The Need for Financial Literacy
In 2004, the Government Accountability Office (GAO) hosted a forum to develop recommendations on the role of the Federal government in improving financial literacy among consumers. GAO issued a report (GAO-05-93SP Financial Literacy Forum) that expressed the need for financial literacy in America as follows:
• Consumers are faced with a wider and increasingly complicated array of options for arranging their personal finances and selecting investments and credit products.
• Technological advances have increased the capacity for targeted marketing to
consumers, potentially increasing some consumers’ vulnerability to predatory lenders and other unscrupulous providers of financial services.
• Consumers are increasingly responsible for their own retirement savings, with traditional defined-benefit retirement plans becoming increasingly rare.
• The personal saving rate has fallen dramatically, declining from nearly 7 percent of gross domestic product in the 1970s and 1980s to around 2 percent in recent years.
• Household debt as a percentage of income hovers at record high levels. In addition, bankruptcy rates have more than quadrupled in the past 20 years.
The GAO report included forum participants’ recommendations that the Federal government make special efforts to reach certain groups. The target groups were:
• low- and moderate-income individuals and families, who typically have less experience with complicated financial transactions such as buying a home and may be more susceptible to deception or fraud;
• low-income women, who usually do not have an employer-provided retirement plan and often are entitled to relatively little Social Security income;
• immigrant populations, who may require information on operating within our nation’s economic system, which may be unfamiliar to them; and
• young people, who need to learn how to make responsible financial decisions as adults.