For as long as he can remember, Zachary Beneda dreamed of joining the Air Force.
But the 23-year-old senior at Texas A&M University, who will be headed to Japan after graduation for his first active-duty assignment as an Air Force support officer, got a rude awakening when he realized he’ll also have to begin paying back $90,000 in college loans.
Mr. Beneda will be required to pay $1,000 a month — about half his monthly salary as a second lieutenant.
“I was floored,” he said. “I thought the military was going to take care of me and the burden wouldn’t be as bad. I wasn’t worrying about the loans as much as I should have.”
Mr. Beneda is hardly the first to underestimate the weight of college loans, and he won’t be the last.
But it’s not just college cost confusion — financial mistakes are made every minute of every day. The consequences of those mistakes run the gamut, from being an annoyance (inadvertently choosing a high-interest credit card) to being financially ruinous (investing a retirement nest egg in what turns out to be a Ponzi scheme).
We teach our children to wear seat belts. Schools invest in programs aimed at helping kids practice smart internet habits. But few are talking about the dangers of too much debt or the blessing that is compound interest.
As a result, Americans are saddled with exorbitant loans and save too little for retirement. As the gap between rich and poor widens, it’s clear that financial literacy is one of the factors that separate the haves from the have nots.
Financial advisers recognize the problem: 78% strongly agree financial literacy is a concern in the U.S., according to a survey of advisers by InvestmentNews.
But there’s a disconnect — only 4 in 10 advisers are doing anything to address the problem, meaning the majority are ignoring the issue.
That apathy could come back to haunt them. If a lack of financial knowledge is linked to a lack of wealth, as experts believe, fewer people will have the financial assets advisers depend on for their own revenue.
Advisers also realize that clients with financial knowledge are easier to counsel, since they better appreciate the need for professional financial advice.
“I think an educated client is always going to be a better client,” said Charlie Fitzgerald, principal, founding member and financial adviser at Moisand Fitzgerald Tamayo.
Financial literacy is a fancy term for the basics of financial decision-making — the ABCs of finance. A “literate” consumer will more likely make better decisions around borrowing, saving and buying financial products.
AMERICANS FALL SHORT
But when it comes to being financially literate, Americans fall woefully short. Although the U.S. is the world’s largest economy, the Standard & Poor’s Global Financial Literacy Survey ranks it No. 14 (tied with Switzerland) when measuring the proportion of adults in the country who are financially literate. To put that into perspective: the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller.