It seems to me that serious attention to financial literacy and the means to educate people about it has grown geometrically in just the last several years. I think its worth exploring why that may be so?
Let me first establish a context.
1)The world economies remain in a general malaise.
2)Programs like Social Security and Medicare in the United States, for example, are unsustainable at present benefit levels. It’s highly likely that these and programs like them will need to be scaled back or completely recast. This I believe is so whether the near term future brings good or bad economic times.
3)A significant percentage of the world’s populations will soon be reaching retirement age.
4)The percentage of people covered by pensions (employer funded retirement plans which pay a specified benefit amount per month managed for the most part by professional money managers) has shrunk significantly over the last 25 years and have been replaced with…
5)Self directed retirement plans like 401Ks (which require people to save through payroll deductions and then make their own investment decisions).
6)Fact: People are living longer.
7)Fact: To save requires discipline and to invest requires knowledge!
I could go on, but I think you get the point. The thought leaders, educators and pols are thinking 30 to 50 years down the road. What they’re noodling is how are we going to fill the shortfall (missing savings) between today’s benefit levels and those of the future. Where will those savings come from? One of the answers or hopes depending how you look at it is, you guessed it, financial literacy.
Now there’s lots of debate about how far financial literacy can or should go and there’s also history and real world examples to consider. What there seems to be no doubt about is that there will be a gap that needs filling.
First to the debate, a recent report which underscores those ruminations was issued by the IRPP of Canada. It’s easy to read and well written so take a gander. It’s author, Saul Schwartz, clearly raises the crux issue, ‘should resources go to financial literacy education or to regulation of the financial product industry?’ Saul appears to be from the school that the ‘average’ person is better served through regulation. I leave you to your own conclusions about Saul’s conclusions.
On the historical and current world front I want to direct your attention to a great article by Daniel Akst. It’s an entertaining tour of America’s attitude towards consumption and savings over the last 100 years. Did you know, for example, that at the turn of the 20th century the average American saved about 15% of his income. In China today it’s around 50%. History appears to favor the view that people universally can and will up their savings rates based on the fiscal realities facing them.
The above suggests to me that the level and reliability of government benefit programs have a lot of influence on consumption and savings. The greater the benefits the less saving and with it less individual responsibility. Since the general benefit level appears to be heading south I believe we’ll see a repeat of history. People will save more and by necessity their financial savvy will improve. The big dividend will come from a more responsible and creative citizenry.
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