Ever since Bernie Sanders’ presidential bid, every high-profile politician from Ted Cruz to Barack Obama has voiced concerns about the future of the American middle class. We have the numbers- the top 10% of U.S. families hold a little over 75% of the total wealth, while income inequality is the highest it has been since 1928. What we don’t have are solutions, and with President Trump’s three-bracket tax plan soon approaching, we need them now more than ever; the plan, disguised as a crack-down on the uber-wealthy, will in reality result in a heavier tax burden for single-parent families and only significantly lower rates for the top .1% of earners.
Corporate reform, minimum wage hikes, and even the creation of a single-payer healthcare system have been hailed as the best means of reducing inequality; Sanders himself focused on closing corporate tax loopholes and increasing the estate tax for top earners. But these ideas are simply not feasible in our current political climate. They’re too extremist, too removed from the base issue to be bipartisan solutions to the problem. Without a more aggressively-progressive tax plan (the government forcefully reducing the income of the wealthy) coupled with a higher minimum wage (the government forcefully increasing the income of low-wage workers), our only hope of reducing the egregious wealth disparities is by enabling people to accrue more capital through personal savings and the investment markets. Taking it one step further, the answer to the problems of income and wealth inequality is the financial literacy of the middle class.
The importance of understanding concepts like the time value of money and of developing debt-managing savvy cannot be overstated. But according to a FINRA Foundation report, more than two-thirds of Americans are unable to answer basic questions about interest rates, inflation, bond prices, risk, and mortgages. That’s a serious problem, and one that won’t be fixed unless we make financial literacy a top priority in our schools.
The U.S. ranks 14th in financial literacy.
In 2004, the Georgia Board of Education approved a new financial education requirement for the state curriculum. Called “Let’s Make It Personal,” the year-long course focuses on key economic and personal finance concepts and involves a stock market simulation to allow students to make investment and savings decisions firsthand. The first class fulfilling this requirement graduated in 2007; seven years later, a study showed significantly higher credit scores from twenty-two year-olds in the state.
Georgia is but one of many states that have begun to implement financial literacy courses into their curriculums. Yet if history is any indication, there will continue to be large inconsistencies in our students’ money management skills due to varied state curricula. For instance, as of 2016, only seven states have integrated personal finance questions into standardized tests, a critical means of establishing true understanding. Said Dr. J. Michael Collins for the Council for Economic Education’s 2016 report, “States that… hold students accountable for learning objectives have the best chance of promoting the development of young people who are better financial managers and stewards of their credit.”
In October 2015, the Consumer Financial Protection Bureau outlined its top five recommendations to help increase financial literacy for Americans. Among them were the inclusion of core financial education topics throughout grades K-12 and the integration of personal finance questions into standardized tests. But we no longer have time for “recommendations.” Nor should after-school programs or the distribution of relevant resources continue to suffice as attempts to improve financial capability. Anything voluntary simply won’t do. There must be a federal mandate requiring that 1) every student pass a personal finance course, and 2) every state test financial knowledge in some fashion.
I’m no idealist. I understand that our emphasis on state autonomy will make any sort of federally-mandated financial literacy requirement an uphill battle, to put it mildly. But if we want to avoid the mistakes that lead to the Great Recession and create a more equitable society for the average citizen, empowering the public to make smart, long-term financial decisions is the only way. It’s time to follow Georgia’s lead and “make it personal” for every student.