1. PERSONAL FINANCE EDUCATION AND LIFE-CYCLE WEALTH AN ESSENTIAL LITERACY

2. MANDATE PERSONAL FINANCE AS A REQUIRED COURSE FOR HIGH SCHOOL GRADUATION  Financial markets have become increasingly accessible to the “small investor”.  Changes in the pension landscape have placed the responsibility upon the saver and retiree.  As the products become more sophisticated investors become increasingly overwhelmed.  Financial illiteracy cuts a wide swath across the U.S. population.  Financial knowledge can be cast as a type of investment in human capital.  Those who build financial savvy early can earn above average expected returns and significantly improve wealth accumulation throughout their life-cycle.

3. FROM DEFINED BENEFIT TO DEFINED CONTRIBUTION

4. HOW MUCH TO SAVE AND WHERE TO INVEST? HOW DO I AVOID OUTLIVING MY ASSETS WHILE MEETING MY NEEDS?

5. LITTLE ATTENTION PAID TO FINANCIAL LITERACY In the past with pre- defined pensions, cost- of-living adjustments, a healthy federal retirement system and a clear path through homeownership to net worth, there were few incentives to invest in financial literacy.

6. TRADE-OFFS Now, the individual earns money, must decide how much of it to use for consumption and savings, and must sacrifice time and money to invest in financial knowledge.

7. EVIDENCE TO SUPPORT THE DATA AND CONCLUSIONS DRAWN FROM HERE ON OUT ARE BASED ON THE FINDINGS REPORTED IN THE JOURNAL OF ECONOMIC LITERATURE. THE WORK OF ANNAMARIA LUSARDI AND OLIVIA S. MITCHELL INVESTIGATES THE ROLE OF FINANCIAL LITERACY IN LIFE-CYCLE WEALTH ACCUMULATION AND THE LEVEL OF FINANCIAL ILLITERACY IN THE U.S. AT A POINT WHEN SOCIETY CAN LEAST AFFORD IT.

8. THE STUDY HAS CONCLUDED THAT PRE-LABOR MARKET FINANCIAL KNOWLEDGE TO THE LEAST EDUCATED IMPROVES LIFE- CYCLE WEALTH ACCUMULATION BY 82%. FOR COLLEGE GRADUATES, ACCUMULATION WILL INCREASE BY 56%.

9. NUMERACY AND THE CAPACITY TO DO CALCULATIONS RELATED TO INTEREST RATES Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After 5 years, how much do you think you would have in the account if you left the money to grow: More than $102 Exactly $102 Less than $102 Do not know Refuse to answer.

10. UNDERSTANDING OF INFLATION Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, would you be able to buy: More than Exactly the same as Less than today with the money in this account Do not know Refuse to answer.

11. UNDERSTANDING OF RISK DIVERSIFICATION Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.” True False Do not know Refuse to answer.

12. RESULTS  Only 30% of the Americans tested could answer all three questions correctly.  Only 18% of those between 18-36 years old.  The vast majority of that group were white, college educated males.  Females were especially inaccurate with their answers. But comfortable in admitting they didn’t know.

13. NUMERICAL ABILITY  Strong predictor of mortgage defaults  More likely to borrow more and accumulate less wealth  Incur high transaction costs in borrowing  Unable to judge their debt positions  More likely to engage in costly credit card behavior

14. ONE SIZE WON’T FIT ALL  In the current generation of workers there is substantial heterogeneity in both financial knowledge and economic behavior  Simple financial decisions may not require professional advice, but more complex ones do  Less than 10% seek professional advice and few have the savvy to know if it’s good advice

15. FINANCIAL EDUCATION  Offering financial education in high school is the most scalable and economical approach.  Students acquire knowledge most successfully in states that mandate financial education as a graduation requirement  Teacher training is essential since so few teachers admit competency in teaching the concepts

16. FINANCIAL EDUCATION Most importantly, a framework of knowledge can be established before the:  Misuse of credit  High transaction costs  Unmanageable debt  Lost wealth  Poor planning occurs.