We Can Do More: COVID-19’s Spotlight on the Lack of Financial Literacy

Financial literacy is an important skillset for individuals to have so they can properly manage their financial well-being. Individuals across the United States are lacking in financial literacy, and therefore often struggle with navigating major financial events in addition to their daily personal finance decisions. K-12 family and consumer sciences (FCS) educators are equipped with the tools and resources to address this issue so individuals are better equipped to make sound financial decisions.

Data from the TIAA-GFLEC Personal Finance (P-FIN) Index shows the overall lack of financial literacy throughout the U.S. (Yakoboski et al., 2021). The P-Fin Index is an annual survey conducted by the TIAA Institute and the GFLEC (Global Financial Literacy Excellence Center). The P-FIN Index measures both knowledge and understanding of skills that allow adults to properly manage their personal finances. In order for FCS educators to help individuals improve their financial literacy, they will need to focus on both their own professional development and expansion of financial literacy education.

Lubbock, TX

Senior Associate of Tax Accounting

KPMG US

Adjunct Professor of Accounting, Tax Planning, and Personal Finance

Regis College

Southern New Hampshire University

University of the People (smolchan@ttu.edu)

COVID-19 has flipped the world upside down in many aspects of life. In addition to the severe impact COVID-19 had on individuals’ health and well-being, it also severely affected our economy. This economic impact includes a large number of individuals losing their jobs and businesses permanently closing. It is crucial that during uncertain times, such as what we experienced with COVID-19, individuals are prepared to make sound financial decisions. The 2021 TIAA Institute-GFLEC P-Fin Index asked U.S. adults questions on eight personal financial management topics: earning, consuming, saving, investing, debt management, insuring, comprehending risk, and identifying suitable sources when needed. The 2021 P-Fin Index provides an eye-opening sense of adults’ overall personal finance knowledge. The report indicated that only 50% of the 28 survey questions were answered correctly in 2021, and 20% of adults demonstrated an extremely low level of financial literacy, answering only 25% of questions correctly (Yakoboski et al., 2021). These results are alarming because the P-Fin Index serves to assess the overall financial well-being of adults.

The following eight functional areas were assessed in the 2021 P-Fin Index: earning, consuming, saving, investing, insuring, borrowing/managing debt, comprehending risk, and go-to information sources. Earning looks at factors that affect an individual’s wages or take-home pay. Consuming involves an individual’s budget and how they manage daily spending. Saving evaluates an individual’s savings habits. Investing considers the various types of investments and the relationship between risk and return. Insuring covers how insurance works and the different types of insurance. Borrowing and managing debt reviews different loan types and repayment of them. Comprehending risk relates to an individual’s comprehension of financial uncertainty, and go-to information resources asks individuals whether they can identify the proper resources or advice to seek when needed. or the impact of a job loss. If individuals cannot understand risk, it is unlikely that they will comprehend and successfully navigate the impact COVID-19 had or continues to have on their financial health.

The comprehending risk content area was where adults struggled the most, with only 37% of questions asked answered correctly (Yakoboski et al., 2021). Awareness of and ability to mitigate risks, especially during unprecedented situations such as the COVID-19 pandemic, is a crucial skill that will increase the likelihood of individuals successfully navigating the financial impact of unexpected situations. Individuals need to assess the probability of specific outcomes and consequences that various events could have on their financial health, such as job loss, an extended hospital stay due to a medical event, and adverse impact on the stock market. When events like these occur, there must be a plan in place to mitigate the potential adverse effects.

Income level can play a key role in assessing an individual’s financial literacy. The 2021 P-Fin Index examined four income levels of survey respondents: income less than $25,000; $25,000 to $49,000; $50,000 to $99,000; and $100,000 or more. Of these four categories, the index further categorized responses by race: Black, Hispanic, and White. The survey highlights a racial disparity in financial literacy because Blacks and Hispanics scored lower on financial literacy knowledge than Whites across the four income ranges. This disparity becomes more evident with the finding that Blacks and Hispanics answered fewer questions correctly than Whites across all eight assessed areas (Yakoboski et al., 2021). There is a clear need to bridge these gaps in financial literacy through education and outreach. FCS educators can provide the resources and skillset that allow all socioeconomic groups to have access to the same basic financial knowledge necessary to make educated financial decisions.

The 2021 P-Fin Index stated that low financial literacy around risk comprehension “means that individuals are particularly ill-positioned to make decisions at a time when uncertainty and volatility dominate economic and financial life” (Yakoboski et al., 2021, p. 11). The COVID-19 pandemic has created many uncertainties individuals must face, including but not limited to market volatility

FCS educators can address the lack of financial literacy highlighted by the COVID-19 pandemic and foster positive change in financial education. Wagner (2019) conducted a study that examined the relationship between financial education and financial literacy with people at different education and income levels. Looking at various income and education levels provides a better understanding of financial literacy across multiple groups in the U.S. The study found that financial education is positively related to financial literacy regardless of income or education level (Wagner, 2019). The lack of financial literacy throughout the U.S. suggests that FCS educators can improve the overall integration of financial literacy concepts and ensure that everyone has the proper access to financial education. Hogarth (2002) initiated a call to action for FCS educators to take on financial literacy; the COVID-19 pandemic reaffirms the need for this call to action.

FCS educators already integrate financial literacy concepts into the various courses they teach; however, more can be done to address Americans’ alarming lack of financial literacy. The 2021 P-Fin Index showed that American adults are not prepared with regard to the eight key functional areas of personal finance. Financial literacy is a key component of the Family & Consumer Sciences Body of Knowledge in meeting an individual’s basic human needs. Nickols et al. (2009) defined one aspect of meeting these needs as economic security. For individuals and families to have and maintain economic security, FCS educators need to “set priorities that focus on those societal and economic issues to which the FCS profession can make unique and significant contributions” (Crabtree, 2001, p. 13). Indeed, FCS educators have the unique opportunity to address the lack of financial literacy head-on in their classrooms and communities.

The first area that FCS educators should focus on when addressing financial literacy in their communities is their own content knowledge and skills in financial literacy. If FCS educators do not have a strong understanding of financial literacy, they will be ill-prepared to educate their students and communities. Pedersen (2016) reaffirmed this need for educator preparation in financial literacy by stating that FCS educators need both skills and content knowledge in this subject. FCS educators can utilize technology resources to gain this knowledge and skill set, or refresh it. One resource is the Jump$tart Coalition for Personal Financial Literacy. Jump$tart’s overall goal is to improve financial education for students across the U.S. in order to develop financially literate individuals. Jump$tart offers professional continuing education for educators entitled “Jump$tart Financial Foundations for Educators,” which provides continuing education on spending and savings, investments, credit and debt management, risk management, and consumer protection. This free resource will provide FCS educators with the necessary foundation to support financial literacy education in their classrooms and communities.

The second area FCS educators can focus on is expanding financial literacy education. Integrating financial literacy concepts into FCS courses or having a stand-alone financial literacy course is not enough because financial literacy concepts need to be reinforced throughout an individual’s life. This suggests that financial education should be integrated at all grade levels by gradually building on literacy concepts as students progress through the school system. In order to do this, FCS educators can utilize Jump$tart’s National Standards for Personal Financial Education. These standards will guide educators at different grade levels in their efforts to promote financial education. Even after they graduate from high school, students can continue to learn financial literacy through FCS professionals who provide education to their communities. Individuals face various financial events throughout their lives; FCS can be their resource. For example, adults may be concerned about the implications of the CARES Act and the American Rescue Plan passed by Congress to support individuals, families, businesses, the community, and the overall economy (https://home.treasury.gov/policy-issues/ coronavirus). Being able to serve as an educational resource to break down legislation that provides financial resources to the public is crucial for FCS educators in their financial education efforts.

Expanding financial literacy education in all aspects of an individual’s life is necessary. The COVID-19 pandemic has spotlighted the call to action initiated almost two decades ago by Hogarth (2002). FCS educators have the unique ability to address the lack of financial literacy and create positive change in the financial literacy rates of individuals throughout the U.S. The 2021 P-Fin Index raises alarming concerns about financial literacy in the U.S. Many individuals are not prepared for uncertain financial times and the general management of their finances; therefore, FCS educators need to step up their financial education efforts. Without a drastic change in how we educate individuals in this area, the lack of financial literacy will continue, only setting us up for failure in the future.

References

Crabtree, B. (2001). Integrative nature and Body of Knowledge of the family and consumer sciences profession. In AAFCS Council for Accreditation. Accreditation documents for undergraduate programs in family and consumer sciences (pp. A8–A11). American Association of Family and Consumer Sciences

Hogarth, J. M. (2002). Financial literacy and family and consumer sciences. Journal of Family & Consumer Sciences, 94(1), 14–28.

Nickols, S. Y., Ralston, P. A., Anderson, C., Browne, L., Schroeder, G., Thomas, S., & Wild, P. (2009). The

Family and Consumer Sciences Body of Knowledge and the cultural kaleidoscope: Research opportunities and challenges. Family and Consumer Sciences Research Journal, 37(3), 266–283. https://doi. org/10.1177/1077727x08329561

Pedersen, C. (2016). Technology resources for FCS professionals to learn financial literacy. Journal of Family & Consumer Sciences, 108(2), 58–60. https://doi. org/10.14307/jfcs108.2.58

Wagner, J. (2019). Financial education and financial literacy by income and education groups. Journal of Financial Counseling and Planning, 30(1), 132–141. https://doi. org/10.1891/1052-3073.30.1.132

Yakoboski, P., Lusardi, A., & Hasler, A. (2021). Financial well-being and literacy in the midst of a pandemic. The 2021 TIAA Institute-GFLEC Personal Finance Index TIAA Institute-GFLEC. https://gflec.org/wp-content/ uploads/2021/04/2021-P-Fin-Index-report-TIAA-Insti tute-GFLEC-April-2021.pdf?x63881