Bankruptcy is more likely without financial literacy

On Behalf of | Feb 19, 2020 | Bankruptcy

Adults in Connecticut probably assume that they understand the basics of their finances. Many might even think they know quite a bit on the subject. Unfortunately, a lot of people understand far less about finances than they realize. A general lack of financial literacy is pushing people into difficult money situations where bankruptcy is frequently the best — or only — option.

Financial literacy is an important life skill, but only 57% of adults in America can pass even the most basic test on the subject. In fact, 13 other countries beat the United States when it comes to how many adults have financial literacy. Part of the problem is that most adults were never given the opportunity to learn about managing finances before being thrust into doing it all on their own. Attempts at learning later in life are not always effective either, especially since many wait until they are in difficult situations to do so.

Some experts believe that high schools should start teaching financial literacy to teenagers. This is a good start, but Richard Thaler — a Nobel Prize winning economist — says there are still problems with this approach. He points out that by the time these teens have to put their financial literacy skills to use, many have already forgotten most of what they learned. So despite a number of states requiring financial literacy classes for high schoolers, nearly half of all adults in America do not have any savings.

Getting into debt is a lot easier than getting out, but Connecticut consumers usually only discover this after they are in over their heads. Improving financial literacy rates could help people before they ever get into this type of situation, but this is not the reality that most people are living. However, filing for bankruptcy can actually provide an important financial literacy lesson while also discharging debt.