Financial Literacy Month

How Much Does the U.S. Tax System Shrink the Gap between Rich and Poor?

David Wessel How Much Does the U.S. Tax System Shrink the Gap between Rich and Poor?

By David Wessel, Director, The Hutchins Center on Fiscal and Monetary Policy, Brookings

 

Financial literacy is a key component of our mission at the Hutchins Center on Fiscal and Monetary Policy, where we focus not just on improving policy, but on improving public understanding of fiscal and monetary issues. Part of what we do is explain how and why complex financial questions are relevant to a broad audience, not just policy wonks.

So it’s fitting that Financial Literacy month is also home to Tax Day, that April 15 deadline for filing tax returns. There’s a lot of focus these days on the widening gap between the top and the bottom in the U.S. economy. It’s a good time to ponder a very simple question: How much does the U.S. tax system shrink the gap between rich and poor?

Now you can tell this story long or you can tell it short. And you can tell it with tables of numbers, charts and graphs—or you can tell with Legos.

To explain how much the U.S. tax code evens out the distribution of income, we’ve made a 3-minute video—with Lego bricks—that illustrates just how unequal the U.S. is before taxes and how much (or how little, depending on your perspective) the tax code changes that.

Watch for yourself, but here are a few of the basic facts:

The average before-tax income of the top 20% of the population in 2014 was $306,320, according to estimates by our friends at the Urban-Brookings Tax Policy Center. That’s more than 21 times the average income ($13,809) of those in the bottom 20%, or quintile (as economists put it).

And after federal taxes—income taxes, payroll taxes, etc.? Because the government takes more from best-off than from those at the bottom, the average after-tax income of the top quintile ($229,360) is about 17 times that of the bottom ($13,809). In other words, the U.S. tax system does reduce inequality, but there’s still a lot of it left after taxes.

And what about the famous 1%, the really well off?   Their income averaged slightly more than $2 million before taxes in 2014—and $1.34 million after taxes. Put differently, the before-tax income of the richest 1% was 32 times the income of the folks smack in the middle of the middle; after taxes, it was 25 times larger.

POSTED: April 29, 2015 | BY: Jonathan Burch | TAGS: , , , , , ,

Money Math Mondays: Money

BTM Money Math Mondays: MoneyWelcome to our fourth and final “Money Math Monday.” We’d like to thank Bedtime Math for partnering with us during Financial Literacy Month to create fun math problems that help kids become more financially literate. This week our focus is money and how a collection of coins from all over the world can add up to some serious money. The Trevi Fountain in Rome attracts thousands of tourists every day and legend has it that people who throw coins into the fountain will have a safe return to Rome in the future. More than $3,000 in coins is collected from the fountain every day! Click here to see Bedtime Math’s problems about the coins collected in this beautiful fountain:

Check out these lessons about coins, currency and why we use money on EconEdLink.org:

econedlink logo 300x71 Money Math Mondays: Money

 

 

 

Grades 3-5
Making Cents Out of Centimes
This lesson teaches students about the Euro and exchange rates.

Grades 6-8
Agent Pincher: P is for Penny or Where Did Money Come From?
This lesson will send your students on a mission to investigate the history of money using resources from PBS, the U.S. Mint, and the Federal Reserve Bank of Minneapolis.

Grades 6-8
What is Money? Why Does it Have Value?
In this lesson, students will think about why we have money, why it has value, and why it makes exchange easier. They will also learn about the three main functions of money (as a medium of exchange, as a unit of account, and as a store of value) and why these functions are important.

POSTED: April 27, 2015 | BY: Jonathan Burch | TAGS: ,

“Career and Life Readiness” Require Financial Fitness

Arkadi Kuhlmann “Career and Life Readiness” Require Financial FitnessBy Arkadi Kuhlmann, Founder and CEO of ZenBanx, Founder and Former CEO of ING Direct

 

The lunch table conversation was light and collegial, focused on the upcoming weekend activities until my colleague burst the jovial bubble by asking if everyone had fully funded their 2014 and 2015 IRAs. Squirming ensued. All of the 20 and 30 something Silicon Valley tech professionals were clearly outside their comfort zone. One young woman shared that she started the process but stopped when she learned she needed to choose investments for the money. “I can write Code, but have no idea about finances and investments, she confessed.” A teammate jumped in commenting, “My wife’s parents keep asking us if we are saving for a house, but we’re too embarrassed to tell them we don’t even have a budget or a savings plan set up.”

In Silicon Valley, where over half of the 2014 Harvard Business School MBA class moved after graduation,[1] not one of the eight professionals at the table had an IRA, nor did they contribute to the Company’s 401k plan.

I’d like to say I’m shocked, but that emotion occurred years ago when I first understood the dismal state of our nation’s financial fitness, joined the Council for Economic Education and became an advocate for Financial Literacy curriculum in our schools.   Despite surveys and focus groups that consistently reveal that students required to take a financial literacy class in high school are significantly more financially responsible, more averse to debt, and more likely to pay off credit card debt on time than their peers who did not, only 22 states mandate an economic education course as a pre-requisite for graduation and only 17 require a personal finance course.[2]

As parents, employers and mentors, we can talk about needs versus wants and the value of savings versus spending. That is if we, as parents and employers, are ourselves financially literate and managing our savings, spending and debt, and investing for our retirement and healthcare needs. As employers, we can offer 401k incentives to encourage financially responsible behavior, but without the understanding of economics, those are grains of sand and Band-Aids.

Lacking a financial fitness foundation, young adults are assuming college loans with no understanding of the cost or process to repay them. Students and work-force ready young adults graduating high school without any foundation in credit scores, credit cards or mortgages, charge forth into life and debt, and resort to credit cards to fund their fun.

While a handful of states recognize the importance of economic and financial literacy education, all states need to do so in order to positively impact future generations.   Each of us can help our youth navigate life to the best of their abilities by encouraging our state and local representatives to designate economic education as a subject of critical importance that should be taught to every student before graduating from high school. Navigating the future will require our youth have a toolbox complete with job skills, an understanding of personal finance and budgeting, along with flexibility, fortitude, and compassion. Let’s make certain the toolbox is full.

Arkadi Sig 150x116 “Career and Life Readiness” Require Financial Fitness

[1] http://www.businessinsider.com/harvard-business-school-graduates- move-to-silicon-valley-2014-7

[2] http://www.councilforeconed.org/wp/wp-content/uploads/2014/02/2014-Survey-of-the-States.pdf

POSTED: April 23, 2015 | BY: Jonathan Burch | TAGS: , , , ,

Working to Advance Financial Education in Schools

Richard Cordray 264x300 Working to Advance Financial Education in Schools
By Richard Cordray, Director of the Consumer Financial Protection Bureau

 

As we observe National Financial Literacy Month, let us all continue our efforts to ensure children and youth develop the skills and habits that will help them to make better financial decisions as they become adults. There is not a single good reason – none – that should prevent any American from gaining the knowledge and skills needed to build a healthy financial future.

With a growing number of committed public, private, and nonprofit organizations working to advance K-12 financial education, no one needs to go it alone. Just recently, the Consumer Financial Protection Bureau (CFPB) developed a resource guide to support leaders interested in advancing K-12 financial education by connecting them to ongoing conversations and providing access to information, tools, and resources. The guide includes a framework, case studies and strategies on how best to lay the groundwork, build the initiative, and extend the impact of K-12 financial education. The resource guide is called “Advancing K-12 Financial Education: A Guide for Policymakers” and is available for download.

When I served as the Franklin County Treasurer in Ohio a decade ago, we formed a local committee on personal financial education to help further the vision of a society where everyone could strengthen their financial skills. We gathered information about school programs for young people and community programs for adults, and we matched people up with those available resources. With the support of a broad coalition we created an impetus for what is now an Ohio state law that requires personal financial education for all high school students through the integration of economics and financial literacy within social studies classes or another class. Ohio is one of 17 states to require that high school students take a personal finance course in order to graduate.

Achieving meaningful and lasting change will require bold and innovative approaches. The CFPB resource guide is a bridge to connect leaders with tools, information, and insights to help them enhance K-12 financial education efforts. As policymakers continue to explore options to incorporate financial education throughout the K-12 experience, I hope that everyone who is interested in financial education for our nation’s children will use this guide and share it with others.

Benjamin Franklin once said, “An investment in knowledge always pays the best interest.” This may be most true in the case of financial education. Starting early with age-appropriate and relevant financial education and consistently reinforcing those lessons throughout the K-12 school experience can help children and youth develop positive habits and skills that can make a lifetime of difference in their financial well-being.

POSTED: April 22, 2015 | BY: Jonathan Burch | TAGS: , , , ,

More Must Be Done to Position Young People for Success in the Future

Raymond McDaniel More Must Be Done to Position Young People for Success in the FutureBy Raymond W. McDaniel, Jr., President and Chief Executive Officer, Moody’s Corporation

April is Financial Literacy Month. It’s also the time when high school seniors begin to focus on their plans beyond graduation. For those who are college-bound, the economic realities of preparing for college—applying for student loans, financial aid and credit cards—begin. And for all students, the realities of taking on adult responsibilities, such as managing their own personal finances, come into focus.

Yet, more than half of all US states have no financial literacy requirements for pre-high school education programs, and only seventeen states mandate personal finance classes in high school. This leaves a critical skills gap for students. Consider the following:

  •  A recent study by FINRA (the Financial Industry Regulatory Authority) concluded that a large proportion of young Americans today are less likely than older Americans to be financially capable, due to a lack of understanding of fundamental economic principles.
  • A similar TIAA-CREF study showed that people with a high degree of financial literacy are more likely to plan for retirement and will have more than double the wealth of those who don’t.

It is clear that more must be done to enable young people to make sound personal financial decisions that will help position them for success in the future. That’s why Moody’s strongly supports The Council for Economic Education’s (CEE) work to expose young people to economic and financial education early in their academic careers. CEE’s advocacy and actions are critical to the development of innovative workshops, courses and materials for educators and will help lift the economic awareness of young people across our country, particularly those entering college this fall.

With support from CEE and its partners, students will master concepts like saving, investing, credit, insuring and earning income. Understanding these concepts at an early age is critical and will help them make the best choices in the future. By developing these new skills, they’ll be more confident and more likely to succeed, both academically and financially, and have more options available to them as they consider their life after graduation.

POSTED: April 21, 2015 | BY: Jonathan Burch | TAGS: , , , ,

Incorporating Economics in the Elementary School Curriculum

ohagan Incorporating Economics in the Elementary School CurriculumBy Kathleen O’Hagan, Special Representative at the UFT, Former 4th Grade Teacher, 2014 Alfred P. Sloan Foundation Teaching Champion Awardee

Today’s public schools are tasked with so much to teach that it isn’t surprising that many essential skills are over-looked with the current focus on reading and math scores and standardized tests. What is often missed in this narrow focus is the impact that these other essential skills can have on reading and math instruction. The curriculum in the elementary school where I taught was of both high rigor and high caliber but it neglected economics to concentrate on reading and math. With this in mind, I recognized the need to bring this subject to our students, the majority of whom were English Language Learners (ELLs) or former ELLs. After the economy was hit hard in 2008, I wanted my students to learn more about saving for their futures and the many long-term benefits, versus the costs, of college but I didn’t know how to bring this instruction into my elementary classroom.

OHagan in the Classroom1 300x167 Incorporating Economics in the Elementary School CurriculumThe Council for Economic Education showed me how to incorporate these ideas into my classroom. It began when I took their course on how to create a mini-economy. With this training, I was able to make our class a place where students learned (as part of their math curriculum) how to keep bank accounts, act as bankers and store clerks, open pencil-loaning businesses, and also experience the real-life issues of rent, tickets, co-payments, unexpected expenses and price inflation. Then in the next year, my next class moved beyond just being consumers in a mini-economy to being producers by utilizing a three-dimensional printer to create the store stock and in the process began to investigate the issues of supply and demand in their mini-economy. Imagine their excitement when they were featured in an article about their mini-economy, not just the first class, but two classes, two years in a row! Talk about underscoring the importance of the economics they were learning!

Not surprisingly, the students’ reaction to this instruction was enthusiastic and they were utterly engaged. What was surprising was the powerful response from the parents who were delighted to have their students learning economic vocabulary such as deposit, withdrawal, expenses, goods, consumer, etc. and the real-life experiences of keeping a financial log and having to learn about delayed gratification if they wanted to save up their money for larger purchases in the future.

In addition to all of this economic instruction, we eventually added the element of debate, around economic topics which included: “Should the Penny Stick Around?” and in so doing, incorporated elements of reading and writing. My students learned the importance of research, interviews, and public speaking in addition to developing an understanding of the need to save for the future, but not just any future, THEIR future. The mini-economy was a success at getting even the most reluctant student out of the sidelines of learning and into the heat of debate. For example, my most reluctant writer would always have his essay ready so that he could be on one side of the debate when it was time to start talking about economic issues.

The mini-economy even outgrew our classroom and spread to other classes on the grade, including inter-visitations for debates. Most importantly, it empowered the students to feel confident about making financial decisions, understanding the importance of saving, and it even made the most reticent students outspoken about the importance of economics in their life. Economics instruction ultimately became embedded in the very math and reading skills that originally seemed to have no room for anything more and in so doing, equipped my students with the traditional skills taught as well as essential economic skills.

POSTED: April 17, 2015 | BY: Annamarie Cerreta | TAGS: , , , , ,

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