The nation?s negatively spiraling household savings rate and its low financial literacy scores are related aspects of the same looming national problem, warned a local economist and personal finance specialist.
“Our kids are facing a dilemma that is unprecedented in our lifetime,” said Dr. Allen Cox, director of the Towson University-based Maryland Coalition for Financial Literacy. “[When retiring] they are probably not going to have a defined benefit pension plan. … And we already know that nobody can live on Social Security.”
“So that leaves just one thing for our kids,” Cox said. “They have to learn to save and invest ? for a long period of time. And yet, if we?re not teaching them the basics of saving and investing, then they?re likely going to join this group that we already have that saves no money.”
According to the U.S. Commerce Department?s Bureau of Economic Analysis, U.S. household savings, as a function of U.S. gross domestic product, dropped from a 1983-1999 average of 4.8 percent to 1.3 percent between 2000-04.
While this decline was somewhat offset by an increased business savings rate ? which helps the overall standard of living ? individuals without a personal nest egg will nevertheless face trying retirement times.
Correspondingly, according to a U.S. Department of Health and Human Services report, approximately 87 percent of Americans retire on an annual income of $10,000 or less, and 96 percent never achieve financial independence.
“There?s a generation of kids coming up that doesn?t understand the value of money, doesn?t understand how a credit card works,” said Mike Beall, president of the Columbia-based Maryland-D.C. Credit Union.
“We think that getting kids oriented toward a good savings program is probably the biggest thing we can provide in terms of education from the credit union standpoint.”
Cox, whose coalition has been instrumental in expanding high school required financial literacy courses from Baltimore County alone to four other Maryland counties, agreed with Beall.
“The biggest problem is we?re not teaching our kids financial literacy and money-management before they graduate.”
In a recent test of basic economic principles, prepared by coalition-affiliated National Council on Economics Education, sampled adults, on average, scored only 57 percent while sampled high schoolers scored only 48 percent.
