December 7, 2021

I hate saying it, but Americans are financially illiterate, and that’s a real problem. Up and down the education and income scale, people don’t save enough to retire securely. They borrow heavily without understanding the costs, spend more than they can really afford, and they’re not prepared for an uncertain future.  The coming wave of baby boomer retirements are will only make the problem more acute.

The modern economy is complex and very competitive, so it takes some sophistication to do personal finance well. Even simple strategies like opening fewer credit accounts and paying them in full every month or not spending more than a third of monthly income on rent are essential for getting ahead over time. The goal should always be to live within our means, so that we can save and invest early and often. Unfortunately, we have failed miserably at teaching these lessons.

Recent reports show that financial illiteracy affects all age groups in America. Nearly half the baby boomer generation lacks the resources to retire with their standard of living intact. This is going to put an enormous strain on society in the coming years, and the problem may only be getting worse. Millennials have grown up in the shadow of the financial crisis and many of them learned not to trust the system. They not investing, and they don’t have a clue how to take care of their financial futures.

I feel particularly sorry for the young generation coming up today. With the cost of education vastly higher than it was in my youth, too many young professionals start their careers already significantly in debt. It will be hard for them to save enough for their own retirements, and they may be asked to pay for their parents too.

This is why real financial education is so critical. We’re going to need a thrifty and industrious new crop of workers to carry America through our looming personal finance crisis. Nobody should graduate high school without a clear understanding of interest rates, debt, equity, down payments, insurance, and household budgets. Parents all need to do more to teach kids the value of money.

Americans of all stripes need to remember the fable of the Grasshopper and the Ants. After frittering away the summer months on play, the hungry grasshopper asked the ants to share their food. Resenting the grasshopper’s indolence, the hardworking ants refused. I’m not passing any moral judgement when I say that none of us should expect much help. Diligent savers like the ants will generally oppose public assistance. Everybody had better be preparing for winter.

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