Back in April 2012, USA Today ran an article with the title Millennials Struggle With Financial Literacy. How bad was the problem? According to the article:
The Treasury Department and Department of Education have teamed the past three years to assess financial literacy in U.S. high schools, and the results haven’t been pretty: the average score of almost 76,900 students in 2010 was 70%. Last year’s testing of about 84,000 students and this year’s of about 80,000 students were both a point lower: 69%. “We have a long way to go as a country,” Secretary of Education Arne Duncan said in an interview, in assessing the test results from the past three years. “There has been a devastating cost to a lack of attention, urgency and seriousness of taking this on,” he said, noting that the housing crisis, low savings rate and poor retirement planning all flow out of the financial literacy issue.”
[The housing crisis, low savings rates, and poor retirement planning “all flow out of the financial literacy issue“? I thought these crises were the banks’ doing. Oh no, wait, I’m sorry, I forgot–they were George Bush’s fault.]
Just a few months ago, CNBC published a piece titled Millennial Money Habits Worth Breaking which attempted to paint a bleak picture of Gen Yers’ money skills:
Bad habits are easy to fall into—especially when you’re in your 20s. Some of the worst money habits among millennials, according to recent surveys include overspending, undersaving and racking up credit card debt. One in 5 millennials hasn’t even started saving, according to a recent poll. Three in 10 don’t even have savings accounts! And of those who do, nearly 40 percent have less than $5,000 saved. And when it comes to putting money aside for long-term goals like retirement, the numbers are just as bad. A 2014 Fidelity survey found more than half of millennials had yet to start saving for retirement.
OMG! This is terrible!
Or is it?
According to Financial Finesse, a “think tank geared toward helping people reach financial independence and security”:
The youngest segment of the workforce (Millennials) seems to do pretty well with the in-the-moment financial decisions. Essentially, these consumers were scarred by the debt problems they saw in the recession, and they’re more likely to spend within their means, have plans to pay off debt, pay their credit card balances in full and avoid bank fees than Gen Xers.
Financial Finesse’s findings are corroborated by a recent study from Ipsos and Wells Fargo which found that 75% of Millennials are “financially responsible and generally do not spend beyond their means.”
Just as important, to the literacy issue, eight in 10 Millennials said they “understand how to manage money, save it, earn it, work with a budget, and invest it.” The percentage of older consumers who agreed with that statement is higher–but only slightly higher.
Shevlin’s Law: For every data point you can find to support your opinion, there are two data points out there to refute it.
The articles cited above–and the data points thrown around in them–help to highlight a problem we have in the financial services industry: We have no objective, quantifiable way of measuring financial health.
Studies gauging the financial literacy of high school students is a huge waste of time and expense. Most of these kids aren’t in the real world having to manage money, so what good would literacy do them now? And if you want to argue that financial education at that age lays the foundation or groundwork for better financial management later in life, how do you explain the fact that there are plenty of people who do just fine, thank you, managing their money, but never received “education’ when they were in school.
The explanation lies in the fact that they learned financial management “on the job.”
But I’m digressing from the key point–and I’m doing so intentionally to demonstrate how easy it is to slip into arguments that involve opinions, and how survey data can be twisted around to support those opinions.
Here are some “facts”:
- More than half of Millennials have yet to start saving for retirement…but that doesn’t mean that they’re not saving for other goals and objectives.
- Three in 10 Millennials don’t have a savings account…which means that seven in 10 do, and doesn’t mean that the 30% aren’t saving money–they’re just not keeping it in a savings account.
- Nearly 40% of Gen Yers with a savings account have less than $5,000 saved…but so what? When I was in my 20s, I didn’t have $5,000 saved. I turned out alright. Financially, that is.
Bottom line: The discussion of financial literacy and health is unproductive as long as we lack a quantifiable, objective, and agreed-upon approach to measuring it.