that unless the trend is reversed, a financial crisis awaits Americans and, by extension, their communities and the nation itself. This article makes the case for the gravity of the problem, examines contributing factors, and highlights efforts to improve the situation. The author calls upon financial service professionals to join these efforts to raise the financial literacy of every American.
A financial literacy crisis looms in the United States. As the national financial system becomes increasingly complex, placing even more responsibility on individuals to manage the details of their own finances, there is mounting evidence that the burden is too much for most Americans, especially lowincome and disadvantaged individuals.
Savings rates are down. Personal bankruptcy numbers are up. Research shows that a large percentage of people of all ages, incomes, and education levels lack the basic financial knowledge and skills to ensure their long-term stability. The repercussions affect not only individuals and their families, but also their neighborhoods, communities, and the nation as a whole.
The uncertain economy-indeed, the uncertain world in which Americans find themselves-has made the need for personal financial literacy even more urgent. Yet, most Americans seem unaware of the problem, even as experts warn of financial danger ahead unless a large-scale effort begins to significantly raise the country's financial literacy level.1
Against this backdrop, financial service professionals have an opportunity-perhaps even a professional obligation-to take a leadership role in alerting Americans ω the crisis and reaching out to those in need of basic financial knowledge and skills.
Financial Literacy Defined
While no formal definition of the term "financial literacy" exists, the following description, taken from a major study of the subject, provides a starting point for this discussion:
Personal financial literacy is the ability to read, analyze, manage, and communicate about the personal financial conditions that afreet material well-being. It includes the ability to discern financial choices, discuss money and financial issues without (or despite) discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy. ^