Financial Crisis and Financial Illiteracy

Financial illiteracy is the lack in the ability to understand finance and apply the knowledge into real lives. People who are financial literate possess a set of skills and knowledge that enables them to make wise financial decisions through their understanding of finance. Whereas, financial illiterates have poor wealth management skills, they often overdraw their checking accounts, are late in credit card payments and pay a lot of credit card fees. Many of them even do not have emergency funds, thus they are more vulnerable to hard times in life, such as unemployment.

A substantial proportion of the general public in the United States, especially young people, is ignorant of finance. According to the article in the Economist, "Getting it Right on the Money", four in ten American credit card holders do not pay the entire amount due every month on the credit cart they have, "despite the punitive interest rates charged by credit-card companies". Moreover, nearly one-third of them claimed that they do not know the interest rate applied to their accounts. In another article, "Millennials Struggle with Financial Literacy", the author pointed out that youngsters in U.S. hold an average debt of about $45,000, which includes everything from car loans to credit card debts to student loans to mortgages, according to a PNC financial independence survey released in March, 2012.

High level of financial illiteracy is a major cause of the current global recession. The whole society's economic slump was deepened due to the housing crisis, people's low savings rate and poor retirement planning. Austan Goolsbee, who formerly served as the Chairman of the White House Council of Economic Advisers, explained how financial illiteracy is related to the current financial crisis. He said that as "some of the restrictions that financial institutions had in offering financial products to consumers" was taken away, a lot of people "with limited financial literacy" got into extremely complicated mortgages. When those people cannot payback, the magnifications of the housing crisis essentially caused the worst economic recession.

Improving financial literacy is beneficial for people's lives and helps the build a stable economy. Having adequate financial knowledge motivates people to accumulate higher savings, be more responsible and prudent with borrowing, and be more capable of making wise allocations of personal financial resources.

Due to the growing concern of this issue, the U.S. government invested huge efforts over the years in helping to improve American's financial literacy. A list of government-established organizations and programs are introduced in details in the following paragraphs.

Consumer Financial Protection Bureau (CFPB) was created in 2011 in response to the mortgage meltdown. The bureau's main responsibility is to educate consumers to protect themselves from abusive financial practices, and provide the public with the information they need to make the financial decisions they believe are the best. The bureau offers online study tools such as blog, videos and Newsroom, and programs including advices on how to submit a credit card complaint, and get mortgage help.

Commodity Futures Trading Commission (CFTC) is established to protect investors from any fraud in the commodity futures and options markets. On its own website, there is a consumer protection section and education center. People could gain knowledge about the U.S. futures markets and types of fraud in the marketplace, and seek guidance on how to file complaints or send in tips regarding suspicious activities.

The U.S. government also formed the Federal Reserve Education, which offers a variety of information and programs for consumers interested in learning about financial markets, and personal financial planning. It has a number of programs, such as Money Connection, Teacher Workshops, Bank Tours and Lobby Exhibits, and The LifeSmarts Program. Its target audiences are primarily the consumers, students, and teachers.

The Federal Deposit Insurance Corporation (FDIC) is offering a program called "Money Smart" since 2001. According to the FDIC official website, Money Smart "is a comprehensive financial education curriculum designed to help low and moderate-income individuals outside the financial mainstream enhance their financial skills and create positive banking relationships." The "Money Smart" training materials are all free of charge and easily accessible through the internet.

The President's Advisory Council on Financial Literacy was established on January 22nd, 2008. It is operating under the guidance of the U.S. Treasury Department and specifically charged to assist the American people in understanding and addressing financial matters. Its audience is the general public, specifically targeted at consumers, providers of financial education and business leaders. Some programs it provides are National Financial Literacy Challenge, and MoneyMath: Lessons for Life curriculum.

The U.S Treasury also launched the Financial Literacy Education