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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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Money

Mapped: The Wealthiest Person in Every U.S. State in 2020

The biggest state fortunes range from $0.3 billion to $117.1 billion (Jeff Bezos). See the wealthiest person in every U.S. state on this map.

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The Wealthiest Person in Every U.S. State

There are different degrees of wealth that exist, even among the richest in America.

For example, a heavy-hitting millionaire might have the most impressive fortune in his or her home state — but venture a few miles across the state border, and suddenly they become a small fish in a much bigger pond.

Today’s map comes to us from HowMuch.net, and it shows the incredible variance in the biggest fortunes on a state-by-state basis.

The Rich List, by State

Below is the full list containing the wealthiest person in every U.S. state, based on calculations by Forbes in early March 2020.

Amazon founder Jeff Bezos tops the list with a net worth of $117.1 billion in the state of Washington — meanwhile, the smallest fortune on the list is located in Alaska at just $0.3 billion.

RankPersonStateNet Worth ($B)
#1Jeff BezosWashington$117.1
#2Warren BuffettNebraska$89.6
#3Mark ZuckerbergCalifornia$81.9
#4Michael BloombergNew York$58.4
#5Jim WaltonArkansas$51.9
#6Alice WaltonTexas$51.7
#7Charles KochKansas$42.8
#8Sheldon AdelsonNevada$41.4
#9Phil Knight and familyOregon$40.0
#10Jacqueline MarsVirginia$30.2
#11John MarsWyoming$30.2
#12Ray DalioConnecticut$18.7
#13Thomas PeterffyFlorida$17.6
#14Abigail JohnsonMassachusetts$16.0
#15Pierre OmidyarHawaii$13.2
#16Ken GriffinIllinois$13.1
#17Thomas Frist Jr and familyTennessee$13.0
#18John Menard JrWisconsin$11.7
#19Philip AnschutzColorado$11.5
#20Carl CookIndiana$10.4
#21Jim KennedyGeorgia$9.9
#22Harold Hamm & familyOklahoma$9.7
#23James GoodnightNorth Carolina$8.0
#24Victoria MarsPennsylvania$7.5
#25Pauline MacMillan KeinathMissouri$6.9
#26Dennis WashingtonMontana$6.7
#27Daniel GilbertMichigan$6.5
#28Ernest Garcia IIArizona$6.2
#29John OverdeckNew Jersey$6.1
#30Ted Lerner and familyMaryland$5.5
#31Harry StineIowa$5.4
#32Tamara GustavsonKentucky$5.0
#33Les Wexner and familyOhio$4.5
#34Frank VanderSlootIdaho$3.7
#35Gayle BensonLouisiana$3.1
#36Glen TaylorMinnesota$2.8
#37T. Denny SanfordSouth Dakota$2.4
#38Susan AlfondMaine$1.9
#39Anita ZuckerSouth Carolina$1.9
#40Jonathan NelsonRhode Island$1.8
#41Gail MillerUtah$1.6
#42Jim Justice IIWest Virginia$1.5
#43James and Thomas DuffMississippi$1.4
#44Gary TharaldsonNorth Dakota$1.0
#45Jimmy RaneAlabama$0.9
#46Elizabeth Snyder and Robert GoreDelaware$0.9
#47Andrea Reimann-CiardelliNew Hampshire$0.7
#48Mack C. ChaseNew Mexico$0.7
#49John AbeleVermont$0.6
#50Leonard Hyde, Jonathan Rubini and FamiliesAlaska$0.3

While all of the names above are considered extraordinarily wealthy in their home states, there is still a magnitude of difference involved. The low end of the list ($0.3 billion) would need to multiply their fortune by 390 times to get up to the $117.1 billion Bezos level.

To put this another way, the same degree of difference exists between the median household wealth in the U.S. (~$100,000) and a multi-millionaire with $39 million to their name.

Rising and Falling Fortunes

The above figures were obtained prior to the COVID-19 market crash, which will surely impact the size of some of the fortunes listed here.

Who will be most and least impacted by the recent stock market turmoil?

Even though Jeff Bezos has most of his wealth tied up in Amazon stock, so far it has been relatively unaffected by the volatility. With more people staying home because of social distancing, orders on online platforms such as Amazon have exploded.

Similarly to Amazon, the heirs of the Walmart fortune in the Walton family — including Jim Walton, Alice Walton, and Rob Walton — are also seeing Walmart’s stock price hold relatively steady in the face of volatility. In fact, some analysts consider Walmart to be the ultimate “recession-proof” stock, as consumers flock to discount goods in poor economic times.

Warren Buffett is also an interesting case. Though the stock market has certainly disrupted the real-time value of his fortune, that’s not the game that Warren Buffett plays. In fact, he is known for waiting for times of crisis to deploy his cash, and has a significant stockpile of money ready for just this kind of situation.

Billionaires like Sheldon Adelson in Nevada or Philip Anschutz of Colorado might be singing a different tune than some of the other above magnates. Adelson, for example, owns a good chunk of the Las Vegas Strip, as well as casinos and hotels in Singapore and Macao. Unfortunately, tourism-related businesses are some of the hardest hit in the COVID-19 crash.

Meanwhile, Anschutz owns the Coachella Music Festival and stakes in many professional sports teams (LA Lakers, LA Kings, and multiple MLS teams), which have all been impacted by the cancellation of big events and gatherings throughout the country. Like many others, Anschutz is probably itching for things to get back to normal.

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Investor Education

Opportunity Zones: Aligning Public and Private Capital

Opportunity zone funds (OZFs) can help the neighborhoods that need it most, while also providing significant tax benefits for investors.

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Opportunity Zones

Opportunity Zones: Aligning Public and Private Capital

At the end of 2017, a potential $6.1 trillion in unrealized capital gains was available for reinvestment.

Throughout the U.S., unrealized capital gains have significant tax implications with enormous potential. Unrealized capital gains occur when the value of an asset has gone up on paper, but has not yet been sold for a profit. Taxes are triggered once the asset has been sold.

Investors can offset or defer these taxes in a few ways, including one new strategy: investing in opportunity zones.

Today’s infographic from Bedford Funds explains what opportunity zone funds are, their core benefits, and their potential impact across the country.

What is an Opportunity Zone?

Opportunity zones are U.S. Census tracts whose citizens experience economic distress.

Originating in the 2017 Tax Cuts and Jobs Act, they offer the potential to connect long-term capital with low-income communities across the country to drive return and impact.

How are opportunity zones chosen? The initial base is low-income census tracts, which have:

  • Poverty rates of at least 20%; or
  • Median family incomes lower than 80% of the surrounding area

The state’s governor or chief executive then nominates up to 25% of these areas as opportunity zones. Nationwide, a total of 8,700 opportunity zones exist, and 7.9 million of the areas’ residents live in poverty.

Overall, 35 million people live in these opportunity zones. There are a number of disparities between opportunity zones and notional averages across key variables:

 Poverty RateMedian Family IncomeEducation*
Opportunity Zones27.1%$47,31618.1%
National Average14.1%$73,96531.5%

*Adult with Bachelor’s degree or higher

It’s evident these cities could benefit from increased investment.

What is an Opportunity Zone Fund?

An opportunity zone fund (OZF) is an investment vehicle that provides tax benefits for private capital to help revitalize economically distressed communities. Both operating businesses and real estate are eligible for investment.

Many investor types may take advantage of opportunity zone funds:

  • Corporations– Also includes partnerships
  • Accredited investors– Defined as high net worth individuals, brokers, and trusts
  • Nonresident foreign investors– Only on capital gains earned in the U.S.
  • Retail investors– Through funds that have lower minimums, though options are more limited

In addition to their wide eligibility, OZFs have a number of potential benefits.

Benefits

Tax breaks on capital gains can be organized into three tiers:

  • Initial Tax Deferral– Once the previously-earned capital gains are channeled into a qualifying OZF, federal tax is deferred until December 31, 2026 or the date the investment is sold— whichever comes sooner
  • Step-Up In Basis10% of the original capital gains will be excluded from federal taxes if an investment is held for five years
  • Capital Gains Tax Exclusion– Federal tax on capital gains earned within the OZF is 100% eliminated if an investment is held for 10 years

All things being equal, OZFs realize after-tax outcomes that are over 40% higher than a standard portfolio investment. For example, the potential after-tax value of a $100 investment after a 10-year holding period would be as follows.

 Initial InvestmentNet after-tax value
OZF$100$175.30
Standard portfolio investment$76.20 ($100- 23.8% capital gains tax)$132.36

*Note: assumes long-term federal capital gains tax rate of 23.8%, no state income tax, and annual appreciation of 7% for both the OZF and alternative investment.

While it takes a few years to realize these tax benefits, OZFs have long-term horizons to encourage sustained investment with a lasting impact. The result is the potential for sustainable and equitable wealth creation.

Future Impact

Although real estate investments have captured significant attention, recent regulation has clarified that operating businesses are also eligible OZF investments.

By investing in businesses, OZFs can have a direct impact on economic growth and job creation.

Ultimately, OZFs have the potential to catalyze collective impact through their scalable operating company and real estate investments. Working directly with community leaders, OZFs can help drive long-term rejuvenation from within, versus gentrification from outside forces.

Opportunity zone funds are projected to raise $44 billion in capital designed specifically to invest in this future growth.

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