The Increasing Importance of Financial Literacy

When most people hear the word "literacy," they most likely think of a person's ability to read. But in reality, there are many different types of literacy. One type of literacy that's vitally important to our lives, but surprisingly few Americans are aware of, is financial literacy.

Financial literacy is simply the ability to understand how money works in the world: knowing where it comes from, knowing how to make it, and almost most importantly, knowing how to manage it.

True, most Americans can explain how money works and where they get theirs from, but managing it is a completely different story, especially in these economically unstable times. A study done by the popular financial blog Gen Y Planning found that only 40% of American adults use a budget to track their spending, while a shocking 76% of adults live paycheck-to-paycheck without building up any kind of substantial savings."

This financial illiteracy is leading to a series of larger problems for the American economy. In a recent study, financial advice website NerdWallet found that the average US household has over $15,000 in credit card debt, adding up to a whopping $733 billion in total credit card debt. The need to pay this debt down greatly reduces the spending power of American families, which can lead to a downturn in the economy, which can lead to increased credit card spending, and so on, creating an inescapable cycle of debt.

So if financial literacy is such a problem, what can be done about it? The solution is clear: provide more education to Americans about financial best practices and their financial options. But where do we start?

Many financial organizations have determined that the best way to start educating Americans is to spread awareness of the problem. April has been declared National Financial Literacy Month with the intention of spreading awareness of good financial planning, advice, and information on the economy in general. Banks, financial institutions, and and credit unions such as Citizens Bank, Capital One, and Nusenda Credit Union have all begun outreach and education programs to spread the good word and hopefully get their customers and partners better educated on financial matters.

High schools and educational centers have been getting in on financial education as well. Many federal programs such as the High School Financial Planning Program have been formed to help create course curriculums to start financial literacy in high school, at an age where most Americans open their first bank account or even get their first credit card.

With these programs and outreach efforts, hopefully the growing trend of financial illiteracy and overspending can be reversed before it gets worse for millions of Americans.