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America’s Growing Financial Literacy Problem

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America's Growing Financial Literacy Problem

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

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Chart of the Week

Ranked: The Richest Countries in the World

These countries hold 74% of the world’s $204 trillion in private wealth. See the 10 richest countries, and how their totals have changed over time.

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Ranked: The Richest Countries in the World

Since the 2008 financial crisis, global private wealth has been steadily growing.

In fact, overall private wealth worldwide reached $204 trillion in 2018, which is a 26% increase over the past decade.

This week’s chart, which uses numbers from the Global Wealth Migration Review 2019, examines the top 10 richest countries and the growth of private wealth from 2008 to 2018.

RankCountryPrivate Wealth in $USD (2018)10-yr change (%)
#1🇺🇸 United States$60.7 trillion27%
#2🇨🇳 China$23.6 trillion130%
#3🇯🇵 Japan$19.1 trillion18%
#4🇬🇧 United Kingdom$9.1 trillion4%
#5🇩🇪 Germany$8.8 trillion7%
#6🇮🇳 India$8.1 trillion96%
#7🇦🇺 Australia$6.0 trillion48%
#8🇨🇦 Canada$6.0 trillion23%
#9🇫🇷 France$5.9 trillion-7%
#10🇮🇹 Italy$3.8 trillion-14%

Combined, the 10 countries above represent 74% of total private wealth worldwide.

These trends are staying consistent with the numbers seen in 2017. Asian countries such as China and India showed the highest uptick in wealth gains, holding their #2 and #3 spots on the list, while European countries such as France and Italy actually saw a decrease.

Trends in the Wealth Landscape

Over the last 10 years, China has experienced the largest increase in wealth at 130%. This growth also means that China now boasts more high-net-worth individuals (HNWIs) than any other country except the United States.

While India doubled its total private wealth over the 10-year period, wealth per adult remains at just 22% of the global average.

The U.S. continues to lead in wealth numbers, holding 30% ($60.7 trillion) of the world’s total private wealth. Unsurprisingly, the U.S. remains home to the most millionaires in the world.

The World’s Millionaires: Top 3 Countries

  • United States: 17,350,000
  • China: 3,480,000
  • Japan: 2,809,000
  • World total: 42,155,000

Source: Credit Suisse

Australia now tops the above list in terms of highest wealth per adult, and it is second in the world only to Switzerland in the context of major nations.

Despite the recent turmoil and uncertainty stemming from Brexit, the United Kingdom still saw overall growth in the past decade, moving from #5 to #4 rank on the list of countries with the highest private wealth.

Projections from New World Wealth estimate that total global wealth will reach $291 trillion by 2028, driven by strong growth in Asia.

Rising Wealth Inequality

Unfortunately, this growth is also linked to the growing problem of wealth inequality gap across the globe, and the gap seems to get bigger every year.

The average global wealth per adult is approximately $27,000 – but of the total adult population, 64% have a net worth of less than $10,000. The bottom half of adults in the world now own less than 1% of all household wealth.

By contrast, 85% of all household wealth is owned by the richest 10%, and the top 1% own almost half (47%) of the world’s household wealth.

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Gold

Animation: How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare. See how the world’s most elite investors – like Ray Dalio – are protecting themselves.

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How Billionaires are Preparing for the Next Bear Market

No one likes to lose money, even if you have billions to spare.

It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.

To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.

Protecting Wealth

Today’s animation comes to us from Sprott Physical Bullion Trusts and it highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.

Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include uncorrelated assets.

Correlated vs. Uncorrelated

While this sounds complicated, uncorrelated assets are simply investments that don’t move up or down in the same direction as the other asset classes in the portfolio. A small allocation to these uncorrelated items can help protect the value of a portfolio when market sentiment changes.

The King of Uncorrelated Assets

What kind of asset classes can be used for this kind of purpose?

While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of uncorrelated assets.

The price of gold doesn’t usually doesn’t move with the wider stock market – and often, because of its history, the yellow metal can even increase in price during the course of a bear market.

Here are some of the reasons billionaires turn towards an allocation in gold:

  • Gold has acted as a store of value for thousands of years
  • Gold can lower the volatility of a portfolio
  • Gold can act as a hedge against inflation in some scenarios
  • Gold is a traditional safe haven asset that investors flock to when the market goes astray

Billionaire Actions

To kick off 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.

The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.

With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.

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