Making sense out of the dollars
Like many people, Derrick Oliver started his adulthood without the skills and habits needed to make sound personal financial decisions — an ability some call “financial literacy.” As a result, thousands of dollars in credit card bills and other debts awaited him when he graduated from college.
“My earliest memories about money were to spend, spend, spend,” said Oliver, a 26-year-old from Memphis, Tenn., who lives in Nashville, where he works as a juvenile detention officer. “There was a real lack of financial training.”
Fortunately for Oliver, a recent marriage and the influence of personal finance talk show host Dave Ramsey changed his outlook. In 18 months, he and his wife, Crystal, 24, learned to stick to a spartan budget — no cell phones, no cable TV or other perks — while managing to pay off $25,000 in debt on a combined annual salary of just $40,000.
The Olivers’ story could be an inspiration. But for now, their story tends to be the exception to the rule when it comes to the hard work of digging out of the spend-more-than-you-make cycle.
Increasingly, alarms are being sounded by government policy-makers and financial industry professionals who worry that not nearly enough people either know enough or are compelled enough to properly manage their personal finances.
They point to studies and surveys that show millions of Americans are financially illiterate when it comes to avoiding the pitfalls that can lead to bankruptcy, home foreclosure and other financial ruin.
The concern looms when all Americans are being asked to assume greater responsibility for their financial decisions.
Tougher new bankruptcy laws, so-called consumer-driven health insurance plans, possible Social Security reform leading to benefit cuts and private investment accounts, and employers’ shift from guaranteed pensions to defined-contribution retirement plans are just a few examples.
A sampling of the warning signs:
“ Last year, financial Web site Bankrate.com gave America a financial literacy grade of “D” based on a nationwide poll that measured respondents’ knowledge and practice of smart financial habits such as keeping an emergency fund, following a monthly budget and saving for retirement. More than one-third of the 1,000 respondents earned a grade of “F.” Less than 10 percent earned an “A.”
“ Consumer debt and personal bankruptcies have reached record highs in recent years. Meanwhile, a report last month by CFED, a nonprofit group formerly known as the Corporation for Enterprise Development, estimated that almost one in five Americans has zero net worth or are in debt.
“ A study released in March estimated that as many as 30 million Americans, or one of every four, are “seriously financially distressed.” Nearly half of those who reported having financial stress said it had negatively affected their health; at least 30 percent said it hurt their productivity at work by forcing them to spend time dealing with their financial problems while on the job.
Meanwhile, financial literacy advocates say not nearly enough people are following in the Olivers’ frugal footsteps, despite a wide range of financial education resources in the private and public sectors, many for little or no charge.
“Most people just deal with financial problems when they hit a crisis,” said Jessica Farr, regional community development manager who works on financial literacy efforts for the Nashville branch of the U.S. Federal Reserve. “They just go day to day and month to month to try and survive.”