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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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Markets

The Dominance of U.S. Companies in Global Markets

U.S.-based companies have a heavy weighting in global equity markets. In most industries, their market capitalization exceeds 50% of the total.

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U.S. Companies Dominate Global Markets

Are global indexes as “global” as you think they are?

With the aim of tracking market performance around the world, these indexes incorporate securities from various regions. However, while the number of securities may be relatively well diversified across countries, a dollar perspective tells a different story. When market capitalization is taken into account, country weightings may become much more unbalanced.

Today’s visualization is based on a concept by S&P Dow Jones Indices that shows the percentage of U.S.-based companies in global sectors and industries as of December 31, 2019. The calculations reflect the market capitalization of companies in the S&P Global Broad Market Index (BMI), an index that tracks over 11,000 stocks across 50 developed and emerging economies.

Percentage of U.S. Companies by Sector

U.S-based companies—those that maintain their primary business affairs in the U.S.—are a major component of many global sectors and industries.

Here’s how it breaks down:

Sector% of U.S.-based CompaniesMost U.S.-heavy Subsector
Information technology73%Software (86%)
Health care65%Health care providers (82%)
Utilities53%Electric utilities (57%)
Real estate51%Equity REITs (69%)
Consumer discretionary49%Specialty retail (73%)
Consumer staples46%Household products (74%)
Industrials46%Aerospace & defense (73%)
Energy44%Energy - other (73%)
Financials44%Financials - other (73%)
Materials30%Chemicals (41%)

U.S.-based companies make up a staggering 73% of the information technology (IT) sector. However, China may soon threaten this dominance. The Made in China 2025 plan highlights new-generation IT as a priority sector for the country.

The U.S. is still the world’s leader, but China is coming up very fast.

Rebecca Fannin, Journalist & Author of Tech Titans of China

Healthcare is also heavily skewed towards U.S-based stocks, which make up 65% of the sector’s market capitalization. This weighting is perhaps not surprising given the success of many U.S. healthcare companies. In Fortune’s list of the 500 most profitable U.S. companies, 41 healthcare organizations made the cut.

The materials sector has the smallest weighting of U.S.-based stocks, but they still account for almost one-third of the overall market capitalization. Three American companies are in the sector’s top 10 holdings: Air Products & Chemicals, Ecolab, and Sherwin-Williams.

U.S. Equity Views in a Global Context

Given the high weighting of U.S. stocks in global sectors and industries, having a U.S. view is important. This refers to investors gaining a clear perspective on the risks and opportunities that exist in the country. Investors can consider the trends influencing American companies in order to help explain stock performance.

U.S. stock dominance also impacts geographic diversification. While it helps non-U.S. investors overcome their home bias, American investors may want to consider targeting specific international markets for well-rounded exposure.

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Demographics

Mapped: The Ins and Outs of Remittance Flows

Every year, migrant workers send billions of dollars back to their home countries—reaching $550 billion in 2019. Where do these remittance flows wind up?

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Mapped: The Ins and Outs of Remittance Flows

The global immigrant population is growing at a robust pace, and their aggregate force is one to be reckoned with. In 2019, migrants collectively sent $550.5 billion in money back to their home countries—money transfer flows that are also known as remittances.

Remittances serve as an economic lifeline around the world, particularly for low- and middle-income countries (LMICs). Today’s visualization relies on the latest data from the World Bank to create a snapshot of these global remittance flows.

Where do most of these remittances come from, and which countries are the biggest recipients?

Remittances: An Origin Story

Remittances are a type of capital flow, with significant impacts on the places they wind up. These money transfers have surpassed official aid being sent to LMICs for decades, and in this day and age, are rivaling even Foreign Direct Investment (FDI) flows.

Remittance flows mainly help improve basic living standards such as housing, healthcare, and education, with leftover funds going towards other parts of the economy. They can also be a means for increasing the social mobility of family and friends back home.

Altogether, 50% of remittances are sent in either U.S. dollars, or the closely-linked currencies of Gulf Cooperation Council (GCC) countries, such as the Saudi riyal. It’s not surprising then, that the U.S. is the biggest origin country of remittances, contributing $68.5 billion in 2018—more than double that of the next-highest country, Saudi Arabia, at $33.6 billion.

Remittance Flows As A Safety Net

The impact of remittances on LMICs can vary depending on what you measure. In absolute terms, the top 10 LMIC recipients received $350 billion, or nearly 64% of total remittances in 2019.

Top Remittance Recipients in 2019 (USD)

RankCountryRemittance Inflows% of Nominal GDP
#1🇮🇳 India$82.2B2.8%
#2🇨🇳 China$70.3B0.5%
#3🇲🇽 Mexico$38.7B3.1%
#4🇵🇭 Philippines$35.1B9.8%
#5🇪🇬 Egypt$26.4B8.8%
#6🇳🇬 Nigeria$25.4B5.7%
#7🇵🇰 Pakistan$21.9B7.9%
#8🇧🇩 Bangladesh$17.5B5.5%
#9🇻🇳 Vietnam$16.7B6.4%
#10🇺🇦 Ukraine$15.9B11.8%

India tops the chart as the largest remittances beneficiary, followed by China and Mexico. Interestingly, these three countries are also the main destinations of remittance flows from the U.S., but in the reverse order. Mexico and the U.S. have one of the most interconnected remittance corridors in the world.

However, the chart above makes it clear that simply counting the dollars is only one part of the picture. Despite these multi-billion dollar numbers, remittances are equal to only a fraction of these economies.

By looking at remittances as a percentage of nominal GDP, it’s clear that they can have an outsize impact on nations, even if the overall value of flows are much lower in comparison.

Top Remittance Recipients in 2019 (% of GDP)

RankCountryRemittance Inflows% of Nominal GDP
#1🇹🇴 Tonga$0.19B38.5%
#2🇭🇹 Haiti$3.3B34.3%
#3🇳🇵 Nepal$8.6B29.9%
#4🇹🇯 Tajikistan$2.3B29.7%
#5🇰🇬 Kyrgyz Republic$2.4B29.6%
#6🇭🇳 Honduras$5.3B21.4%
#7🇸🇻 El Salvador$5.6B20.8%
#8🇰🇲 Comoros$0.14B19.3%
#9🇼🇸 Samoa$0.17B18.4%
#10🇵🇸 West Bank and Gaza$2.6B17.6%

It’s clear that the cash influxes provided by remittances are crucial to many smaller countries. Take the Polynesian archipelago of Tonga, for example: even though it only saw $190 million in remittances from abroad, that amount accounts for nearly 40% of the country’s nominal GDP.

Will The Remittance Tides Turn?

The World Bank projects remittance flows to increase to nearly $600 billion by 2021. But are such projections of future remittance flows reliable? The researchers offer two reasons why remittances may ebb and flow.

On one hand, anti-immigration sentiment across major economies could complicate this growth, as evidenced by Brexit. The good news? That doesn’t stop immigration itself from taking place. Instead, where these migrants and their money end up, are constantly in flux.

This means that as immigration steadily grows, so will remittance flows. What’s more, fintech innovations have the potential to bolster this progress, by making money transfers cheaper and easier to access.

Tackling [high transaction costs] is crucial not only for economic and social development, but also for improving financial inclusion.

UN ESCAP, Oct 2019

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