@Individual financial choices send ripples throughout the economy (18/05/2560)

18 May 2017
79 times

Personal decisions about spending, credit, saving and other financial matters not only affect an individual’s circumstances but also ripple throughout the overall economy — both the good choices and the bad ones. In short, personal finance decision-making can affect the economy as a whole. One example: Savings are the lifeblood of investment, and investment is the driver of increases in our nation’s standard of living. So, the retirement savings decisions we make throughout our work life affect more than our personal financial situation as seniors. Savings decisions by each of us collectively affect the amount of money available to businesses to borrow to expand. Savings can fuel or starve economic growth — depending, in part, on everyone’s personal decision making. So, how solid is our personal financial decision making? According to a 2017 study by WalletHub, Missouri has room for improvement when it comes to being a financially literate state, ranking 37th out of 50 states and the District of Columbia. Illinois was a bright spot, ranking eighth. In creating the ranking, the personal finance website analyzed financial education programs, consumer habits and responses to the website’s WalletLiteracy Survey. Each of us should consider what we can do to build our financial literacy and that of those around us. The St. Louis Fed has many free resources designed to help improve financial decision-making skills for people of all ages. For example, beginning at the early elementary level, students can use an online, interactive storybook called Once Upon a Decision. For older students and adults, there is a great course called The Art of Decisionmaking. In both courses, users define their problem and identify solutions and alternative solutions, all the while keeping aware of what they give up when making their choice. Learning what is given up, the opportunity cost, is the most important lesson in personal finance and economics because it represents the consequences of a decision. For the baby boomer who spent all of his income, the opportunity cost is the loss of spending power in retirement. For the individual who maxed out his credit card, the opportunity cost is the loss of the ability to buy many goods in the future. But for society as a whole, there is also an opportunity cost to the individual’s behavior. So the opportunity cost of ignoring decision-making education might present itself as a lower standard of living, not just for those who made the poor decisions, but for all of us. The St. Louis Fed’s online Econ Lowdown program offers hundreds of free lessons about economics, personal finance, and money and banking. There are videos, online courses, podcasts and more for classrooms from pre-K through college, as well as parents and other consumers. There were more than 1 million enrollments last year in the online teacher portal, econlowdown.org. Similar free resources are available to the general public at stlouisfed.org/education. For a thorough look at the economic education work by the St. Louis Fed, read the new annual report, Economic Literacy for Life: Today’s Lessons = Tomorrow’s Financial Stability and Success, at https://www.stlouisfed.org/annual-report/2016. In addition to providing a detailed overview of financial decision-making, the report highlights the value in teaching these lessons to young children and offers an online quiz so you can test your economic IQ. As former Federal Reserve Chairman Ben Bernanke said, the Great Recession of 2007-2009 “demonstrated the critical importance of financial literacy and good financial decision making, both for the economic welfare of households and for the soundness and stability of the system as a whole.” Decisions matter, and the effects of decisions — good ones and bad ones — spill over to a great number of us. Mary Suiter is an assistant vice president and the economic education officer at the Federal Reserve Bank of St. Louis. Source: Stltoday(17/05/2017)

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