State Senators Designate April as Financial Literacy Month
Inside Subprime: April 22, 2019
By Lindsey Frankel
A 2017 report by the Federal Deposit Insurance Corporation found that about 1 in 4 households are unbanked or underbanked, meaning that they lack a bank account or rely on alternative financial services such as payday loans and cash advances.
In response, a number of U.S. State Senators have introduced a bipartisan resolution designating the month of April as Financial Literacy Month in an attempt to bring knowledge and awareness to topics impacting financial health.
Senator David Perdue (R-Georgia) was among the resolution’s sponsors and has seen the profound impact of financial literacy programs throughout his career.
“Financial literacy programs, like those taught in Georgia’s high schools, help open doors to brighter futures and are proven to result in higher credit scores and lower default rates. By recognizing April as ‘Financial Literacy Month,’ we are encouraging others to adopt strong standards for financial literacy and raise awareness to the importance of a personal financial education,” Sen. Perdue said.
Georgia has some of the most comprehensive financial literacy standards in the country. High school students are required to take an economics course that teaches personal finance, and high school social studies standards also include financial literacy. Studies have shown that such mandates result in higher credit scores for college graduates.
Collective credit card balances in the U.S. hit a record high at the end of 2018, topping $1 trillion, according to a recent report from the Federal Reserve Bank of New York. The average balance of $8,788 per household puts many Americans in a state of financial fragility and highlights the need for robust financial literacy programs nationwide.
Americans who lack financial literacy are an easy target for payday loans and title loans, which don’t require a credit check and charge exorbitantly high interest rates and fees with terms that can be complex to understand. Those who rely on alternative financial services will also find it more costly to meet their financial needs. For example, research shows that full-time workers using check cashing services are spending as much as $40,000 more over the course of their careers than workers who use a checking account. And when consumers with low credit scores need to borrow money, they’ll pay higher interest rates that make debt more difficult to overcome.
There’s also a two-way relationship between financial health and college completion, according to a report from the Brookings Institute. Young people who hold savings accounts are more likely to attend college, while credit card debt and other financial hardship during college has been found to decrease the likelihood of college completion.
Given the Consumer Financial Protection Bureau’s hands-off approach to consumer protection, financial literacy programs now play a particularly important role in shaping America’s financial future. The resolution to officially declare April as Financial Literacy Month is just the first step in ensuring financial education for all consumers.
The resolution was cosponsored by U.S. Senator Tim Scott (R-South Carolina) and 31 other U.S. Senators.