In a time of crisis, we need personal finance education

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Photo by Bich Tran via    Pexels

Photo by Bich Tran via Pexels

The United States is the land of plenty, hype-beasts and one-day delivery. We live in a time where you can buy nearly anything on earth from the comfort of your house. With everything from holidays to gameday being commercialized we, as a society, have normalized excessive consumerism. 

According to Maurie Backman of USA Today (2019), the average American spends approximately $18,000 a year on nonessentials. Nonessentials are defined by the accredited newspaper USA today as commodities not necessary for survival such as restaurant meals, impulse purchases, paid apps, streaming services, recreational memberships and more. Additionally, Mark Whitehouse of the Wall Street Journal (2011) found that Americans cumulatively spend 1.2 trillion dollars annually on useless stuff. These statistics beget an important question. If the USA is the king of abundance, why does it matter if people like to spend their money more leniently? Isn’t it good for the economy if people spend, because 70% of the nation’s GDP is predicated on this spending?  For starters, much of this spending results in larger piles of garbage and higher disposal costs. However, sticking more strictly to economics, this culture and mindset to spend more has hurt the average American financially. The US Department of Commerce (2020) observed that “personal income decreased by $874.2 billion (4.2 percent) in May of this year. Disposable personal income (DPI) decreased by $911.1 billion (4.9 percent) and personal consumption expenditures (PCE) increased by $994.5 billion (8.2 percent).” In layman’s terms, Americans now have less money to spend because they don’t save. This leaves the United States extremely vulnerable to any sudden economic hits that result in layoffs- enter Covid-19.

I believe the best way to alleviate this problem is to make personal finance a mandatory class in both high school and colleges. Education is the best way to equip people with the foresight needed to make sound financial decisions. Kids need to learn about housing mortgages, loans, insurance, tax and simply living within their means. Billy J. Hensley, Ph.D., president and CEO of the National Endowment for Financial Education and CNBC correspondent asserts that “financial literacy cannot predict or remedy a crisis, but financial education will play a pivotal role in the economic recovery of our country”. 

After the Great Recession of 2007 and the 2008 housing bubble crash, the need for mandatory personal finance classes in school became even more blatant. Entire economic catastrophes could have been avoided if people were simply educated to not take ridiculous loans from banks when having insufficient salaries and bad credit scores. However, currently, only 21 US states mandate high school students to take a course that incorporates some form of personal finance instruction and only 6 states have a course that focuses solely on the subject. The Covid-19 pandemic is the most recent reminder that most Americans don’t properly save their money and that is largely due to not having the requisite background knowledge. It is clear that this issue will occur repeatedly if preventive action in schools is not taken seriously. This problem of Americans not saving for emergencies is exacerbated during mass layoffs, greatly strains, and ultimately depletes federal unemployment alleviation initiatives. According to USA Today, 59% of Americans live paycheck to paycheck and one in five Americans have no retirement savings at all.

Furthermore, this condition is not exclusive to citizens living under the national poverty line. A study by Nieson holdings, an American information and data measurement firm, found that one in four Americans making larger salaries of six figures or more are also not able to adequately create a savings stockpile. Due to the instability of several industries and the lack of savings, nearly a third of Americans were unable to pay rent this past month. Alicia Adamczyk of CNBC writes that up to “6.7 million rent-burdened households could potentially face eviction once enhanced federal unemployment insurance expires at the end of July and eviction bans across the country lift”.  Urban footprint, an urban planning software company, conducted an additional analysis on the issue and concluded that “This level of displacement would be unparalleled in U.S. history and carries the potential to destabilize communities for years to come”. Urban Footprint’s analysis considered various metrics including unemployment claims and regional housing costs to ascertain which states are at the highest risk for this eviction. They surmised that California, New York, Florida, Georgia and Texas are of the highest risk, none of which offer stand-alone personal finance classes in their high schools.

The fact is that consumer culture in the United States is at an all-time high and most people don’t understand how to budget themselves when they have the ease of a credit card at their disposal. There is no better time to teach people how to manage their money than starting young. 


Karthik Iyer is a campus correspondent for The Daily Campus. He can be reached via email at karthik.iyer@uconn.edu.

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