Discussion

What is the meaning of financial literacy? The Federal Government Accounting Office (GAO) defines financial literacy thusly:

The ability to make informed judgments and to take effective actions regarding the current and future use and management of money. It includes the ability to understand financial choices, plan for the future, spend wisely, and manage the challenges associated with life events such as a job loss, saving for retirement, or paying for a childs education.

Source: National Financial Educators Council (Links to an external site.)

As MBA Finance students, it will be assumed by others that you have developed an advanced level of financial literacy. However, you may not be there yet! You enter this course with a base knowledge of finance and investments, with a goal of knowing a great deal more about investments at the conclusion of this course. At its most basic, knowledge of investments is essential for successful financial well-being and in particular, retirement planning.

As an introduction to this course and subject matter, an exploration of the overall state of your own financial literacy, as well as the overall financial literacy of citizens in this country may be enlightening.

The first step in this exercise is to ask yourself two questions:

How would I rate my financial literacy at this point in time based on the survey results (see below)? On a scale of 1 to 10 (10 being equivalent to Warren Buffet or John Bogle)?
P.S.: if you are unsure who either of these gentlemen are, complete an Internet search and read about them as they are both significantly important in the world of finance and investing.
What do you think is the overall state of financial literacy of US citizens today?

To answer #2, you can start by reviewing this survey of over 1,000 US citizens, prepared by the American College on financial literacy in 2014 (Links to an external site.).

Perhaps surprisingly, a vast number of Americans report either being unprepared financially for a secure retirement. Approximately 50% or so of Americans report little to no retirement savings. What stands out to you?

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