America’s Growing Financial Literacy Problem
Making major personal finance decisions can be daunting for anyone.
Whether the decision is related to paying back student debt or how to invest for the first time, the outcomes of these decisions have a long-term impact on the quality of our lives. Smart decisions can lead to achieving financial independence, while bad decisions can lead to years of being stuck in the “hole”.
Even though it’s clear that financial literacy is important, there’s a big problem: it’s actually been dropping for years in the United States.
Diagnosing the Problem
Today’s infographic was done in conjunction with Next Gen Personal Finance, a non-profit that provides a free online curriculum of personal finance courses geared to students.
The graphic paints a troubling picture of the current financial literacy situation in the country, while demonstrating why personal finance is a crucial area of study for our youth.
Here are some of the indicators that show literacy is dropping:
- The U.S. ranks 14th globally in terms of financial literacy
- With a 57% literacy, the U.S. beats Botswana (52%) but gets edged out by countries like Germany (66%) or Canada (68%)
- Only 16.4% of U.S. students are required to take a personal finance class in schools
- 76% of millennials lack basic financial knowledge
- Between 2009-2015, Americans got worse at answering five key personal finance questions posed by FINRA – a major U.S. financial regulator
And worse, this lack of knowledge is translating into anxiety and even fear.
- Four of five adults say they were never given the opportunity to learn about personal finance
- 70% of millennials are stressed and anxious about saving for retirement
- 22% of millennials feel overwhelmed about their finances
- 13% of millennials feel scared
Meanwhile, student debt is soaring to new highs – how do we put our students in a better spot to succeed?
The Road Ahead
As financial products continue to increase in complexity, the road ahead is not an easy one.
However, there is still a great case for optimism: 60% of Americans say they know someday they will need to be more financially secure – they just don’t know how to get there. This number increases to 70% for those between the ages of 18-39 years old.
This means there is actually a great thirst for financial education out there – the question is just how to best deliver that information in a compelling way.
Another good sign? The youngest generation, Gen Z, is already starting to think about money differently:
Gen Z saw millennials struggle with wage stagnation and huge college debt, so they took note and are making a conscious effort to approach money and debt differently.
– Jason Dorsey, Center for Generational Kinetics
Real World Benefits
Increased financial literacy translates into real world benefits for individuals, and to the economy as a whole.
People with strong financial skills are better at job planning and saving for retirement. Meanwhile, financial savvy investors are more likely to diversify risk, and students that take a personal finance course see up to a 5.2% increase in credit scores within two years.
Lastly, consumers that understand compound interest:
- Spend less on transaction fees
- Accrue less debt
- Incur lower interest rates on loans
- Save more money
And this is just scratching the surface of what could be possible.
Making the right financial decisions can help people meet their own personal goals, live a life of abundance, get out of debt, and become financially independent.
This infographic was originally published on the Wealth 101: A Crash Course in Personal Finance minisite, a collaboration between NGPF and Visual Capitalist
Mapped: The World’s Biggest Private Tax Havens
What countries or territories do the ultra-wealthy use as tax havens?
The World’s Biggest Private Tax Havens
When the world’s ultra-wealthy look for tax havens to shield income and wealth from their domestic governments, where do they turn?
If you’re putting money in offshore bank accounts in order to save on taxes, there are two main criteria you’re looking for: secrecy and accessibility. Based on pop culture and media reports, you might imagine a secretive bank in Switzerland or a tiny island nation in the Caribbean.
And though there is some truth to that logic, the reality is that the world’s biggest tax havens are spread all over the world. Some of them are small nations as expected, but others are major economic powers that might be surprising.
Here are the world’s top 20 tax havens, as ranked by the 2020 Financial Secrecy Index (FSI) by the English NGO Tax Justice Network.
Which Countries are the Biggest Tax Havens?
The FSI ranks countries and territories from all over the world on two criteria: secrecy and scale.
- Secrecy Score: How well the jurisdiction’s banking system can hide money. This includes analysis of ownership registration, legal entity transparency, tax and financial regulations, and cooperation with international standards.
- Global Scale Weight: What is the jurisdiction’s share of the world’s total cross-border financial services? This metric is based primarily on the IMF’s Balance of Payments statistics.
By weighing a country’s ability to hide money by its relative share of offshore financial services, we see the tax havens with the biggest impact on the global economy.
|1||🇰🇾 Cayman Islands||Caribbean|
|2||🇺🇸 United States||North America|
|4||🇭🇰 Hong Kong||East Asia|
|5||🇸🇬 Singapore||Southeast Asia|
|7||🇯🇵 Japan||East Asia|
|9||🇻🇬 British Virgin Islands||Caribbean|
|10||🇦🇪 United Arab Emirates||Middle East|
|12||🇬🇧 United Kingdom||Europe|
|13||🇹🇼 Taiwan||East Asia|
|17||🇹🇭 Thailand||Southeast Asia|
|19||🇨🇦 Canada||North America|
|20||🇶🇦 Qatar||Middle East|
At a glance, the top 20 tax havens are spread out across regions. Just under half of the list is located in Europe, but the rest are spread out across the Americas and Asia.
And the jurisdictions are opposites in many ways. They include financial powerhouses like the U.S., Japan, and the UK as well as smaller nations and territories like the Cayman Islands, Hong Kong, and Luxembourg.
But one surprising thing many of them have in common is a link to England. In addition to the UK, four of the top 20 tax havens—Cayman Islands, British Virgin Islands, Guernsey, and Jersey—are British Overseas Territories or Crown Dependencies.
Also worth noting is the importance of scale in the rankings. The highest ranking jurisdictions by secrecy score were actually the Maldives, Angola and Algeria, but they represent less than 0.1% of total offshore financial services.
Best Place To Hide Private Vs. Corporate Tax
Some of the listed tax havens might be confusing to nationals of those countries, but that’s where relativity is important. The U.S. and Canada might not be tax havens for American or Canadian nationals, but the ultra-wealthy from East Asia and the Middle East are reported to utilize them due to holes in foreign tax laws. Likewise, the UAE has reportedly become a tax haven for Africa’s ultra-wealthy.
In addition, many of the countries used as tax havens for individual wealth are also utilized by corporations.
The Tax Justice Network’s 2021 assessment of corporate tax havens listed the British Virgin Islands, Cayman Islands, and Bermuda as the top three tax corporate tax havens.
While individuals might create shell companies in tax havens to hide their wealth, corporations are usually directly incorporated in the tax haven in order to defer taxes.
But the tax haven landscape might soon shift. The G7 struck a deal in June 2021 to start taxing multinational corporations based on the revenue generated in each country (instead of where the company is based), as well as setting a global minimum tax of 15%. In total, a group of 130 countries have agreed to the deal, including India, China, the UK, and the Cayman Islands.
As the campaign to bring back deferred taxes ramps up, the question becomes one of response. Will the ultra-wealthy individuals and corporations start to work in tandem with the new rules, or discover new workarounds and tax havens?
Charting The Growing Generational Wealth Gap
How large is the wealth gap between Millennials, Gen X, and Baby Boomers? We visualize the growing wealth disparity by generation and age.
The Growing Generational Wealth Gap
As young generations usher into adulthood, they inevitably begin to accumulate and inherit wealth, a trend that has broadly remained consistent.
But what has changed recently is the rate of accumulation.
In the U.S., household wealth has traditionally seen a relatively even distribution across different age groups. However, over the last 30 years, the U.S. Federal Reserve shows that older generations have been amassing wealth at a far greater rate than their younger cohorts.
As the visual above shows, the older have been getting richer, and the younger have been starting further back than ever before.
By Generation: Baby Boomers Benefit & Millennials Lag
To examine the proportion of wealth each generation holds, it’s important to clearly define each age group. Though personal definitions might differ, the U.S. Federal Reserve uses a clear metric:
|Generation||Birth Years||Age (2020)|
|Silent Generation & Earlier||1945 and earlier||75+|
Relative to younger generations growing up, the Silent Generation and Greatest Generation before them have seen a decreasing share of household wealth over the last 30 years.
However, the numerical levels have been relatively stable. For these combined generations, total wealth has gone from $16 trillion in 1989 to $19 trillion in 2019, with a peak of $27 trillion in 2007. Considering this cohort has understandably shrunk over time—from an estimated 47 million to 23 million in 2019—their individual shares of wealth have actually increased.
Immediately following are the Baby Boomers, who held more than half of U.S. household wealth towards the end of 2020. At $59 trillion, the generation holds more than ten times the amount held by a comparative number of Millennials.
|Generation||Wealth (2019)||Population (2019)||Wealth/Person|
|Silent Generation & Older||$18.8 Trillion||23.0 Million||$817,391|
|Baby Boomers||$59.4 Trillion||71.2 Million||$834,270|
|Generation X||$28.6 Trillion||65.0 Million||$440,000|
|Millennials||$5.0 Trillion||72.6 Million||$68,871|
With $29 trillion held in 2019, Generation X has also been gaining in wealth over the last 30 years. It’s good enough for five times the wealth of Millennials, though at just $440k/person, they’ve fallen far behind Baby Boomers in rate of growth.
Finally, trying to catch up to their older cohorts are Millennials, who held the least amount of household wealth ($5 trillion) for the greatest population (73 million) in 2019, an average of just under $69k/person.
For a direct comparison, it took Generation X nine years to climb from their start of 0.4% of household wealth in 1989 to above 5%, while Millennials still haven’t crossed that threshold. But it’s not all doom and gloom for Millennials. Their rate of growth is starting to rise, with the generation’s level of wealth climbing from $3 trillion in 2016 to $5 trillion in 2019.
By Age: A Growing Share for 55+
Though the generational picture is stark, the difference in U.S. household wealth by age makes the picture of shifting wealth even clearer.
Until 2001, the shares of household wealth held by different age groups were relatively stable. People aged 40-54 and 55-69 held around 35% each of household wealth, retirees aged 70+ hovered around 20%, and younger people aged under 40 held around 10%.
Since that time, however, the shift in wealth to older generations is clear. The 70+ age group has seen their share of wealth increase to 26%, while the share held by ages 55-69 has grown from 35% to almost half.
But not all ages are seeing an increasing slice of wealth. The 40-54 age group saw its share drop sharply from 36% to 22% between 2001 and 2016 before starting to recover towards the end of the decade, while the youngest cohort now hover around just 5%.
Breaking down that wealth by components is even more eye-opening. The 39 and under age group holds 37.9% of their assets in real estate, the largest share amongst any age group (and concentrated in the hands of fewer people) while older age groups have their wealth spread out across real estate, equities, and pensions.
|Assets Held by Age (Percent of Total, 2020)||70+||55–69||40–54||≤39|
|Corporate equities and mutual fund shares||24.6%||23.1%||18.6%||8.1%|
But the difference is as much in assets as it is in opportunity. In 1989, Baby Boomers and Generation X under 40 accounted for 13% of household wealth, compared to just 5.9% for Millennials and Generation Z under 40 in 2020.
Will the Tide Turn for Generation Z?
As new and accumulated wealth has been built up in older generations, it’s a matter of time before the pendulum starts to swing the other way.
The Millennials age group are expected to inherit $68 trillion by 2030 from Baby Boomer parents. Of course, that payout isn’t going to be even across the board, with wealthier families retaining the bulk of wealth and the majority of Millennials laden with debt.
And with Generation Z (born 1997-2012) starting to come of age, the uneven playing field is making it hard to begin accumulating wealth in the first place.
Since it is in the best interest of societies to have wealthy generations that can drive economic growth, potential solutions are being examined all over the political sphere. They include different taxation schemes, changing estate laws, and potentially cancelling student debt.
Whatever ends up happening, it’s important to track how the distribution of wealth changes over the coming decade, and begin accumulating your personal wealth as best as you can.
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