Magazine article The CPA Journal

Financial Literacy: CPAs Can Make a Difference

Magazine article The CPA Journal

Financial Literacy: CPAs Can Make a Difference

Article excerpt

Financial literacy, the ability to effectively evaluate and manage one's finances in order to make prudent decisions toward reaching life goals-basically, knowing what is necessary to achieve financial goals-is much in the news. This is not surprising, considering the impact of financial illiteracy:

* 20% of families with annual incomes below $50,000 spend close to half of their net income on debt payments (source: Credit Union National Association).

* The average household credit card debt is $8,562 (source: The Motley Fool Credit Center).

* 40% of families each year spend more than they earn (source: Federal Reserve Board).

* 20% of workers whose employers sponsor retirement plans don't participate, while only 60% of workers are saving for retirement at all (source: Employee Benefit Research Institute).

A Jump Start Coalition for Personal Financial Literacy study revealed that more than half of high school students failed its financial literacy survey. Unfortunately, the problem is not confined to young people. A study published by Rutgers Cooperative Extension (RCE) in 2003 reported average "financial fitness" quiz scores of 65 out of 100. The authors' own pilot study using the RCE quiz in 2005 reflects an average score of 63. The overall financial quiz score on Yahoo Finance ("Website of the Month," page 70) is around 30%.

Addressing the Problem

The U.S. Department of the Treasury established the Office of Financial Education in May 2002. The Financial Literacy and Education Commission, with members from 20 federal departments, agencies, and commissions, was created in 2003 under the Fair and Accurate Credit Transactions Act. As part of its mission, the Commission launched a website ( and a tollfree hotline (888-mymoney).

The U.S. General Accountability Office (GAO) held a forum in July 2004 on the role of government in improving financial literacy and issued a report in November 2004 (www.gao. gov/cgi-bin/getrpt?GAO-05-93SP). Although participants concluded that the federal government should make financial literacy a national priority, they also encouraged public-private partnerships.

The private sector has also become involved. The AICPA announced its "360 Degrees of Financial Literacy" program ( in May 2004. The program's consumer website ( debuted in October 2004, and a program aimed at women's financial literacy ( women) launched in May 2005.

As of June 2005, eight states require financial-literacy education for high school graduation: Alabama, Georgia, Idaho, Illinois, Kentucky, New York, Texas, and Utah. Many state CPA societies have joined this effort and have either created their own financialliteracy educational materials or linked to the AICPA's online resources.

Calling All CPAs

Government commissions, federal and state laws, and CPA organization initiatives are all well and good, but the average CPA has firsthand knowledge of the extent of the country's financial literacy problem. Every CPA who has helped a widow reconcile a bank statement, or tried to explain the taxation of mutual fund withdrawals to a client, or prepared an estate tax return while watching heirs fight over an inheritance, knows exactly the depth of our country's need for financial education. No one is better qualified than CPAs to provide financial-literacy training.

Many CPAs are probably unaware that they already know most of the concepts behind basic financial-literacy education. Many topics are common sense to CPAs, and this common sense does not necessarily take years of experience to develop. Accounting students can also help spread financial literacy, and acquire outstanding experience in the process of sharing that common sense within their communities.

A good place that CPAs can begin gathering information to evaluate their potential contribution to financial-literacy education is online at www. …

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