Financial literacy: university-focused activities.

• Author: McWilliams, John

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The American economy is the eighth wonder of the world. The ninth is the economic ignorance of the American people.

--Burton Crane, Getting and Spending: An Informal Guide to National Economics (Harcourt, Brace, 1956)

Financial literacy has always been valuable in the capitalist U.S. economic system, and arguably individual personal financial literacy is now more important than ever. Unfortunately, there is also evidence that financial literacy is not prevalent among the people who need it most. The good news is that there are many organizations focused on this issue.

The AICPA, state CPA societies, the American Accounting Association, and the accounting fraternity Beta Alpha Psi have recognized the significance of this situation. Their activities, coupled with well-planned and executed university-connected collaborations, can be significant in improving Americans' financial literacy.

Financial Literacy--An Issue of Increasing Urgency

In 2006, an Urban Institute report documented research and analysis clearly indicating the need for personal financial literacy (Lerman and Bell, "Financial Literacy Strategies: Where Do We Go from Here?" available at www.urban.org/publications/311352. html). The report noted the variety of financial decisions individuals face today and their generally low level of knowledge and skill in interpreting even basic financial information.

Several changes to the U.S. economy have increased the importance of personal financial knowledge. One of the most critical changes is the virtual disappearance of defined-benefit pension plans sponsored by private employers. Saving for retirement is now more discretionary and is commonly done using accounts in which financial decisions are made by plan participants rather the professional pension-plan managers. Along with this shift of responsibility to individuals, financial markets now offer increasingly complex investment alternatives that investors must carefully evaluate. The significance of this shift is exacerbated by increasing life expectancies, suggesting a need for larger savings or delayed retirement.

There is also clear evidence that Americans are struggling with how to prudently manage debt. The subprime mortgage crisis and related foreclosures (see Jones, "The Mortgage Forgiveness Debt Relief Act of 2007," p. 297), increasing bankruptcy rates, and a negative national savings rate have led to concern about Americans' level of financial literacy and how well they understand the risks associated with using debt. The comparative ease with which money...