The struggle for financial wellness is real. Four in 10 Americans can’t cover a $400 emergency expense, according to a report by the Federal Reserve Board.
And that is just one sign of the financial strain plaguing America.
Credit card debt is at its highest level in a decade. People are behind on retirement savings. Student loan debt has hit a new record, and Americans continually rate financial stress as one of their top concerns.
April is National Financial Literacy Month, which spotlights a driving factor behind the fiscal heartburn – financial illiteracy – and aims to solve it by raising people’s financial awareness.
To discuss how to tackle the devastating effects of the U.S. financial literacy crisis, we asked for insights from Jim Chilton, founder and CEO of the Society for Financial Awareness (SOFA).
SOFA is a national non-profit, which Chilton started in 1993, with the mission of ending financial illiteracy across America.
Below is a sum-up of the conversation, which covers why financial literacy is important, how people struggle with money matters, and ways to solve the problem.
SafeMoney.com: Jim, you have spoken many times of how your focus is on ending financial illiteracy, one community at a time. What do you mean by financial illiteracy?
Chilton: A lack of knowledge in the basics of finance and money management. But it’s a matter of ignorance, not stupidity.
Ignorance doesn’t mean that someone is stupid. No, it just means that someone is not informed.
Financial literacy isn’t taught in most schools. Most people copy their parents, who often don’t teach their children about the fundamentals of cash management and finance. So, the cycle continues – a never-ending output to a society of financial illiteracy.
SafeMoney: Why do you think so many people struggle with their finances?
Chilton: The problem is connected to our behavior. We are a nation of spenders.
It’s a ready-fire-aim mentality. If we “need” something, it becomes a demand. It really doesn’t matter even if we can’t really afford that thing “now.”
Our fallback is the credit card. No problem, we charge it. Then we wonder why we’re in debt.
Spending with zero consequence, failing to plan for now and the future, repeating the same mistakes over. That is why.
SafeMoney.com: Tell us more about SOFA.
Chilton: SOFA is a 501c(3) public benefit corporation. We have been around for over 25 years. Our members include financial advisors, CPAs, agents, estate-planning attorneys, mortgage brokers, and health & wellness professionals.
We conduct financial workshops at no charge at companies, places of worship, and organizations. All the information is engaging, fact-filled, and most enjoyable. We sell nothing, this is a service to our communities.
SafeMoney.com: Why do so many professionals participate in SOFA’s mission of enhancing people’s financial literacy?
Chilton: 2 reasons. First, it gets them out of the office and into their local areas. They enjoy donating their time, sharing their expertise, and giving back to the communities to which they belong.
Second, it gives our members a great chance to connect with people in their areas of business. These community workshops help attendees realize the concept of taking responsibility for their money and their financial futures. Over the course of an hour, the workshop participants learn of solutions to their own personal financial issues.
SafeMoney.com: Throughout the year, we’ve heard the press mention how an average American isn’t able to pay a $400 emergency expense.
Chilton: Sad, but it’s true. It goes back to that “cycle of ignorance” we talked about earlier. See, this cycle is as strong today as it ever was.
The real dilemma with this emergency issue and being unable to cover a $400 expense is it’s only the tip of the iceberg. The real issue is why Americans don’t do planning with their money.
We take better care of our pets than we do our finances. In fact, for the average American, the #1 plan they do create is for their upcoming vacation.
SafeMoney.com: That brings up another point that you and SOFA are always making: Not that many people have an actual plan for their retirement and their financial future.
Chilton: Yes. Only 3 out of every 100 Americans have a written financial plan.
We talked about behavior, which drives our financial successes or failures. People constantly make mistakes with their money. Failing to plan. Spending what they don’t have. Taking on massive debt for things they don’t need. Failing to protect their money and put some away for the future.
Just like with a GPS or a map for navigation, a financial plan helps keep us on track. You must have a plan. If you had to travel somewhere you have never been before, would you be able to your way around without a GPS or a map?
The sample principle applies to our finances.
SafeMoney.com: So, why is Financial Literacy Month so important?
Chilton: Because it’s our chance for advisors to point out the financial mess our country is in and to help people accept responsibility for their financial futures.
We bring all of these issues to the forefront, pointing out our behavior and truly our ignorance about money.
It’s what Financial Literacy Month is all about. Creating total no-spin public awareness about money and the problems we struggle with.
SafeMoney.com: Apart from workshops, do advisors, as part of SOFA, do anything else to spread the word about how financial literacy improves your health and well-being?
Chilton: Yes! We do interviews on the TV and radio. We write articles, write columns, and participate in interviews with the print media.
We saturate our communities with our message of just how critical financial literacy is.
SafeMoney.com: One final question. Why do you think we struggle with financial literacy so much? And what can be done about it?
Chilton: You know, it’s easy to connect the dots. When we lose something, we realize at the moment of our loss that we don’t have the money for the solution.
Why? Because we never created an emergency fund. Why is that? We never did planning – no creation of an up-to-date written financial plan.
Why is that? Our parents and our schooling never taught us about the handling of money. Why is that? Our schools never considered financial matters as being a core curriculum. In fact, most states don’t require financial literacy as a core curriculum.
As for our parents, they copied their parents and their behavior. So, they saw little need to spend time talking to their kids about money. It goes on and on.
As for the key to reversing the cycle of financial illiteracy in America – it begins with recognition. Once we realize what’s happening, only then can systemic change begin.
SafeMoney.com: Great insights for sure. Thank you, Jim, for a fantastic discussion.