The Treasury Department wants to distill the basics of financial literacy into a “food pyramid” for personal finance that makes money management as easy to understand as eating right. Even though a little more than one-third of adult Americans are considered obese despite the food pyramid, the Treasury Department is forging ahead. Public comments are being requested on a set of “financial education core competencies” the Treasury Department is proposing for use in financial education programs across the country.
Personal finance meltdowns a national issue
If there’s a lesson to be learned from the Great Recession, it’s that when it comes to personal finance, too many Americans are financially illiterate. A fundamental lack of knowledge about budgeting, investing, credit, lending and saving was exposed by meltdowns in finance, housing and credit. Investment Advisor reports that the Treasury Department’s Financial Literacy and Education Commission is conducting an annual review of its national strategy to promote basic financial literacy and education as mandated by the Fair and Accurate Credit Transactions Act of 2003. Using the “food pyramid” as an example, the Commission is trying to define the basics of financial literacy education for the public in ways that can be readily understood.
Financial education basics
The Treasury Department is accepting comments on or before Sept. 12. According to a Federal Register notice released Aug. 26, the Commission has identified five proposed personal finance concepts – or “financial education core competencies” – that it says “every American should have command of.” They include:
Earning: Understanding the difference between gross pay and net pay, employee benefits and taxes and the importance of education.
Spending: The difference between needs and wants, learning how to create a budget, tracking spending and living within one’s means.
Saving: Understanding how saved money grows, how to meet long-term goals and wealth building, learning about bank accounts, understanding financial assets, such as savings accounts and investments.
Borrowing: Understanding the cost of borrowing and the role of credit scores.
Protecting: Learning how to protect assets, choosing the right insurance coverage and knowing how to guard against identity theft.
Seeking consensus on financial education
The financial education field lacks common ground on what it aims to achieve, the Treasury Department said in the Federal Register. It wants to facilitate agreement on appropriate basic content for financial literacy and education. Ted Beck of the National Endowment for Financial Education, who helped develop the core competencies, told the Dallas Morning News that in schools “there’s a wide variance in different kinds of programs, the quality of programs,” he said. “The idea of having a very straightforward checklist about the basics is something we think is very important.” A Texas education official told the newspaper that the core competencies listed by Treasury are a “good start” but the list is incomplete. For example, students should be taught the pros and cons of credit cards, mortgages, payday loans and other forms of borrowing.