A crisis will always expose truth.
Photo by Matthew Lancaster
The coronavirus pandemic has shown us all just how fragile our normal lives can be. But it’s also revealed the ugly reality of another crisis that’s been ravaging the world for years—the economic crisis of financial illiteracy.
The combined consequences of these two plagues will be with us for generations. Here are three truths that Covid-19 and the economic shutdown have revealed about the state of our financial education.
1. We’re not ready for emergencies
26 million people have claimed unemployment over the last 5 weeks. That means 23% of workers currently don’t have jobs (1). Those numbers should stun you. That’s 26 million people with bills to pay, families to feed, and debt collectors to keep at bay with no paycheck coming in from their employers. But it’s actually worse than it sounds.
44% of Americans don’t have enough cash to cover a $400 emergency and that was before the economy shut down! What are millions of newly unemployed workers supposed to do without a financial safety net?
2. We don’t know how to use our money
The pandemic has conclusively demonstrated that too many people don’t know what to do even if the government quite literally puts money in their hands. Given the unemployment numbers, it would make sense for people to use their Economic Impact Payments (i.e., stimulus checks) to cover things like groceries, gas, and rent. And some did. But only 29% of survey respondents planned to put the extra cash into savings and investments. While 35% plan to use their stimulus money to pay bills, 16% plan to spend it on non-grocery food, including delivery and takeout, and 5% plan to spend it on video games.
Buying groceries and paying bills is essential, but the fact that so few plan to save their stimulus checks exposes the massive numbers who have been living above their means with little to no emergency fund. Without knowing how money works, they live paycheck-to-paycheck—a lifestyle that prevents them from a perfect opportunity to put away a little extra cash for the future. We want to learn more… But where are we looking?
The recent economic downturn has been a wake-up call for millions of Americans. 9 out of 10 respondents to a survey by the National Endowment for Financial Education (NEFE) reported financial stress due to the crisis, and 54% feared they hadn’t saved enough. 75% are trying to retool their financial strategy in the face of the crisis.
People are also reading about money and markets more than ever. Financial sites are seeing traffic soar as people try to keep up with the economy and learn more about preparing for the future.
Financial illiteracy is widespread, and it is devastating families across the nation. But people are also sick of it and want to take control of their money. The question then becomes who will step up to give families the resources they need to rebuild? Who has the cure for financial illiteracy and who can distribute it quickly and effectively across the country and eventually the world?