Without financial literacy, the successful use of financial services to manage money becomes impossible. It is vital for the well-being of every consumer and community around the world. How can people be financially empowered if they don’t understand the financial concepts required for money management?
Money management wasn’t always so complicated. In past generations, cash was the primary payment method. Whether you were buying groceries, paying a utility bill or compensating your nephew for mowing the lawn, you could complete the transaction by pulling a few five or ten-dollar bills out of your wallet. As recently as 2015, cash was used 33% of the time, according to the Federal Reserve Bank of San Francisco. Yet a report this April from American Consumer Credit Counseling Inc. found that only 14% of Americans admit to using cash for everyday purchases.
Consumers are turning to debit cards, credit cards, checks, and mobile and electronic payment methods to manage day-to-day spending. The more spending instruments available, the more complicated money management becomes.
A 2017 FDIC National Survey of Unbanked and Underbanked Households found that 6.5% of households in the U.S., representing approximately 8.4 million households, were unbanked. Imagine how difficult living a meaningful life and achieving financial goals would be without proper access to a bank or other financial institution. It’s a concern primarily among disadvantaged and low-income segments of society. Without essential services, adults don’t have a secure place to save money, can’t access loans or lines of credit, can’t build a credit record and have no way to send or receive money to and from employers, doctors and schools.
Unless financial literacy becomes a primary focus, the problem of financial exclusion will continue to grow. As financial advisers, we have a unique role to play in promoting financial literacy. More than anyone, we understand the language of money and how small financial choices can affect a person’s future goals and objectives. We can help to expand financial inclusion by assisting people in understanding essential financial concepts and developing the skills, motivation and confidence to reach financial goals.
Many challenges stand in the way, from the simple lack of awareness about financial inclusion and financial literacy to systemic concerns regarding banking products and documentation processes. Making people, companies and government institutions more aware of financial inclusion is an excellent first step. The National Education Association has resources for teaching financial literacy, and you could offer to teach a high school course to educate future generations. Advocating for change in public policy on behalf of poor and underserved communities can also help. Although changing laws is difficult, pairing up with a fellow financial adviser to meet with state legislators can make a difference.
Volunteering at one of the many nonprofit organizations that provide financial literacy materials and education can go a long way to educate and improve financial inclusion. You may also volunteer at a local level, perhaps by offering to prepare a financial education curriculum for a middle school or high school teacher.
There are over 87,000 CFP professionals in the U.S., and the Bureau of Labor Statistics reports over 200,000 personal financial advisers. If we could work together to support financial literacy, the impact on financial inclusion would be enormous.
It’s time to help our communities get more inclusive access to financial programs, products and systems. And that starts by teaching our children, families and people, young and old, the importance of smart money management.
Marguerita Cheng is chief executive officer at Blue Ocean Global Wealth.
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