Fall is in the air and students across the state are back in the classroom. But one of their most important lessons may be best taught at their local banks.
Studies and data suggest we don’t use traditional banks enough. We need to advance our financial literacy.
The Financial Industry Regulatory Authority runs what is known as the National Financial Capability Study. It began in 2009, partly in response to the financial crisis, when many families made financial mistakes.
The FINRA study measures a number of characteristics about our “financial capability.” These include whether we spend less than our income, how much we save for a rainy day, and how much we borrow from nonbank lenders.
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According to the study, just over three-quarters of U.S. households “make ends meet” or are able to save some money each month. In 2012, nearly one in five households was going into debt.
Other data indicates that for those who do save money each month, the amount is relatively small. The U.S. saving rate, as a percentage of disposable personal income, is currently 4.9 percent as reported by U.S. Commerce Department. This is half the rate of the 1960s and ‘70s.
As a state, Idaho has many over-spenders. The FINRA study found that only 34.3 percent of Idahoans report saving money. We are the lowest among all states in the share of households that put some money into savings each month.
This is surprising given that Idahoans do well on a basic quiz of financial concepts. FINRA offers a five-question financial literacy at usfinancialcapability.org.
Idahoans on average score 3.16 out of 5, or 63 percent on this test. Our score is only somewhat better than the national average of 2.88 out of 5, or 58 percent. These are D grades in my classes.
Another area of financial literacy we need to work on is how we buy financial services and products. The FINRA study found that 28 percent of Idahoans have used some form of high-cost, nonbank borrowing over the past five years. This includes taking out payday loans or getting an advance on a tax refund. Both of these are expensive.
We can do better.
A 2013 study from the Federal Deposit Insurance Corp. found that 5.4 percent of all Idaho households (about 31,000 households) are unbanked, and 19 percent are underbanked. In an unbanked household, no one has any kind of deposit account at an insured depository institution. By underbanked, the FDIC means the household holds a bank account but also uses expensive payday loans or tax advances.
Getting more people to open bank accounts can help. Banking is a service business, and banking professionals can help us learn and practice good financial decisions.
State and federal policymakers can help by reducing their dependency on borrowing — in other words, by saving more — and by promoting traditional banking services. Our leaders can lead the way to better financial literacy.