The Paradox of Thrift

A great conundrum we all face is that in these crazy economic times, when we feel frightened and not very interested in spending money, yet if we do not, our economy will continue to falter because no one is buying goods and services and therefore companies keep laying folks off.

I found this article in the SF chronicle which does a nice job of explaining the Paradox of Thrift.

Take a read. Do you agree?

Inspiring and Important Facts

Seems that financial literacy has the usual paradoxical elements...the good and not so good. I found these inspiring and important facts when you look at the topic through the lens of women.

• The 10.6 million privately-held, women-owned (by at least 50%) businesses post over $2.46 trillion in sales annually and employ over 19.1 million people. (Center for Women's Business Research 2004)

• 90% of all women will be solely responsible for their finances at some point of their lives. (National Center for Women and Retirement)

• Women represent nearly half of all investors with $100,000 or more in investable assets. More than half of them are financially independent rather than relying on their spouse, family or inheritance (Women's Financial Network at Siebert, 2002)

• 80% of all widows living in poverty were not poor before their husbands died. (HHS Administration on Aging, 2000)

• Women retirees receive 50% of men's average pension benefits. (Women's Institute for a Secure Retirement, 2001)

• Women make up 43% of Americans with assets over $500,000. (Private Banker International, 2003)

• 75% of elderly persons living in poverty are female. (HHS Administration on Aging, 2000)

Teens Clueless but Confident!

According to a study by Schwab and written up on Yahoo! by Carrie Schwab Pomerantz, 73% of teens think they will earn lots of money when they're out on their own---maybe as much as $145,500. And 63% say they are knowledgeable about money management-- they know how to budget, save and invest.

But then the numbers start to look a bit more murky----13% say they know what a 401(k) is, 14% say they know how income taxes work, and 23% say they know what a credit score is. But when Jump$tart gave students a basic financial literacy test the average high school senior got a test score of 52.4%-- an F!

As we all know teens are often both a bit clueless and way over confident in their abilities and if you consider that less than 20% of teens have taken a course on personal finance and, in this era of predatory lending and self funded retirement plans (401(k)s, IRA, etc.) teaching kids solid money skill before they leave home is far more important than it's ever been before.

The Numbers Tell a Chilling Story

More than 50% of US HH could live no more than 4 months with existing savings at the poverty level, not even their current standard of living! This is sooo scary.

Check out this podcast! http://hbswk.hbs.edu/item/5598.html

Worth listening to all of it.

The State of Financial Literacy in America

I am deeply passionate about finding solutions to teaching our children important money skills and habits before they leave home to go off to discover their role in the world. How wonderful it would be if all kids could grow up to be money savvy adults!

We live in a world today in which each of us has the responsibility to learn about and actively manage our financial lives. While the importance of financial literacy as a basic life skill is obvious to many parents, educators and policymakers, how to develop the skills in our children remains a challenge.

In a nation where nearly a third of high school seniors already use a credit card, a higher proportion have an ATM card, and over a million families filed for personal bankruptcy last year, the need for personal financial literacy is apparent. Yet fewer than 30 percent of young Americans are given the opportunity to take as much as one week’s worth of coursework in money management or personal finance in high school--from the Jump$tart Coalition for Personal Financial Literacy 2002 Survey of High School Seniors.

Schools, who struggle with insufficient resources to deal with the large set of societal requirements--like No Child Left Behind, aren’t able to add money skills development to their curriculum.

Parents, who struggle with managing their own debt and planning for their retirement just want their kids to be armed with a level of financial literacy they did/do not have themselves.

And to make matters more complicated (as if they weren't already) parents also have a hard job in walking a fine line in teaching kids about money between overprotecting them from the realities of money and setting their kids up for a life long preoccupation with money as a source of power and well being.

So what can we do about it??