Financial Literacy Initiatives: Essays on the Importance of Accounting Education for the Public
Recent years have seen a growth in financial literacy initiatives. Once, personal financial literacy was considered almost a natural skill; politicians would use managing household budgets as a parallel for government finance, implying a simplicity that existed in neither budget. Today, there is an increased awareness that financial literacy is not just important, but that it is a skill that the majority of people need to improve.
Since Congress established the Financial Literacy and Education Commission in 2003, there has been a growth in financial literacy programs. Now, children in elementary school can be taught the basics of money management with further schemes being delivered at every level of the education system and federal schemes like MyMoney.gov offer help and advice to the general population.
But if you are writing about financial literacy and accountancy education, you should consider not just the history of such schemes, but also the impact that they have. And, if you think about it like an economist, there are different ways to consider it, from the personal level, all the way up to the national economic effects. This allows you to write not just about the factual aspects, but also to consider the broader impact, and value, of accounting education.
1. The personal level: the financial illiteracy problem
Most financial literacy initiatives are aimed at individuals, so considering their impact at that level is an obvious starting point.
As our lives have improved, our aspirations have increased, but so has the complexity of our finances. We might need to own a vehicle, expect an annual holiday, and aspire to homeownership. And often, this is only possible because of the ready availability of credit.
However, that means we end up holding different types of loans while budgeting our day-to-day expenses, and then planning for the long term with things like a 401k and health insurance. It means that people are typically juggling both debt and investment, but not necessarily in the most efficient way possible.
According to Federal Reserve data, Americans hold nearly $5 trillion in consumer debt, and about a third of that is student debt, with the average student debt, according to most sources, owing around $30,000.
It’s not difficult to imagine how accounting education can impact on this. For example, the National Financial Capability Study found that while more than seven-in-ten Americans understood the principles behind mortgages and interest rates, only around three-in-ten understood compound interest. This can have a big impact on long-term decisions, seeing people vastly underestimate the costs of borrowing, or the benefits of saving. Surveys have found practical examples of the difference this makes, with around half of all graduates wishing they had attended a cheaper college.
Considering the personal impact — from poorer mental health and wellbeing all the way to bankruptcies — of poor personal accountancy skills can help to illustrate arguments about the importance of financial literacy education.
2. The wider impact of financial literacy
Financial literacy has an impact on an individual’s life, but that means it will also have an impact on those around them, whether or not they themselves are financially literate.
Considering these can help further underline the importance of accounting education. The obvious starting point is considering what happens to the money that might be saved. One of the biggest impacts of poor financial literacy is that people spend more servicing debt. But what happens when this money isn’t ‘lost’?
This may vary, and is a good example of where both anecdote and data can help to support an argument. In practice, no-one really considers themselves wealthier, however, overall, better financial literacy tends to change habits.
With more disposable income, spending increases. This typically helps bolster local economies, for example with increased spending on things like entertainment. But there is also some evidence that it helps with social capital, with increased wealth leading to things like increases in charitable giving or volunteering. And perhaps the biggest winners are children, who often benefit from that additional spending with a better diet and increased opportunities.
Of course, the downside is that banks will see smaller profits if they are charging less interest. However, research also suggests that increasing local expenditure has a bigger overall impact on national economic health.
3. The macroeconomic impact of accountancy education
Finally, although the personal impact of financial literacy is important, you can further underline the benefits by considering the macroeconomic effects: how financial literacy benefits the whole country.
It’s notable that the USA lags large parts of the world on financial literacy. Standard & Poor’s Global Financial Literacy Survey found America’s rate of financial literacy just 57%, and as low as 47% among low-income Americans. This meant America was behind Canada, Australia and New Zealand, and almost every European country.
As well as the negative impact those poor rates have, leaving people with less to spend on their families and local economies, it also seems to be a drag on businesses. Recent research has found a correlation between entrepreneurship and financial literacy, and that the most financially literate entrepreneurs were the most successful.
The research did not establish if there was a causal link — that better financial literacy would mean more entrepreneurs, and more businesses — but it does suggest that better accountancy education could decrease the number of business failures, and increase the success of other businesses. In other words, poor financial literacy puts America at a competitive disadvantage to large parts of the rest of the world.
Writing about financial literacy
Like any writing, it’s always important to find evidence to back up your argument. Fortunately, there is a growing body of research into the positive impact of financial literacy and accountancy education.
But whatever approach you take when writing about the importance of financial literary — whether you consider just one level or every level — it’s clear that the impact can be huge, and the evidence to support an argument that accountancy education is important is there. You just have to decide the best way to illustrate it.
