Financial Literacy - Vested

Financial Literacy
and the Pandemic

Financial literacy, access andĀ educationĀ have been a pillar of Vested’s valuesĀ since its inception. The way adults perceive and interact with money often stems from their experiences as a child; something our CEO Daniel P. Simon discusses candidly in the author’s note of hisĀ book, The Money Hackers. In an effort to help parents begin conversations about money with their kids at an early age, our COO and co-founder Ishviene Arora authored The ABCs of Finance. The childrenā€™s book not only brings awareness to financial literacy, but also provides a starting point for parents to have discussions with their children about financial education.

With millions previously out of work and tens of millions more struggling to make ends meet, the spotlight has been put on financial literacy and access as a crucial element of this recovery. With this in mind, Vested has put together a financial literacy report that benchmarks where we are as a nation.

Tens of millions more struggled to make ends meet and many are still struggling. This has turned the spotlight on financial literacy because a lot has been written and spoken about the recovery of the U.S. economy, and financial literacy has stood out as a crucial element of this recovery. And there is a lot to do to enable it.
Americans Suffering Financial Stress
A survey from April 2020, when the pandemic was just beginning to take its toll, found that an overwhelming majority of Americans were suffering financial stress.Ā 
Another survey from August 2020 revealed that half of Americans would find it hard to cover an emergency expense of $1,000.
Americans Living Paycheck to Paycheck
This statistic is certainly concerning. 4 out of 5 young people have failed a financial literacy quiz. 3 in 5 adults donā€™t keep a budget. More than half carry credit card debt and 67% donā€™t have an emergency fund.

The common theme of all these surveys is insufficient financial literacy. This is not a new problem but the pandemic has added marked urgency to solving it. The benefits, even in a normal, non-pandemic year, are obvious enough.

Studies have shown that financially educated students are less likely to accumulate credit card debt. They are also more likely to apply for and receive financial aid should they need it.
Students Required to Take Finance in High School

A small minority of American students were required to take at least one semester of personal finance in high school. Few parents ever talk to their kids about money and money-related topics such as saving and budgeting. How, then, could we expect any improvement in the situation?

People Who Find it Hard to Reduce Debt Load

More statistics point towards close to a third of households having difficulty paying all their bills on time and as much as 58% finding it hard to reduce debt load because of financial emergencies and lower income. Even though these difficulties are not as widespread among Americans as is inadequate financial literacy, they are yet another sign that things need to change.

Savings are also an issue, as many Americans worry about retiring without enough money set aside.

Less than a fifth of people in the U.S. feel confident when it comes to savings and a quarter donā€™t feel confident about savings at all. Although there is a myriad of factors at play when it comes to savings, basic knowledge of finance is certainly one of the more important among these factors.

“Money impacts almost every aspect of our life and yet the conversation we have around finances with our children has not evolved. The recent pandemic has shined a spotlight on the lack of financial awareness in this country and the critical need for education. We need to recognize the importance of finance as a tool and one that can and should be available at a very young age if we want to see real change.ā€

– Ishviene, Arora, COO

COVID-19 made a bad situation worse.

Parents out of a job faced an even more uphill struggle to teach their children the value of money and how to save and invest it. Banks closing branches removed the opportunity for many to see how banking actually worked and cut off one channel of access to expert advice. However, according to experts, the crisis also opened up new opportunities.

For starters, financial literacy initiativesā€”for children and adults alikeā€”are popping up across the country. That’s great news, given the results of a different survey, which indicates that some 78% of adult Americans admit they would benefit from financial advice.

These initiatives focus precisely on the biggest problem areas of Americans of all generations although they target children: budgeting is one of the themes tackled in these programs, and savings is another. Investment basics are also part of the curriculum.

Money is also flowing into securing internet access to children whose families lack the means to provide it, even though millions are yet to receive such access due to, once again, financial and logistics challenges.

Interestingly enough, some financial experts say children will actually benefit from seeing their parentsā€™ financial hardships. Wired to absorb huge amounts of information from a young age, children witnessing their parentsā€™ tacking the new financial challenges the pandemic has brought are a lot more likely to emerge from the crisis with a solid basis in things like saving, budgeting and financial planning.

Hundreds of banks and other organizations have joined the drive to teach Americans and their children the basics of finance. Dozens of initiatives aim to teach kids not just basic financial literacy but also things like starting your own business and making it successful. Apps and virtual classrooms have been an invaluable tool in this drive.

This massive shift to digital channels has offered an additional opportunity to those concerned about their childrenā€™s future financial wellbeing: digital banking and finance management.

Millions of people switched from physical banking to digital during the pandemic and banks rushed to boost their offering. Some experts predict physical bank branches could die off within a decade or so. Financial literacy, then, has extended from piggy banks and a grasp of basic interest rates to managing your finances online, from car loans to savings accounts.

Many believe this boom in opportunities and aids for parents to teach kidsā€”and themselvesā€”financial literacy is one of the few silver linings of the pandemic. But there is one more. As the COVID-19 kills jobs and closed schools, many realized just how important basic financial education is from an early age and calls for including it in school curricula have multiplied and grown louder. A more financially savvy generation could be one of the few positive outcomes from the pandemic.