Kentucky must work to improve financial literacy

Published 6:48 pm Thursday, April 4, 2019


The Advocate-Messenger

According to a recent report, Kentucky ranks among the least financially literate states in the U.S.

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The 2019 Most and Least Financially Literate States report, which comes from WalletHub, was issued Wednesday, and ranks Kentucky at 45th in the nation for financial literacy.

The report analyzed financial-education programs and consumer habits in each of the 50 states and the District of Columbia, and uses a data set of 17 key metrics, which range from high-school financial literacy grade to share of adults with a rainy-day fund.

The least financially literate states also included Louisiana, Alaska, Mississippi, Delaware, New Mexico, Oklahoma, Hawaii, South Dakota and Rhode Island.

The most financial literate states, respectively, were Virginia, Utah, New Hampshire, New Jersey, Minnesota, Maryland, Maine, Colorado, North Dakota and New York.

“After the Great Recession, it became clear more people needed to learn financial literacy,” according to the report. “The housing-market collapse and following financial crisis reminded Americans of our obsession with debt and the dangers of quick access to finances for under-informed consumers.”

In more detail, Kentucky ranked 44th in financial planning and habits — taking into account things like the share of adults who spend more than they earn, adults with rainy-day funds, saving for college education and using a household budget — and 32nd in financial knowledge and education, which measured high school graduation rates, financial education classes or counseling attendance and level of education.

According to the report, many Americans are facing a financial crisis.

“We ended 2018 with $67 billion in new credit-card debt,” the report states. “Only two in five adults actually have a budget. Total American credit card debt passed $1 trillion for the first time ever in 2018, so it’s clear that better financial education is necessary to try to turn this trend around.”

And clearly, the problem is more pronounced in Kentucky than most of the U.S.

Financial literacy is something that should start young in the household and in school.

Financial literacy can mean a lot of things, but it boils down to understanding and possessing the skills to make knowledgeable and responsible decisions about money, ranging from basic things like budgeting, saving and taxes to investments, understanding interest, mortgages, paying for school, taking out loans, retirement and more.

Understanding the seriousness of these decisions and how to make the most out of your spending, investing and savings can pay huge dividends in the future.

Debt, bad credit and the inability to budget can have serious consequences and add tremendous stress to a household or individual.

Sadly, many people make bad financial decisions out of a complete lack of understanding. They find themselves drowning in a bad financial storm and also don’t know how to get their heads above water.

A study by the FINRA Foundation found that two out of three Americans can’t pass a basic financial literacy test. That’s a scary thought.

Starting in elementary schools, Kentucky needs to make a push to improve financial literacy. Children are never too young to start learning about money and how to be responsible with it.

Additionally, it is up to parents to drive home the importance of financial literacy, first by setting a good example and then by teaching children about saving, borrowing, investing and donating.

Start by teaching children the value of earning money by offering an allowance or incentive for doing jobs around the house or for others in the community. Then teach them about budgeting and saving by requiring them to put back a portion of the money and allowing them to spend the money on things they need or want.

If you want to take things a bit further, teach them about the consequences of borrowing money and help them invest in their future. Additionally, teach them about donating to causes they care about.

Keep the conversation open and look for any opportunity to teach about financial literacy and how it can have tremendous positive future outcomes.

By starting young, we could raise a generation of better spenders, savers and investors.

With improved financial literacy, Kentuckians can invest more money back into the economy, can give back more to nonprofit causes, will be better prepared for retirement and will have less debt overall.

That will pay off for the commonwealth as a whole.