What role does "financial literacy" play in your country?

[Torsten]

How educated are you when it comes to managing your finances? It seems to me that "financial literacy" is yet another field in which the US leads the pack. They have very comprehensive resources and programs in place to educate their children about money. For example, the US government is running the Financial Literacy & Education Commission with several federal agencies whose job it is to provide useful information on how to deal with money.

Many kids in Germany are rather uneducated about financial issues and as a result often create debts long before they start earning money.

So what is the situation in your country, how much do you know about your personal finances?
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[SkiIucK]

In Bulgaria, rarely do kids get educated about finances. Actually, most of them are quite "unbridled", letting cash flow through their wide spread fingers. However, there are exceptions - where the "street" teaches kids how to manage their money, because there are plenty of poor households, bordering with penury. Luckily, I study in an economics school, and my father is a "financial advisor", if that can be defined as an occupation... But nothing such as "financial literacy" is taught in non-specialized schools.

[Torsten]

Hi Dimitar,

Thanks a lot for sharing your experiences with us. Why do you doubt if financial adviser can be defined as an occupation? In my opinion this is a profession with a very high reputation. Maybe this is different in Bulgaria?
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[SkiIucK]

Hello
You have a point there. That was because advising is one of the many things he does...
P.S. I am very pleased you have remembered my name.
Regards

[Jamie (K)]

The US may have lots of financial education resources -- including lots of books and other resources for children -- but that doesn't mean the people are better educated about their finances, and it doesn't stop people from making bad financial decisions.

The problem is this: Americans don't like to do anything that's boring, and most of them are not taught math or even simple arithmetic well.

When you present a teenager with a book or some other media that will improve his financial literacy, he will be fascinated by the initial portion that describes what the long-term results of good financial planning are, but he'll drop it when "the boring part" starts. This "boring part" is the actual nuts and bolts of how to invest and manage one's money, and there's no real way to make this interesting to the average kid that age, or even the average young adult. This way, the kid learns all about how rich good financial planning can make him, but he never learns anything about financial planning. Therefore his income is limited to his wages, and he may not start saving any money until middle age.

Another factor is that many adults got into the workforce in an era that is now in its twilight. It's the one where the company pension funds took care of the person for the rest of his life. This has been replaced by a system in which the person's pension contributions are put into a private account that he's supposed to manage (usually with some help, if he asks for it, which he won't), and the employee takes the fund with him as he changes employers. It's better to have this money under the control of the employee, but often people not only don't have the motivation to educate themselves as to what to do with it, some of them don't even know that they have to educate themselves.

Economic illiteracy here is really astounding, considering the amount of information available. This is why people can be manipulated with weird, socialist economic slogans. It's not uncommon to see a person support some politician's plan to "make the rich pay their fair share" by heavily taxing stock dividends. Often this person receives a lot of dividends himself, but he doesn't know it, so he supports a tax plan that actually damages him. I get students in my classes -- adults, born and raised in the US -- who think you can't invest unless you're already rich. I tell them they can open an investment account with as little as $50, and then make small, regular contributions, and they're shocked. The people in their 30s may even get upset at the fact that they didn't know this at age 18 and had therefore lost 10 or 15 years of potential financial gains.

[SkiIucK]

A very strong post there, Jamie. So, the truth is the 'average Joe' is unable to contemplate what is good or bad for him, nor does he know that he has to improve and educate himself? This is sad.

[Jamie (K)]

[Prezbucky]

Torsten, there are a lot of investment-savvy people in the US.

Conversely, there are perhaps as many whose primary strategy is to buy lottery tickets... which are a terrible investment.
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[Jamie (K)]

[Prezbucky]

lol

it's sad, they waste their money and then blame the government (mostly President Bush) for their negative economic situation
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[Prezbucky]

..when they could be using that money to buy stock, mutual funds, or other (far more dependable/productive) investment tools.

or heck, just keeping it in a bank account would be a vast improvement.
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[Jamie (K)]

[Torsten]

Santa Bush -- I like that idea. When something goes wrong, people always blame the government, they rarely want to take responsibility for their bad decisions. That's the case in all countries, however it seems that Americans are less inclined to blame their government than other nations. Also, I still think that despite the recent financial crisis Americans are much better educated financially than many East Germans.

The generation of my parents are very suspicious of stocks, bonds and any other kind of financial investment products because this type of market was almost non-existent when we were a socialist country. The percentage of homeowners was extremely low and most people would keep their money in state owned banks generating interest rates slightly above inflation.
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[Prezbucky]

Jamie

Yeah, stocks are down... but long-term, the stock mkt is a much better bet than Powerball tickets. hehe
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[Prezbucky]

you know, this has something to do with finance -- taxes and tax cuts. There's a bit of what Jamie's acquaintance in here... the one who whined that his financial woes were due to President Bush. Here's a viewpoint some might not have heard. Enjoy!
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A Simple Introduction to Our Tax System

Here is a very simple way to understand our tax system. Let's put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten totals $100. If they paid their bill the way we pay our taxes, it would go something like this.

The first four men - the poorest - would pay nothing, the fifth would pay $1, the sixth would pay $3, the seventh $7, the eighth $12, the ninth $18, and the tenth man - the richest - would pay $59.

That's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement - until one day, the owner threw them a curve (in tax language, a tax cut).

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20." So now dinner for the ten only cost $80.00.

The group still wanted to pay their bill the way we pay taxes. So the first four men were unaffected. They would still eat for free. But what about the other six - the paying customers? How could they divvy up the $20 windfall so that everyone would get his "fair share?"

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would end up being paid to eat their meal. So the restaurant owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

And so the fifth man paid nothing, the sixth pitched in $2, the seventh paid $5, the eighth paid $9, the ninth paid $12, leaving the tenth man with a bill of $52 instead of his earlier $59. Each of the six was better off than before. And the first four continued to eat for free.

But once outside the restaurant, the men began to compare their savings. "Hey, out of the $20 savings, I only got a dollar, but he got $7!" declared the sixth man as he pointed to the tenth.

"Yeah, that's right," exclaimed the fifth man, "I only saved a dollar, too... It's unfair that he got seven times more than me!"

"That's true!" shouted the seventh man. "Why should he get $7 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison who have never paid for anything, "We didn't get anything at all. The system exploits the poor!"

The nine men surrounded the tenth and beat him up. The next night he didn't show up for dinner, so the nine sat down and ate without him. When it came time to pay the bill, they discovered a little late something that was very important. They were fifty-two dollars short of paying the bill!

Imagine that!

And that, boys and girls, journalists and college instructors, is how the tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.

Where would that leave the rest? Unfortunately, most taxing authorities anywhere cannot seem to grasp this rather straight-forward logic!

T. Davies
Professor of Accounting & Chair,
Division of Accounting and Business Law The University of South Dakota

(from ihatedemocrats.com)
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