Financial Literacy Standards for Adults

So, as you know, I have a strong passion for promoting financial literacy in America.  Unfortunately, I have a day-job so I cannot and do not spend enough time following my passion.  But, all this talk about “financial literacy” – what does it mean?  What are the standards of if someone is financial literate or not?  There are many student surveys floating around, with some very poor results (which I will address in another post).  The Institute for Financial Literacy has developed standards for adult financial literacy education, which were released in October 2007.  The standards below were derived from the “Resources” page from the Institute’s website.  There are five primary standards: Money Management, Credit, Debt Management, Risk Management, and Investing & Retirement Planning.  Overall, I think these are pretty good standards to set for the average adult’s financial literacy knowledge base.  One thing I would like to do in the next year is to develop my own set of standards and to develop a survey, one for adults, and one for students, in order to gauge certain geographical regions financial literacy knowledge.  Most recently (today)  I have added to my outreach by contacting the North Carolina Council for Economic Education and also North Carolina Jump$tart!

The standards are illustrated below:

Standard I: Money Management

Recognize how cash flow management and net worth analysis can be used as tools to achieve financial goals.

Money Management Benchmarks:

Cash Flow Management
Adults can:
Identify the components of a budget
Create personalized budget documents
Revise their budgets to reflect current cash flow

Personal Net Worth
Adults can:
Identify the components of a personal net worth statement
Create personalized net worth statements
Understand that their net worth will fluctuate as the values of their assets and liabilities change

Financial Goal Setting
Adults can:
Differentiate between short and long term financial goals
Prioritize their financial goals
Construct a realistic financial goal action plan
Revise their financial goals as life circumstances change

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Standard II: Credit
Know how and where to obtain credit, and the implications of using and misusing credit.

Credit Benchmarks:

Obtaining Credit
Adults can:
Differentiate among the types of credit
Understand which types of credit are better suited for particular purposes than other types
Identify types of financial institutions where credit can be obtained
Understand how the credit application process works

Utilization of Credit
Adults can:
Comprehend the legal implications of using credit
Understand what a credit report is, how to dispute errors in credit reports, and what a consumer’s rights are regarding credit reports
Understand what credit scores mean and the significance of their use in modern life
Recognize what precautions can be taken to prevent identity theft and fraud, and what to do if victimized

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Standard III: Debt Management
Recognize how using debt can be a tool in asset building.

Debt Management Benchmarks:

Debt Measurement
Adults can:
Know what tools are available to them to measure their debt load
Determine what their appropriate debt load is
Understand the difference between good debt and bad debt

Debt Resolution
Adults can:
Recognize the warning signs of excessive consumer debt
Understand options available to assist with excessive debt loads
Evaluate which professionals can assist in dealing with excessive debt issues

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Standard IV: Risk Management
Use appropriate risk management strategies to protect assets and quality of life.

Risk Management Benchmarks:

Insurance
Adults can:
Differentiate among the types of insurance products
Understand their insurance needs
Comprehend the implications of being insured or uninsured

Risk Management
Adults can:
Evaluate the effectiveness of risk management tools in protecting against financial loss
Assess their risk tolerance level
Use risk tolerance levels in developing risk management strategies

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Standard V: Investing & Retirement Planning
Implement investment and retirement strategies to achieve financial goals.

Investing & Retirement Planning Benchmarks:

Planning
Adults can:
Differentiate among the types of investment vehicles
Identify the types of financial institutions where investment products can be purchased
Understand the differences between retirement and non-retirement, and qualified and non-qualified investments
Recognize the importance of planning for retirement

Strategies
Adults can:
Evaluate the risks and rewards associated with investment options
Understand the role risk tolerance plays when choosing  investment vehicles
Comprehend the legal implications of investing
Assess their overall financial situation in determining retirement needs

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MF