Governor Jerry Brown Subject: Financial Literacy Education In California

To: Governor Jerry Brown Subject: Financial Literacy Education in California

Date: April 22 2016

Problem Statement: The United States lags behind in personal finance education. A large percentage of teenagers and adults are unable to navigate a market of increasingly complex financial products, leading to negative financial consequences for households and the U.S. economy. Several studies indicate that financial knowledge is strongly positively related to household wealth, and that it has the potential to account for a large proportion of wealth inequality. This disparity in financial literacy is reflected by the recent recession, which raised greater awareness of the importance of money management skills as many

There are few studies on the effectiveness of personal finance education, and the implementation of this policy could provide more opportunity for analysing its effectiveness in partnership with universities and other research bodies.

Equity: Communities of color and other underserved groups are often overlooked by the mainstream financial services. In fact, financial institutions have been known to target low-income neighborhoods with “easy” credit, which results in a vicious cycle of borrowing and exorbitant interest rates. These communities are in need of clear and relevant information in order to provide a more secure and stable future. Personal finance education efforts should aim to enhance financial knowledge in all public and charter schools, regardless of neighborhood location and socioeconomic

Household debt has also jumped 15% faster than income over the past dozen years, surpassing wage growth. Robert Reich coined the term “the basic bargain,” to describe the cycle of higher living standards, more jobs, and better wages that Americans experienced for most of the last century. Today, he states, the basic bargain has been broken. Workers are facing stagnating wages and employee pay as a share of the economy is now at its lowest in almost a hundred years. The wealthiest Americans attain their wealth through capital markets, while the majority Americans today cannot understand basic concepts such as compounding interest, mutual funds, and stock markets. The disparity in financial knowledge, which has been linked to wealth inequality, means that personal finance education has a relevant role to play in reducing inequality. The education of high school students, those entering the workforce, is crucial to shifting the imbalance in financial knowledge. Thus, requiring personal finance education has both individual benefits and statewide/national benefits. Those who are financially knowledgeable tend to take on less credit card debt and less likely to buy into predatory lending. A financially knowledgeable workforce is equipped with the tools to understand economic trends and challenge economic